Jeffrey Dorfman's recent column in Forbes ("10 Essential Truths Liberals Need to Learn") is not a partisan attack on liberals. It is a clear-cut summary of some basic laws of economics that hold no matter what your political beliefs happen to be. Unfortunately, too many Republicans, Democrats, and bureaucrats are guilty of ignoring these laws. In my experience, it's also true that too many investors fail to understand these fundamental truths. I've only listed the laws here; for an explanation of each be sure to read the whole thing: (HT: Mark Perry)
1) Government cannot create wealth, jobs, or income.
2) Income inequality does not affect the economy.
3) Low wages are not corporate exploitation.
4) Environmental over-regulation is a regressive tax that falls hardest on the poor.
5) Education is not a public good.
6) High CEO pay is no worse than high pay to athletes or movie stars.
7) Consumer spending is not what drives the economy.
8) When government provides things for free, they will end up being low quality, cost more than they should, and may disappear when most needed.
9) Government cannot correct cosmic injustice.
10) There is no such thing as a free lunch.
I'll add one to the list: Monetary policy can facilitate the creation of jobs only to the extent it fosters low and stable inflation.
These are not immutable laws of economics, they are the philosophical views of the author, which are only briefly expounded on in the article. Much as I respect Scott as an economist, I'm surprised to see this simple-minded paradigm being paraded as wisdom.
ReplyDeleteDo you really think that No government job can create wealth/income? None? Really? Even if so, so what, government creates the structure in which business can thrive, ergo, no government, no prosperity.
And what does cosmic injustice have to do with economics?
Environmental regulation a regressive tax falling more on the poor? I guess if you don't consider the health and environmental benefits, that may be true, but it's a bit stupid stupid to only focus costs of regulation.
Well I suppose the words "low and stable" have some wiggle room in them, regarding inflation.
ReplyDeleteHowever, it should be noted that in 1965 the real GDP of the US expanded by 8 percent. We had moderate and variable inflation through the 1960s.
In the 1960s, real per capita incomes expanded by one-third in the USA. That is called boom times.
Believe or not, in 1958 Milton Friedman scolded the Federal Reserve (in testimony before the Joint Economic Committee) for being too tight, having over-tightened in the face of some inflation in 1956-7.
In fact, three times (at least three) Friedman blamed recessions on central bankers. 1. The Great Depression. 2. The 1958 recession. 3. The Japanese perma-gloom after 1992.
In all cases, Friedman advocated the banks print a lot more money.
Would Friedman have said "gun the presses" in 2008?
I think so.
Even more important than microscopic rates of inflation is real economic growth.
Oddly, the right-wing has developed some sort of fixation on inflation, and it has become un-PC to do anything but scold about inflation. I think this is because many erroneously conflate federal spending with monetary expansionism.
I have a hard time believing that "Education is not a public good." I don't think that a nation can have a real democracy without an educated electorate.
ReplyDelete