Economics: A Survey

Until I muster the will to finish a plain-language primer on economics that I began several years ago, this post will have to do. It is an annotated compilation of links to the posts at this blog which, taken together, will enlighten those readers who seek a rounded view of economics, that is, one that is both fundamental and practical. The fundamental posts address the principles of economics without resorting to abstruse mathematical expressions. The practical posts (in the main) address the effects of government policy on economic activity.

Many of the posts cited below are illustrated by statistics that are a few months to several years out of date.  The conclusions remain valid, however.

PRINCIPLES

The place to begin is “Trade.” It explains the benefits of voluntary exchange, which is the essence of economic activity.

Trade, in the jargon of economics, is microeconomic activity. Attempts to aggregate and explain economic activity are called macroeconomics. “Macroeconomics and Microeconomics” addresses the relationship between the two disciplines.

Other foundational posts are “The Rationality Fallacy” and “Income and Diminishing Marginal Utility.” The first exposes an error common among economists, which is to equate wealth maximization and happiness. The second exposes an error common among economists and leftists (but I repeat myself), which is to assume that a person’s marginal utility (gain in happiness) diminishes with income.

A Short Course in Economics” and “Addendum to a Short Course in Economics” state a number of basic propositions about economics and economic behavior. These aren’t rigorous expositions of economic principles, but they will point a neophyte in the right direction — that is, away from the upside-down economics spouted by leftists and “journalists” (but I repeat myself).

Closely related is “The Causes of Economic Growth,” which cuts through the gobbledygook that prevails in academic circles.

All of the above posts are non-mathematical because the principles of economics do not have to be stated mathematically. In fact, the mathematization of economic theory is a scam, as discussed in “Mathematical Economics.” Economics, as a discipline, suffers from “physic envy”; too many of its practitioners believe that a coat of mathematical varnish can turn it into a science. But economics is not a science — or if it is, in is only a “soft science” that relies more on intuition than it does on the scientific method. For more on this subject, see “Science, Axioms, and Economics.”

PRACTICE: THE GENERAL ECONOMIC INFLUENCE OF GOVERNMENT

Minimal government protects citizens from foreign and domestic predators, thus enabling peaceful, mutually beneficial, and voluntary exchange (i.e., free markets). When government goes beyond its minimal role and interferes in the economy it inhibits economic output in three ways. First, government spending and borrowing divert resources from productive uses to (mainly) unproductive and counterproductive ones. Second, taxes penalize success and divert resources from growth-inducing capital creation. Third, regulations inhibit business formation and expansion.  These relationships are explored systematically in “Government in Macroeconomic Perspective.”

You may wish to skip that technical and somewhat plodding post, and go directly to some of my estimates of the scope and economic costs of government intervention. Begin with the qualitative assessment given in “The Real Burden of Government,” then turn to “The Laffer Curve, ‘Fiscal Responsibility,’ and Economic Growth,” “The Commandeered Economy,” “Estimating the Rahn Curve: Or, How Government Inhibits Economic Growth,” “The Mega-Depression,” and “Economic Growth since World War II.” (Another, often overlooked, consequence of government intervention in economic affairs is the resulting diminution of liberty; see, for example, “The Indivisibility of Economic and Social Liberty.”)

The posts cited in the preceding paragraph assess the long-run effects of government interventions. Government policy imposes additional costs in the short run, that is, in the span of years rather than decades. The Federal Reserve, to name the main culprit, can claim responsibility for the Great Depression and the Great Recession, as well as other recessions. See “Mr. Greenspan Doth Protest Too Much,” “The Fed and Business Cycles,” and “Money, Credit, and Economic Fluctuations.”

Then there is a phenomenon known as regime uncertainty, in which entrepreneurship and capital formation are discouraged — temporarily, at least — by the threat of new government interventions. That threat that is more potent now than it has been since the New Deal-Great Society era. I address regime uncertainty in “The Keynesian Fallacy and Regime Uncertainty,” “Regime Uncertainty and the Great Recession,” and “Obamanomics: A Report Card.”

Government interventions in economic affairs are prompted by many interests and impulses — power-seeking, rent-seeking, economic illiteracy, and plain old do-goodism being among them. Among the chief reasons given for interventions is “market failure,” which is among the subjects addressed in “Regulation as Wishful Thinking.” Closely related posts that bear reading are “Socialist Calculation and the Turing Test,” “What Free-Rider Problem?,” and “Don’t Just Stand There, ‘Do Something’.” The political economy of government intervention is treated generally in “Tocqueville’s Prescience” and “Understanding Hayek.” The darker impulses are addressed in “Don’t Use the ‘S’ Word When the ‘F’ Word Will Do.” (The “S” and “F” words are “socialism” and “fascism.”)

Last, but only because I put it here, is the baleful influence of Keynesianism on economic policy. I expose the fallacy of Keynesianism and “stimulus” spending in “The Keynesian Multiplier: Phony Math,” “The True Multiplier,” and “Further Thoughts about the Keynesian Multiplier.” Also relevant, though superseded to some extent by the preceding three posts, are “A Keynesian Fantasy Land,” “Why the Stimulus Failed to Stimulate,” “The Real Multiplier,” “The Real Multiplier (II),” and “Keynesianism: Upside-Down Economics in the Collectivist Cause.”

PRACTICE: SALIENT ISSUES

We’re not through with government, which plays an explicit and implicit role in the following matters (arranged alphabetically):

Government Debt and Deficits. The best posts on this subject were inspired by the Bowles-Simpson Deficit Commission, whose work — flawed as it is — seems to have been ignored. The “can” is still being kicked down the road, and the consequences will be dire. Read on: “The Deficit Commission’s Deficit of Understanding,” “The Bowles-Simpson Report,” “The Bowles-Simpson Band-Aid,” and “America’s Financial Crisis Is Now.”

Income Inequality and Redistribution. Some persons earn more money than other persons because of differences in ability, performance, and the value of their contributions to the well-being of others. This straightforward explanation doesn’t suit idiots like Robert Reich, who are handicapped by economic illiteracy, guilt, and hypocrisy. The inescapable fact of income inequality is often conflated with the so-called “war” on the middle class. (Pending a post on that subject, I refer you to this one by Mark J. Perry.)

I have addressed inequality several times. The brief post, “The Last(?) Word about Income Inequality” provides several links that are worth following. Other posts expose income inequality as a bogus issue and warn of the dire economic consequences of taxing “the rich” more than they are already taxed: “Taxing the Rich,” “More about Taxing the Rich,” “In Defense of the 1%,” and “Progressive Taxation Is Alive and Well in the U.S. of A,” and “How High Should Taxes Be?

If you’re in the mood for a more fundamental treatment of the “inequality problem,” try “Income and Diminishing Marginal Utility,” “Greed, Cosmic Justice, and Social Welfare,” “Positive Rights and Cosmic Justice,” “Utilitarianism, ‘Liberalism,’ and Omniscience,” “Utilitarianism vs. Liberty,” “Accountants of the Soul,” “Rawls Meets Bentham,” “Enough of ‘Social Welfare’,” “Positive Liberty vs. Liberty,” “Social Justice,” “More Social Justice,”  “Luck Egalitarianism and Moral Luck,” and “Utilitarianism and Psychopathy.”

Inflation.  Or the threat of it, seems to be a perennial problem. At root, it is a government problem, as I discuss in “Why Government Spending Is Inherently Inflationary,” “Is Inflation Inevitable?,” and “Does the CPI Understate Inflation?

Interest Rates. Government-induced stagnation, addressed above, reappears in “Why Are Interest Rates So Low?” See also “Bonds for the Long Run?

International Trade and Outsourcing. Start with “Trade” (also cited above) and “Why Outsourcing Is Good: A Simple Lesson for ‘Liberal’ Yuppies.” If you need more, go to “Trade-Deficit Hysteria,” “Trade, Government Spending, and Economic Growth,” and “Gains from Trade.”

Monopoly. It’s a dirty word, on a par with “asbestos.” Monopoly — or the hope of attaining it — is essential to economic growth, as discussed in “Monopoly and the General Welfare.” If you want to see a dysfunctional monopoly, look at government (a central point of “Krugman and Monopoly“). Private monopoly, on the other hand, is preferable to government regulation: “Monopoly: Private Is Better than Public.”

Paternalism. “Libertarian paternalism” is an oxymoron; more accurately, it is dangerous, anti-libertarian treachery. My many posts on the subject begin with an eponymous one, and continue through “The Mind of a Paternalist, Revisited.” Pseudo-libertarians have no corner on paternalism, of course. Witness the wars on smoking and obesity of the past 60 years. My most recent post about paternalism is “Obesity and Statism.” Links to all of my posts on paternalism can be found at “Favorite Posts,” under categories V, VII, X and XI.

Two leading proponents of “libertarian paternalism” are Richard Thaler, an economist, and Cass Sunstein, a law professor and erstwhile “regulatory czar” for Obama. Thaler, given his academic background, might once have been a libertarian, but clearly has lost his way. Sunstein never came close to being one, and is about as anti-libertarian as they come, as you will learn if you read the posts about him, which are listed in category VII of “Favorite Posts.” Begin with this one and continue through this one. See especially (but not exclusively) “Cass Sunstein’s Truly Dangerous Mind.”

Regulation. It is fitting to jump from “Paternalism” to “Regulation,” inasmuch as regulation is paternalism writ huge. Regulation touches every facet of our lives and livelihoods. I have written about it so many times that it is hard to choose a list of representative posts. I began with “Fear of the Free Market — Part I,” and continued with “Part II” and “Part III.” Those three (long) posts make a theoretical and practical case against regulation. “Regulation as Wishful Thinking” makes the same case, though less thoroughly (but in far fewer words). The extent of the regulatory burden, at the federal level, is summarized in “Lay My (Regulatory) Burden Down.” That post includes an estimate of the economic cost of regulation.

“Social Insurance” Schemes.  “Social insurance” is properly called income redistribution. The primary engines of income redistribution, in addition to progressive taxation, are Social Security, Medicare, and Medicaid — as expanded by Obamacare. The monumental government debt that will accrue as a result of these schemes is addressed above, under “Government Debt and Deficits.” I have covered income redistribution, generally, under “Income Inequality and Redistribution.” Posts specifically about “social insurance” schemes include “The Mythical, Magical, Social Security Trust Fund,” “Social Security: The Permanent Solution,” and “Saving Social Security.” Obamacare is treated (not gently) in “Rationing and Health Care,” “The Perils of Nannyism: The Case of Obamacare,” “Health-Care ‘Reform’: The Short of It,”

As a bonus, I offer “Social Security Is Unconstitutional,” “The Unconstitutionality of the Individual Mandate,” “Does the Power to Tax Give Congress Unlimited Power?,” and “Does Congress Have the Power to Regulate Inactivity?.” Yes, Social Security and the individual mandate (along with Medicare and Medicaid) are unconstitutional, various majorities of the Supreme Court to the contrary notwithstanding; no, the power to tax doesn’t give Congress unlimited power (according the Constitution); and no, Congress doesn’t have the constitutional power to regulate inactivity (i.e., to penalize or tax a person for not buying insurance).

Tax Policy. Tax policy is implicated in many of the posts already listed. I also address it, directly, in “Productivity Growth and Tax Cuts,” “A True Flat Tax,” “‘Tax Expenditures’ Are Not Expenditures,” “Taxes: Theft or Duty?,” and “Is Taxation Slavery?” (yes).