Economics for Dummies and Liberals

Economics for Dummies and Liberals by Peter Burrows 5/19/20 –

Most people hear the word “economics” and their minds shut down.  That’s too bad because the basic fundamentals of economics are not difficult to understand.  Most people would think that these fundamentals are just common sense. Maybe we should call it ‘simplenomics” so people wouldn’t be intimidated.

The most fundamental rule of economics is what I call the Brezhnev rule, named after the former Russian dictator. (I’d call it the “Burro” rule but then you wouldn’t be impressed.) Leonid Brezhnev ruled the Soviet Union from 1964 to 1982, longer than anyone except Stalin.  By most accounts, he wasn’t a bad guy as Russian dictators go. He certainly was reflective, as this statement reveals:

“It is an elementary fact that a society cannot consume what is not first produced and transported.” He made this statement, as I recall, when addressing the Duma, the Soviet Parliament, in a state-of-the- union type address.  It is an unremarkable economic statement except for the “and transported” part, which caught my attention and is why I remember it so clearly.

At the time I recalled pictures of piles of cabbages rotting at rail depots in Russia because their economic system was so poor in the “transporting” function, and I could understand why Brezhnev would mention it.  It’s not something an American would even think of because we take our distribution system for granted.  That doesn’t just mean roads and rails and trucks. It’s also Walmart and Kroger’s and McDonalds and all the enterprises involved in getting products from the producer to the consumer.

By mentioning “and transported,” Brezhnev was revealing a weakness in central planning that hadn’t occurred to me. Also, his comment that production was required before consumption impressed me as an elementary fact that I had never heard articulated before, certainly not by any Western politician.

I think trying to run a state-run economy is a crash course in “elementary” economic fundamentals, and If there is a more elementary economic fundamental than that things must be produced before they can be consumed, I don’t know what it is.  This has always been true. If you were a hunter-gatherer and the rains didn’t come and the berries dried up and the deer disappeared, you died.  It’s true regardless of the economic system, feudal, free or state-run.

Since a corollary fundamental is that the more a society produces, the wealthier that society becomes, the question then becomes: which economic system produces the most?  Experience has proven beyond a doubt that the most prosperous economies are free-enterprise economies.  Contrast East and West Germany, North and South Korea, or try to find a Walmart in Cuba.

If everybody looked at the world with this production-then-consumption view, we could avoid a lot of stupid government economic policies. For example, minimum wage laws are very popular but they put the economic cart before the horse.  For example, the purpose of a $15 per hour minimum wage is to ensure that workers can consume $15 worth of goods for each hour they work. However, if they can’t produce $15 per hour, they won’t have a job. Period.

In common sense language, you can’t be paid more than you earn. Seen in that light, minimum wage laws don’t make economic sense.  Such laws are widely blamed for dramatic increases in teenage unemployment over the last 70 years, but minimum wage laws are “feel good” and emotional. Facts don’t matter,

The same could be said of capital gains taxes, which reduce the capital of successful investors, precisely the group society should want to have more capital to invest. Why? Because private investors are much better investors than government bureaucrats.

Here’ an analogy to ponder. Imagine we are bench-sitters on a basketball team starring Michael Jordan and Larry Bird. Who do you want to see taking shots, those two guys or the referees?  Do we really want to take capital away from people like Steve Jobs, founder of Apple, and Jeff Bezos, founder of Amazon, and put that money in the hands of government officials?

Unfortunately, that’s precisely what some people want to do. The accumulation of private wealth is offensive to their egalitarian sensibilities, even though such wealth was earned fair and square, not a penny stolen from anybody. From a legal standpoint, that’s also true for Chicago janitors retiring on $100,000 per year, presidents of marginal New Mexico universities making over $300,000 per year, or managers of tiny New Mexican cities being paid $100,000 per year, and on and on and on.

Libertarians have a cute little phrase, “taxation is theft,” technically inaccurate but morally apt in all too many cases.  I notice that those who would penalize Bezos don’t seem to have any problem with overpaid government workers.

I do, because I don’t have any choice in the matter, but I’m OK with Bezos becoming the world’s first trillionaire. I buy a lot of stuff from Amazon, and I watch ‘Bosch’ on Amazon Prime. Thanks, Jeff, for enriching this bench-sitter’s life, you stupid liberal.

(Note to economic geeks: All of the above can be interpreted as a version of Say’s Law, from the 18-Century Frenchman Jean Baptiste Say, who famously noted; “Products are paid for with products.” This is another way of saying that the essence of all economic activity is barter, your pig for my cow, etc. The invention of currency both greatly increased economic efficiency and stared to complicate things. ‘Produce before consume’ is nice and simple. Even I can understand it.)   


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