Economic Misconceptions

Economics Professor Bryan Caplan (of George Mason university) writes @ Reason magazine exploring the economic misconceptions of the common voter. (HT: RCP)

"the general public’s views on economics not only are different from those of professional economists but are less accurate, and in predictable ways. The public really does generally hold, for starters, that prices are not governed by supply and demand, that protectionism helps the economy, that saving labor is a bad idea, and that living standards are falling."

First, let's tackle supply and demand. Profits aren't a form of stealing from the poor to the rich, but rather a reward for providing a good or service that others are willing to pay for - they're an incentive to reduce operating costs, bring new goods to market, and propel resources into more valued market sectors. Similarly, interest is the reward to a lender for postponing his consumption so the borrower can consume today.

Prices are not set by the whim of some executive in a boardroom, nor are wages. Workers earning low wages are generally low skilled, less productive and have limited options for employment. Caplan also points out that many business strategies that would result in a quick profit are counter-productive - they wind up eliminating the business in the long run. No one will buy from a business that routinely sells shoddy products or cheats its customers.

Next, people question the benefits of trade, which on the balance appears nothing more than a bias against foreigners. Almost no one would rather spend months growing their own food than taking a few minutes to go down to the grocery store and buying their food. Specialization allows all of us to benefit - I can do what I'm good at and make money to buy stuff I can't make or don't have the time to invest to make. No one worries about a balance of trade between Omaha and Lincoln, or Nebraska and Iowa, but once you start buying stuff from foreign countries, look out!

Then there is the crazy idea that people have that making more with less effort is bad. The obvious worry is about lost jobs, but what most don't realize is that labor saving machinery frees up people to do other things. Caplan illustrates with a classic example of agriculture. In 1800, 95 out of 100 Americans worked in agriculture. In 1900, 40 out of 100 did, and today that number is 3 - and we are eating better than ever. Those 92 other people today are doing other (and much more productive and valuable) stuff - like computer programming or running an MRI machine. The same thing is just as true for the manufacturing sector today as it has proven to be for agriculture over the last two hundred years.

Finally, there is this odd perception that everything was better in Granpa's day - despite overwhelming evidence that it wasn't. Not only do we eat better, but our technology is radically improved, our water and air is cleaner, and people live far longer. In addition, the planet is not getting overcrowded and resources are actually much more readily available for most of humanity than at any time in human history. (There are places where living standards have declined - mostly places with a high degree of centralized economic planning, like Cuba, Venezuela, Zimbabwe, Iran and Burma). And this brings out his last point - these misconceptions color people's views of other aspects of their lives, such as their beliefs in the political system and government.

"This pessimistic bias is a general-interest prop to political demagoguery of all kinds. It creates a presumption that matters, left uncontrolled, are spiraling to destruction, and that something has to be done, no matter how costly or ultimately counterproductive to wealth or freedom. This mind-set plays a role in almost every modern political controversy, from downsizing to immigration to global warming....
Students of economics are not blank slates for their teachers to write on. They arrive with strong prejudices. They underestimate the benefits of markets. They underestimate the benefits of dealing with foreigners. They underestimate the benefits of conserving labor. They underestimate the performance of the economy. And in doing all that underestimating, they overestimate both the need for the government to solve these purported problems and the likely efficacy of its solutions."

Great analysis, and quite sobering when examined in this level of detail. Now we know where liberals come from.

US Education

Victor Davis Hanson has some observations on the US public educational system at NRO, and some suggestions for improvement. He sees, as I think we all do, cashiers that can't make change, people that can't balance a checkbook, etc. throughout our society. But it wasn't always this way, for many years the US educational system was the best in the world. But then a funny thing happened - teachers started indoctrinating their students on political issues like diversity, sex education, and environmentalism.

"We should first scrap the popular therapeutic curriculum that in the scarce hours of the school day crams in sermons on race, class, gender, drugs, sex, self-esteem, or environmentalism. These are well-intentioned efforts to make a kinder and gentler generation more sensitive to our nation’s supposed past and present sins. But they only squeeze out far more important subjects.

The old approach to education saw things differently than we do. Education (“to lead out” or “to bring up”) was not defined as being “sensitive” to, or “correct” on, particular issues. It was instead the rational ability to make sense of the chaotic present through the abstract wisdom of the past.

So literature, history, math and science gave students plenty of facts, theorems, people, and dates to draw on. Then training in logic, language, and philosophy provided the tools to use and express that accumulated wisdom. Teachers usually did not care where all that training led their students politically — only that their pupils’ ideas and views were supported with facts and argued rationally."

He also suggests rewarding teachers more than adminstrators, athletic coaches, and counselors, and allowing a person holding a master's degree to teach. I once had a look at the high school curriculum from the turn of the 2oth century high school - Latin and two other languages were offered, along with calculus, philosophy, and several other subjects today found only at the university level (and often not even there). My grandfather had a eigth grade education - and read widely, could do basic math functions such as figuring crop yields per acre in his head (he often used a calculator but only to check himself) and knew his Bible like sports fans know their favorite team's won loss record. The dumbing down of America has reached epic proportions today and Hanson's ideas are only a partial remedy.