I Got a D in Economics. Todays’ Policymakers Deserve an F

I got a D the first time I took economics in college.  I was right out of high school and directionless.  I was content living at home, working at a video store (remember those?), golfing and partying. 

Plus, I was obsessed with my instructor’s uneven sideburns and the girls in class.  Not the model student.

Obviously, this changed, but it came to mind recently when reading Joseph C. Sternberg’s review of former Federal Reserve Chairman Ben Bernanke’s new book, “21st Century Monetary Policy” in the Wall Street Journal.

Certainly there are longer economics books than this one, which checks in at 480 pages.  And I’m sure more reviewers will pick it apart.  I myself however, will not be one of them.  It would go against one of the basic tenets I teach my students, one that hopefully helps them avoid that same D: keep it simple.

Economics is not that complicated.  The world has been worse off since we’ve portrayed the “dismal science” to be so.  Tax policy was my first lesson, and the vehicle was former President George W. Bush’s $1.5 trillion dollar tax-cut proposal.

There was Senate minority leader Tom Daschle standing in front of a Lexus saying rich people would be able to buy another one with their ‘windfall’.  At the same time, republicans were saying it would create jobs. 

I felt like someone was being disingenuous, if not outright lying to me.  Though my curiosity pushed me into grad school, I didn’t need it to arrive at a couple of initial, basic conclusions.      

So what if rich people bought another luxury car?  It was their money anyway.  And it would after all, help keep a car salesman employed.  In that regard, republicans were correct. 

I learned later that they were onto something when stating that the rich would be as likely to invest their recaptured resources.  That would in turn create steady, durable employment.

Now, in the realm of monetary issues, we have Nobel Laureate Paul Krugman admitting he was wrong about his inflation prophecies. 

It’s true presidents play more of a role in the value of the currency than many realize.  However, simple math tells us that when the number of dollar bills in society artificially blasts through the roof, the ones in our pockets subsequently decline in value.  Therefore, it takes more of them to buy things.

To add insult to injury, Mr. Krugman’s ilk has been suggesting for years that inflation was too low.  They promoted policies they thought would push it higher, we get it, and now they’re saying “sorry”? 

Moreover, he barely mentions the real cause of soaring prices: the offensive lockdowns forced upon us by state and local governments. 

This is where bureaucrats and many academics lose me; their attempts to predict policy outcomes. 

The predictions of impacts from regulations and ordinances.  The predictions of revenue fluctuations resulting from changes in income and property tax rates.  The predictions of shifts in poverty from adjusting the minimum wage.  The predictions of job flows as a result of trade protectionist measures.

The list goes on and on.  The forecasts are often wrong, and always a waste of time and taxpayer money. 

When I tell my students to keep it simple, “because real life will muck things up soon enough,” this is a big chunk of the muck I have in mind. 

It doesn’t take a brain surgeon to figure out that forcing employers to pay more for labor will cause them to buy less of it.  It’s not rocket science to understand that giving people unearned money will make them less likely to look for work.

You don’t need to be a nuclear physicist to know that bossing productive citizens around and taking their earnings will put a dent in prosperity. 

Instead, these “dismal scientists” insist that “if we pass legislation A, with complementary component B, C will result and all will be well.”  Somewhere along the way they lost their grounding in the real world, and the rest of us pay the price. 

Many in my classes are just a few years older than my daughters, half of whom will be high school graduates by this time next year.  Their mother and I have always laid out a few basic ground rules: take care of business in school, have one extracurricular activity, and be respectful of others.

After that, they’re generally free to do whatever they want.  Hopefully their generations will appreciate that as the simplest, most efficient and effective approach not only for life in general, but public policy as well.

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Originally published on the Mises Institute Power & Market Blog, and Free the People.

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