I am not an economist, nor do I play one on TV. (This might be a good thing – the not being an economist, I mean; the TV thing is just an habitual sop to the argumentum ad vericundiam.) Legitimate expertise is the kind of thing one ought take seriously while, at the same time, false authority needs to be viewed with the deepest skepticism only when it is not dismissed out of hand as fatuous twaddle. I actually do have a little bit of legitimate expertise when it comes to economic theory, but I would be very hard pressed to demonstrate this point to you beyond the act of simply demonstrating it, which I will do below. Rather than attempt to provide embedded links, I’ll offer sources for further reading at the end of my remarks.
Economists in the formal sense – that is, persons with advanced degrees in the subject – tend (in my extremely unscientific and aggressively biased opinion) to be, on the whole, extremely unscientific and aggressively biased. Nowhere in scholarship and academic studies is rampant ideology so un-shame-facedly remunerated as in economics. This is a problem, since it rewards all manner of blatant logical fallacies (confirmation bias, (which is technically a psychological failure of reasoning, rather than a logical one) hasty generalization, sharp-shooter fallacy, for example) and discourages taking actual data seriously. Logic, principles, evidence and facts do not pay as well as major corporations and political parties with agendas to be served. Since no one is paying me for my analyses, I’ll actually risk holding that up as a virtue here. And (for whatever it is worth) I have actually studied the subject a little, little bit. (Bits of this also tie in with my earlier remarks on socialism.)
This last is actually significantly more than the vast majority of people can claim, including those who have been elected (either by the population at large, or by ipse dixit self-declaration) to determine economic policy. Such persons, bolstered by unbroken ignorance supported by viciously ideological certainties, cheerfully and promiscuously spout the most unapologetic tripe imaginable. So let’s start with a couple of clues that someone pontificating on matters economical has absolutely no idea what s/he is talking about:
The person thinks running an economy is the same as running a corner grocery store. Within the limits of my research, this seems to be hands-down the commonest error when talking about economic theory. An economy is a complex, dynamical and relational structure, that can grow purely through movement. But the “grocery store” theorists think that basic business principles are the same as fundamental economic principles. The people doing this will, often enough, be wealthy and even business persons themselves. This seems to create a Dunning-Kruger driven incompetence that inspires these folks to imagine that, if it involves money, then they are experts of unparalleled degree. But an economy is not a grocery store. Your stock does not cause your cash to increase when you move that stock around; and your cash does not grow simply because you’ve engaged in some type of exchange or other (including moving it from the cash drawer to your safe.) But in an economy, that sort of growth is precisely what does happen: the “mere” act of exchange causes the economy to get bigger. There is nothing magical about this. It was so well known a feature of economic reality that Karl Marx commented on it in the first volume of Das Kapital, back in the 1860’s. Today we have a fairly precise number (and I’ll be devilled if I can actually find it now!) that states exactly how much the economy grows for each dollar exchanged.
The person thinks the wealthy are “job creators.” Another – and, perhaps, more illuminating – way of saying this is, the person thinks an economy grows from the top. One would be hard-pressed to find a more grotesque and utter piece of sophomoric nonsense. Economies grow from the bottom, from the poorest echelons, not the richest. It is trivially simple to see this fact for yourself. When someone at or near the poverty level earns another dollar, that dollar will be immediately spent on basics to make that persons life better. You know, odds and ends like food, rent, utilities, clothes … the trivialities that the well-off can safely ignore. Now, remember from point #1, that every dollar spent grows the economy in a mathematically determinate fashion. Let’s think about this: poor people spend ALL of their money; what do rich people do? For the most part, they invest their money in ways that earn interest for themselves, but that do not grow the economy (much less create jobs.) Only money spent in growth promoting ways creates jobs; hiding away staggering amounts of cash does not. Spending money expands the economy, and poor people spend all of their money. Rich people do not and, indeed, cannot spend all of their money. It is one of the most basic facts of economics, that a thousand people with a thousand dollars are inevitably going to spend and consume more of that wealth than a single person with a million dollars ever possibly could, even though the absolute dollar amounts are the same. This is also why raising the minimum wage some modest amount is a good idea. (It is also why when the minimum wage has been raised in the past, it has never once produced the catastrophes that conservatives have invariably claimed would necessarily result.)
The person talks about absolute dollar amounts as though this was meaningful. An economy is a relational structure; absolute dollar amounts are presented without context or relation, and as such are entirely meaningless. In a relational structure, only relational systems are ultimately real. An absolute number – even a really, really, BIG number – means absolutely nothing. For example, by the end of the Second World War, the United States owed a significantly larger amount of money than existed in its entire economy. Which is to say, the ratio of debt to GDP was on the order of 115% – 120%. Strangely enough, the universe did not implode, civilization did not come crashing down about our ears and, beyond an unprecedented period of prosperity, for some reason the world did not end. Let me repeat: we owed more, and had less – as a relational percentage – than we do now. So when people throw around absolute numbers (“The debt is a big scary number!”) all they have really shown is that they know absolutely nothing about economics. Absolute numbers are absolutely meaningless; only relations and relational terms have any possible economic meaning.
The Person uses “capitalism” and “market economy” interchangeably. Almost inevitably, these two things are conflated in discussion, thereby rendering intelligent discussion all but impossible. But they are fundamentally different. Capitalism is a legal system in which the laws favor the holders of wealth and capital. Market economy is an economic system in which market forces determine the price and availability of goods and services. There have been capitalist societies that were not driven by market economies: Nazi Germany and South Korea (during the dictatorship) are two examples. On the other hand, there have been socialist societies that allowed the market to drive their economies: Yugoslavia under Tito, and contemporary Sweden are two examples. If it is possible for capitalism and market economy to be separate, then there can be no necessary connection between them. And since the two have, as a matter of demonstrable fact, actually been separated, then it is obvious that they can be possibly separated.
Most, if not all, of the above is just common sense, and requires no substantive study of economic fundamentals to recognize as such. Nevertheless, many economists – and vastly more politicians – would rather gnaw off squishy parts of their own bodies than admit to these obvious truths.
Sources for Further Reading:
Rather than highlight individual books, I’ll mostly just point to links where you can variously help yourselves.
Hands-down, my two “go-to” sites for all things economics are the Center for Economic and Policy Research (headed by Marc Weisbrot and Dean Baker), and the Economic Policy Institute. A great many papers and books are available at both sites, but CEPR in particular has a number of Dean Baker’s books free for the download. Baker, I would emphasize, is one of the few people who identified the housing bubble as such, and he did so as early as 2002 (five years before the bubble imploded.) Baker’s discussions of economic issues are thoroughly data driven which, sad to say, is why his politics are so evidently liberal.
On the flip side of the economic spectrum, the more thoroughly ideological still can be found at places like the Von Mises and Von Hayek institutes. Mises and Hayek were basically the founders of what came to be known as the “Austrian School of Economics”; they are the founding fathers of what we now refer to as “market fundamentalism.” The Mises institute has an enormous library of freely dowloadable books, while central works of Hayeks may be found HERE. I would personally not bother with much beyond these to primary authors. Market fundamentalism has become so indefensible in the face of actual reality (and economic principles – see #’s 2 and 4 above especially) and the total failure of their vicious austerity policies, that its contemporary defenders are looking (to this author) more than a little sad and desperate.
Finally, it is worth familiarizing one’s self with some of the true classics of economic thought. Adam Smith is considered the originator of the theory of market economy with his Wealth of Nations. This is 18th Century Scottish Enlightenment thought, which means the text is quite dense. Nevertheless, it is worth having on hand just to confirm for yourself what Smith actually said about markets, versus what people attribute to him. Thus, bearing in mind that the word “capitalism” did not appear until 1790, 14 years after Smith published Wealth, it is worth seeing how he speaks about the people we now call “capitalists.” In Smith’s book, they are primarily referred to as “merchants and manufactures” Feel free to find any place in the text where he has a kind word for them. In fact, it becomes very evident that, for Smith, it is no more possible to have a free market without regulation than it is possible to have a free society without law. The other person to read is Karl Marx. Everybody “just knows” all about what Marx said without ever bothering to read a word he published. This is a fairly pathetic state of affairs. Marx’s writings are quite extensive, and while everyone knows about Marx’s magnum opus Capital, this is a very lengthy work, and not necessarily as solid a source of insights as one might wish. I would personally recommend the Economic and Philosophical Manuscripts of 1844, work that was lost for almost a 100 years and only re-emerged in the early decades of the 20th Century.
 This last is the first law of metaphysics: What is actual is possible.
Excellent discourse Dr. Herstein.
I would like to elaborate more but, I have exams to study for because I’m returning to school for my Doctorate.
You were correct when you mentioned to me that they discriminate against age.
I didn’t think age would matter but they want candidates that are pliable and make them look good.
They aren’t that concerned with your research unless it benefits them.
I told them I’m not doing this for the university, I’m doing it for myself.
I said you’re either onboard or there are other universities that will be more than happy to take my checks.
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Gary Herstein said:
Different places will be more openly cooperative with your degree work (SIUC was always good to me in that regard), but the ageism thing certainly threw me for a loop when I was out on the job market. I could easily be teaching for upwards of 20 years or more, and I rather imagined that the grey at my temples leant me an air of “gravitas.” Oh well …
Good luck with your exams!
Gary Herstein said:
This piece on the $15.00 minimum wage, from MSNBC, is appropriate. As they note, SeaTac (the area around the Seattle/Tacoma airport) is a very small community, but after 8 months of $15.00 an hour minimum wage, the area is prospering: http://www.msnbc.com/rachel-maddow-show/seatac-proving-trickle-down-economics-wrong
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