What do Jeffery Sachs (economics professor at Columbia), Bill Gates, the Pope, Donald Trump and Republicans in Congress have in common?….. Economic ignorance!
Why are pronouncements by people with authority rarely challenged?….. Economic ignorance!
I found some recent articles on economicpolicyjournl.com which have a similar theme: People with authority demonstrating their ignorance about basic economic principles.
Here are the articles.
Jeffery Sachs, Bill Gates and the Pope don’t have the power of Government behind anything they say. Their authority exists in the minds of the people who believe they have authority. They can’t force their economic ignorance on us
The President and Congress have the power of Government behind their policies. Politicians and bureaucrats can force their economic ignorance on us.
OUR ECONOMIC IGNORANCE
The increasing political chaos existing in the U.S is rooted in the economic ignorance of a vast majority of people. Both the masses, and people with “authority”, bear responsibility for our present political and economic situation.
People with “authority” being economically ignorant creates a problem because we the masses accept what they say as truth. This leads to the passage of Governmental policies which can’t produce the outcomes predicted by the people with authority.
We have the power to be a check on these people with authority. But we reinforce their authority on the one hand, and increase the economic ignorance of the masses on the other, when we don’t challenge the economic validity of what they say.
People with authority always want more power. Their power can’t be increased unless we allow it. Authority not backed by the force of Government isn’t real authority. We voluntarily give people their position of authority.
With politicians and bureaucrats it’s different. Their authority is backed by the force of Government. Our first non-violent voluntary recourse to their power is to vote the economically ignorant out of office, or not to vote them into office in the first place. Our second is putting political pressure on politicians. But this only works if a overwhelming majority of people put political pressure on them.
The ability of politicians and bureaucrats to grow their power, rests on the economic ignorance of the electorate. If the economic consequences of the policies passed by these politicians were known by the voters, they wouldn’t have been passed. Understanding basic economic principles allows us to look over the horizon and see the consequences of these policies.
EXAMPLES OF FAILED POLICIES
The Affordable Care Act aka Obamacare sounds great. But the laws of economics will not allow the ACA to lower the cost of healthcare. The costs can be shifted, but not lowered by government decree. The result of passing the ACA is chaos in the healthcare market, or what is left of a healthcare market.
Increasing the minimum wage for low skilled workers sounds great. But the laws of economics won’t allow increasing the minimum wage, above what that labor produces. The result of passing this law is fewer low skilled workers will be employed.
If, we the people, understood some basic principles of economics we wouldn’t allow these interventionist ideas to be planted, let alone take root.
Some of these basic principles are: 1) Scarcity, 2) Subjective Value, 3) Supply and Demand 4) Production Precedes Consumption.
Lets look at the Affordable Care Act and mandated minimum wage increases through the binoculars of scarcity, and supply and demand.
Scarcity is the first rule of economics. Scarcity simply means, “what everybody wants adds up to more than there is”. Put differently. Their are limited means available to satisfy the unlimited ends we seek. These limited means have to be allocated toward producing the ends we seek. There are two ways to allocate these means. One way is voluntary cooperation, through prices in a free market. The other way is force, through the edicts of politicians and bureaucrats using government power.
Supply and Demand is easy to understand. Put simply; More is demanded and less is supplied at a low price, and more is supplied and less is demanded at a high price. Prices reflect and drive supply and demand. If their is a sudden drop in the supply of a product, the price rises. This increase in price rations the existing supply, and sends a signal that more needs to be produced. On the flip side of the coin, if their is a sudden increase in the supply of a product, the price will go down. This decrease in price sells off the existing glut, and sends a signal less needs to be produced.
AFFORDABLE CARE ACT AND MINIMUM WAGE LAWS
The Affordable Care Act forced “30 million” uninsured people to enter the healthcare market. This meant the demand for healthcare was going to increased. Even though the supply of healthcare couldn’t be increased as quickly. (Example) It takes years for people to become doctors and nurses. Increasing the supply takes more time than the almost instant increase in demand brought about by the stroke of pen. If we apply the economic principles of scarcity, and supply and demand to the Affordable Care Act, what was going to happen to the price of healthcare? And this is not even calculating the cost of the regulations and new bureaucracy created by the 2500 page bill.
Raising the minimum wage increases the price of labor. According to the law of supply and demand, less is demanded at the high price. Voting for laws which increase the wages of people who we think are not being paid enough doesn’t help these people. Fewer people will be employed at the higher price. Many times these low skilled workers jobs will disappear all together because they can be replaced by automation. The price of labor was artificially increased to the point where it was economical to automate (read here). If we apply the law of supply and demand to the rhetoric of increasing the minimum wage, people wouldn’t have been fooled into thinking they were helping the people the law was actually hurting..
Economic principles are always in play. Government edicts can’t negate economic reality. The political chaos we have today is the result of ignoring the reality of basic economics. We can’t wish these realities away because we don’t like the fact they limit what we demand.
I’m going to quote a person with authority at this point. So don’t take this quote as authoritative. Figure it out yourself.
F. A. Hayek a Nobel Prize winning economist, (how is that for status), said: “Planning, or central direction of economic activity, presupposes the existence of common ideals and common values; and the degree to which planning can be carried is limited to the extent to which agreement on such a common scale of values can be obtained or enforced.“
Let’s get educated in basic economics. Life is easier to understand when you understand how the world works. Here is another quote.
F. A. Hayek: “The curious task of economics is to demonstrate to men how little the really know, about what he imagines he can design.”
We have two choices. Scarce resources can be rationed through prices voluntarily in the free market. Or Scarce resources can be rationed forcibly by politicians and bureaucrats through the power of Government. Which direction are we moving?
Political insiders of both parties have shaped the battle field into a choice between the R’s and the D’s. In reality the real battle is between the insiders in both parties who want to grow the power of Government, and people who stand for free markets and want to cut the power of government. Neither group is a majority. The majority of people are the economically ignorant. These people have been fooled into fighting the battle through the R and D paradigm.
Our job is to educate the economically ignorant. When this majority understands basic economic principles, they will they stop fighting on the fake R and D battlefield and start fighting on the real battlefield: central planning vs. voluntary cooperation.
Related Article – Minimum Wage Laws Create Unemployment, at austrianaddict.com
Related Article – Income Inequality Part II: Increase The Minimum Wage, at austrianaddict.com.
Related Article – The Reality Of Obamacare, at austrianaddict.com.
Related Article – The Economics of Healthcare vs. The Right To Healthcare, at austrianaddict.com.