Economics: a short guide to the dismal science
I suppose everybody agrees we're in an economic crisis now. Unfortunately that's about all everybody agrees on.
The president has his economic advisors working on the problem. The loyal opposition has their own opinions about what caused it and what to do about it.
George Bernard Shaw said, “If all economists were laid end to end, they would not reach a conclusion.”
So if the experts disagree, what hope can we poor mortals have to understand the problem and evaluate any proposed solutions?
Years ago a distinguished economist, once advisor to presidents, at the end of his life revealed a closely guarded secret – economics is not all that complicated. In fact he said, all the economics you need to be an advisor to presidents is taught in the the Intro course for college freshmen.
The basic principles of economics are simple, quite easy to understand, and don't even involve math. When you get to the application, the details of production and consumption and measurement thereof, is where the math and razzle-dazzle comes in.
The 19th century historian Thomas Carlyle called economics “the dismal science.” Most people think it's because economics is complicated and boring. I suspect it's because economics tells you what you can't have.
The first principle of economics is: there's not enough of what we want for everybody. (The first principle of politics is to assure the electorate you can fix this.)
The second principle of economics is: to get something you want, you must give up something you want less, if only your time. (Political careers rely on telling the electorate the choices won't be painful.)
That's what's dismal about it, you can't have something for nothing. Unfortunately, the desire for something for nothing is part of human nature.
I once had an argument with an Englishwoman about the superiority of the British National Health Service. I pointed out the service is lousy by American standards. She countered that it's free, unlike our inhumane American system.
I said, “No it's not.”
She huffily informed me that she was after all English, and knew very well what British health service costs.
“I understand that,” I replied, “but it's still not free. Because nothing is. If you didn't pay for it, it means somebody else did – and not by choice.”
There's a reason paying for some things is not left up to individual choice. Economists call it the “common good,” or “free rider” problem. Things like infrastructure, police and national defense benefit everybody, whether they paid for them or not.*
But whether General Motors stays in business concerns me very little, as long as I can still buy a Ford or a Toyota. I feel for the Detroit autoworkers, honestly I do. But that money the government is giving them to make cars I don't want to buy is money I don't have to pay for my retirement, my kids education, or a car I'd rather buy.
How democratic governments get away with taking from many people, to give to a few people, is explained by a principle economists call, “concentrated benefits/distributed costs.” This simply means the amount any one special interest is able to extract from us, in direct subsidies or price supports, is not enough to complain about. Until we're nickel-and-dimed to death.
But for the special interests, those nickels and dimes add up to a lot.
Shaw explained it even simpler, “A government that robs Peter to pay Paul, can always count on the support of Paul.”**
* Libertarian purists and anarchists sail under the slogan "taxation is theft" and say all taxation is coercive and thus immoral.
No libertarian/anarchist theory has yet successfully demonstrated how a complex society can be maintained without tax levees.
On the other hand, nobody has satisfactorily explained how taking money by threat of force is different from theft either. Once you admit the right of taxation, how do you justify saying what amount is "too much"? How is 10% just and 50% unjust?
** Since Shaw was a Fabian Socialist and an admirer of both Hitler and Stalin, it is not clear to me whether he was speaking approvingly of this as a tactic or not.