The Economic Nationalist

I am ignorant of some things. So presumably are you. Demagoguery, as old as the Athenian republic, is that vile art which seeks unrighteous political power by exploiting your ignorance and mine.

Few fields have been more fertile for Western demagogues to plow than the study of economics. We the people do not think that we can understand economics, yet paradoxically we feel that we ought to understand it. We tend to confuse business-management experience with economic understanding—though to do so is a simple categorical error, for the businessperson deals in microeconomics whereas what we usually mean when we speak of “economics” and “the economy” is macroeconomics, the study of wealth and trade at large.

Have you ever wondered why reporters are treated seriously, who seldom understand economics better than we do, when they report opinion-poll numbers as to which candidate for office “will better handle the economy”—as though we thought that it were somehow the candidates’ job “to handle the economy?” As though we had some idea of what “handling the economy” might entail? As though the candidates had some idea of what “handling the economy” might entail? As though we suspected that the candidates were less clueless about “the economy” than we?

When Democrats suggest that we tax oil profits, when Republicans suggest that we drill offshore, do you know which policy is wiser in the long run? How many foreign guest workers, if any, does the U.S. economy need to meet labor shortages? (What constitutes a “labor shortage,” anyway?) Are you sure of your answers? What short- and long-term ends, exactly, do you and I wish the relevant proposed public policy to achieve? These are largely, or at least partly, economic questions. There is room for a difference of opinion on such questions, but one can hardly entertain such questions’ economic aspects sensibly without having first appointed one’s mind with the sturdy mental furniture of basic macroeconomic theory. That furniture is what this article is about.

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There is another reason I have written this article. Consider the following recent exchange at the blog Cafe Hayek:

No one is saying that there have not been some good things that have happened over the years. However, that does not change how much harder it is for ordinary people to be able to do the same kind of things that their parents were able to do on a single income.

The comment is imperfect, for the commenter was trying not to craft an essay but only to engage in conversation. Consider however the reply:

It’s sad when someone just won’t even take a cursory look at the facts. This is wholly untrue. I am an ordinary person and have a far better life than my parents’ had when they were my age. This is true for both my brother and sister. This is true for nearly every single one of my friends.

[…]

[Y]ou apparently are unaware that food and energy expenditures per household have dropped as a percentage of household income over the last few decades. The increase in the cost of food is because we now buy much higher quality food. And energy costs are increasing because the idiots of your generation (with whom I’m going to lump you) decided it was best to not build nuclear power plants, the safest, cleanest, and most inexpensive way to generate power….

Thanks. Next time, try not to create a problem, then say you feel sorry for the people who have to deal with it. Just keep your ignorant nose out of it to begin with.

The replying correspondent of course makes some valid points, so why the abuse?

I think that it has to do with the following. A disturbingly large proportion of college graduates who ever once earned an inflated grade of “A” in their freshman-level macroeconomics classes seem to believe that such an achievement distinguishes them as bearers of deep secrets and hidden knowledge. Such college graduates, presumably including our replying correspondent above, do indeed understand basic macroeconomic theory—and they are inordinately proud of the fact. To them, for instance, grasp of David Ricardo’s nineteenth-century law of comparative advantage (which indirectly is what the quoted exchange was about) is not so much useful knowledge as a kind of tonsure, or a sort of secret handshake, a stylized mark of membership in an exclusive social class. Ricardo brilliantly taught that trade specializes the traders to the increased prosperity of all parties involved. On the other hand, Euclid brilliantly taught that the square of the hypotenuse equals the sum of the squares of the two supporting sides. You and I do not think ourselves brilliant merely because we once learned Euclid in high school. For some reason, though, people who learn Ricardo do think themselves brilliant. The arrogance is hard to understand, really. Unfortunately, the arrogance does our nation much harm.

The arrogance leads the elite minority who do (barely) understand basic macroeconomic theory to suppose the theory to be infallible. To doubt the predictive perfection of Ricardo’s law of comparative advantage is not to show prudence in their eyes. Rather, to doubt the predictive perfection of Ricardo’s law is to threaten the self-evaluated, self-assigned social status of elites who think that they understand Ricardo’s law and that you do not. As Steve Sailer writes,

It’s hard to say exactly why the dogma of free trade has triumphed so completely, but status striving can’t be ruled out. Economists are terribly proud that Ricardo’s Law of Comparative Advantage is both significant and not trivial, so showing that you understand has become a major status marker.

More than any other single factor, it may be this singleminded devotion among our elites to abstract economic theories—not as useful theories but as status markers—that has caused the United States perversely, willfully to decimate her own industrial base since 1973. As one of Mr. Sailer’s correspondents observes,

Free trade good or bad? No idea. But it’s quite clear from U.S. economic performance of the last 40+ years—soaring trade deficit, soaring national debt, soaring consumer debt, soaring income gap, transfer from being the largest creditor nation to the largest debtor nation—that whatever it is we’re doing is not the answer.

If this is so, then the singleminded devotion among our elites to abstract economic theories matters a great deal.

The best way to combat such elite perversity is probably to spread abroad the economic secrets that undergird it. When every father teaches his children to hit a target with a rifle, to fix a leaky sink, and to appraise flows of capital, a whole class of demagogues are going to find themselves out of a job.

Every boy scout learns first aid. Every swimming-pool lifeguard learns CPR. Any American father will indeed teach his children to hit a target with a rifle and to fix a leaky sink. Why not also to appraise flows of capital? Economic understanding is important. The basics of macroeconomic theory, once one perceives their general theme, are not really all that hard to grasp. Self-reliant Americans, descendants of rugged pioneers, respect professional expertise but do not believe that one must be a physician, military officer or engineer to master the basics. That Americans fear basic macroeconomics is a remediable anomaly.

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The Economic Nationalist proposes a series of brief pedagogical articles, to follow, to demystify basic macroeconomic theory and to treat it on the high-school level it merits. At least two articles are planned: one article on the price mechanism and the other on the institution of money. The blog recommends the articles to every reader who has heretofore falsely believed economics to be incomprehensible, boring or baffling.

Watch this space! Topical articles are to follow.

Howard J. Harrison
The Economic Nationalist

[Update: the first article in the series is now published here.]

This entry was posted on Thursday, July 31st, 2008 at 2:35 pm and is filed under Economics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.