The Dismal State of Economic Knowledge

I guess about half of what I have posted on here is about how I do not have time to post!!! Unfortunately, I don’t. I have attempted start regular posts on a variety of topics (music, etc.) but have been unable to do anything regular at all. So, I’ll just give up any pretense at regular posting, and just come and go as I can!

The one thing that the nation needs is a religious revival. Every area of life is corrupted by sin, and can only be redeemed by true religion. It has happened before, both on this continent and abroad. It can happen again. If it does, we can expect to see every area of life show signs of redemption. If it doesn’t….well….I’m afraid to speculate.

Religion, faith, God, etc. encompass every single area of life. One area of life that definitely needs redeeming right now is education. Specifically, I am thinking of the level of knowledge and understanding by the general public of economic issues.

In a way, economics is like religion. That is because, like religion, it is universal. That is, economics covers every area of life as well. Every thing you do or do not do, every decision you make, all things in all areas of your life are really ‘economic.’ And since they are done under the One True and Living God who created and governs all things, they are all ‘religious.’ It might seem that if religion is all encompassing, and economics is all encompassing, then either 1) religion and economics are the same thing or 2) religion and economics are competing things. However, this is not necessarily so. To perhaps misuse the amended rules in Orwell’s Animal Farm that stated that while all animals are equal, some are more equal than others, we can argue that while religion and economics are both universal, religion is more universal than economics. Economics is ‘universal’ in that every thing you do is economic or has economic ramifications. However, it does not get to the heart of the meaning and purpose in life – not to mention life’s origins and conclusions. Religion is more broadly universal. But, in relation to our day to day life, what we see, do, act upon, etc. economics can and should be considered universal.

The idea that economics, properly viewed, is in this sense universal, was apparently the view of Ludwig von Mises, one of the leading economists of the twentieth century. While he wrote voluminously on the topic, with such book titles as The Theory of Money and Credit, Socialism, The Anti-Capitalistic Mentality, etc., his most famous work is his overall thesis on economics entitled Human Action. What is economics? Broadly speaking, the study of economics can be defined as the study of human action. Broadly speaking, then, using the term "the economy" is simply a way of speaking about the totality of all human activity. When we say that America’s economy is strong, what we are saying is that by and large, the people’s use of their time and talents is being utilized in a way that is generally beneficial to all. (there are always exceptions, of course) When we say that America’s economy is weak or struggling, we are really saying that people’s use of their time and talents is not being efficiently harnessed for the good of all. This may be for any number of reasons. However, I do believe that if our citizens had a better overall understanding of economics, then by necessity our economy would tend to be strong, rather than struggling.

I know when you think of the word ‘economics’ the first word that pops into your head is ‘money.’ Even Mises of Human Action fame, also wrote, as we said, The Theory of Money and Credit. But, ask yourself, what is money? The answer is that money is really only a medium of exchange. Money facilitates ‘human action.’ It is nothing more, and nothing less. Money is one of the means utilized by humans to allow themselves the most productive use of their time and talents, by dividing their time and talents into usable portions (e.g. dollars) to be traded to others for useful portions of their time and talents.

While every single thing we do is economic, the level of understanding of economics in twenty-first century America is disgraceful. I can not think of a topic that more people know less about than economics, while at the same time people think they know a lot about it. Yet, (other than religion) it is the most widely relevant subject there is.

It is at least partly because of this abysmal understanding of economics that our nation’s ‘economy’ is going in the tank. People do not understand the basic principle of what money is, where it comes from, and how it operates. They do not understand that as far as humans can control such outcomes (which is only so far), as a general rule those who have the most money are the ones who have the most talent and energy, or have used their level of talent and energy in the most useful and productive ways.

They also do not understand (and this is vitally important) that activity by the government, aimed at supposedly improving the ‘economy’, have never and can never actually work. Two caveats are due here. First, the economic interests and security of a people is aided by government when government sticks to what it is suppose to do. Therefore, the preceding comment is not to be taken as a call to anarchy. Property and liberty are at great jeopardy when there is no government. In fact, protecting life, liberty, and property (or even more broadly, the pursuit of happiness) is in fact the very purpose of government. When government does this, and only this, a nation can prosper. It is when government oversteps its boundary lines and tries to do all sorts of things above and beyond this, even including ‘spurring the economy,’ that real actual harm is done to the economic interests of the nation.

The second caveat is that often times what government does ‘for’ the economy does have an immediately obvious and observable positive impact. However, this is usually discriminatory (it ‘benefits’ one group of people at the expense of others), and is always temporary. The end result is always that more harm is done to the whole of society than could ever be justified by the temporary gain by a few. In the long run too, it is usually the early ‘beneficiaries’ who ultimately are harmed the most. And of course, this is usually the poorer among us.

To consider some examples of the above think of government action such as welfare payments, minimum wage laws, rent controls, price controls, public works projects, work week regulations, tariffs to protect industry, pro union legislation, windfall profits tax, and on and on. These are all economic intrusions by the government, are all aimed either at helping the lower classes or conversely ‘soaking’ the rich. They all can have immediate, obvious benefits to some group (I make $5 an hour and the government magically makes $7 an hour the legal ‘minimum’ wage – I get a $2 an hour, or $4160 per year raise – great, right???). However, all of these intrusions in the end are impossible to accomplish, hurt the overall economic system of the nation, and in the end, hurt the very people they intended to help. (Consider the worker who got laid off because he was only worth $5 an hour to his company and not $7)

What inevitably happens though, and this is why I believe our economy is possibly on the brink of disaster, is that our leaders pass such laws as these and more; they may or may not have a temporary, limited positive impact; then the longer term, wider impact is negative – economic indicators grow worse. The response of our leaders is always the same. It is not to repeal the damaging laws. Instead it is to pass yet more of the same. This does two things. First, it may (or may not) ‘spur’ the economy, or some portion thereof temporarily. Secondly, though, it makes the situation even more precarious. Economic indicators eventually take a down turn again, and the government responds with more of the same.

The long term impact of this is that of visibly perceived wealth and greatness of a nation, propped up on a horribly shoddy foundation. To use religiously charged language, it is a house built upon the sand. You know what happens to such houses? Eventually they fall, and "great is that fall."

In essence our economy is stacked up on phony money generated by phony government action. To put it in individual terms that are easy to understand, consider that you or I could live an apparently wonderful prosperous life if we had several credit cards with no or very high limits. We could spend and spend. We could also finance fancy cars and large homes, high class vacations, etc. To all the world we look rich. But one day, citi and Capital One will come calling, as will the auto financiers and the mortgage company. If we live like that there are only three possible outcomes: 1) we fall and fall hard 2) we repent of our economic sin, tighten our belt, sell off what we can and pay down our debts and begin living responsibly if it is not too late or 3) we get lucky and die before the fall, leaving it to our children and grandchildren to pick up the pieces.

Our politicians and their in-house economists are banking on number three. One of the leading economists of the last century even admitted it. When asked about the long term effects of his economic plans, John Maynard Keynes stated, "In the long run, we are all dead." That is the type of people who are planning and running our economy.

In summary, I believe our nation needs first and foremost a religious revival. Secondly, and on the heels of this revival, we need a revival of knowledge and understanding – especially in the universal area of human action known as economics. Until this happens, we will continue to get more of the same and this skyscraper built on sand will eventually fall.

To perhaps prime the pump a bit, the following post will contain a few suggested readings.