The Economic Nationalist

Russell Roberts brings wise economic counsel.

In testimony before the congressional Joint Economic Committee last week, George Mason University economist Russell Roberts made a … point with regard to job creation and the stimulus. “There is no reliable way of knowing whether the stimulus package has averted a worse situation—or whether it’s part of the problem. There is no consensus in the economics profession on this question, and no empirical evidence that can settle the dispute.’’

Economics, a tremendous science, is badly abused when policymakers fail to grasp the crucial message Dr. Roberts quietly conveys. The message: economics knows some things pretty well; about other things, economics offers interesting theories which observable facts sometimes refute—theories which, though interesting, though even theoretically unrivaled, must therefore be regarded as probably false.

In the particular case in question, regarding the stimulus, Dr. Roberts admits that he finds himself in a double bind. In this case, the facts which might refute the relevant theories are not even observable. That of course does not mean that all the theories are wrong. It does not even mean that the stimulus should not have been tried (though the Economic Nationalist did generally oppose it). What it means is precisely what Dr. Roberts says that it means.

One should hardly expect to discern the proper real-world application of economic theory until one has understood, not only theoretical economic principles, but also Dr. Roberts’ overriding metaprinciple—that there remain important aspects of the real economy economic theory has never adequately explained, nor can hope to explain any time soon.

HJH

The writer outlines the calculus of basic tariff theory in these ten pages of new PDF notes. The notes detail quantitatively the essential analytical reasons the economics profession recommends free trade between nations.

As far as the writer is aware, such notes—written for a serious audience of mathematically inclined non-economists, pitched at the MBA level—have never heretofore appeared on the World Wide Web.

Admittedly, the writer tends to disbelieve the notes’ conclusion—or rather, more precisely, he believes that their mathematics are correct but does not believe in the prudence of their translation to finely tuned practical policy—but he has not prepared the notes because he believes in them. He has prepared them rather because the economics profession believes in them. Foremost among those we wish to convert to the good cause of economic nationalism stand the leading members of the economics profession and, perhaps more importantly, graduate students in economics at our leading universities (the latter of whom, after all, besides still having open minds where their professors’ minds are too often wrongly closed, necessarily tend to represent economics’ rising generation). Such folks deserve respect for their knowledge and expertise even when you and I disagree with their conclusions. One way to show respect is to have taken the time to acquaint oneself with their strongest arguments before presuming to dispute their faulty findings.

They won’t listen to you or to me, after all, so long as they think us untutored. Therefore, if you lack an advanced degree in economics but can handle the requisite single-variable calculus, then you may find it worth your time to study the notes.

As for the rest of you, if calculus is not your thing, don’t let it trouble you overly much. You can page through the notes and look at the graphs if you like but your intuition in the matter is quite right: radical free trade is a horrifically bad idea. The main reason many free traders, including far too many U.S. Congressmen, sophomorically believe in the idea is because they do understand just barely enough calculus to grasp its analytical rationale, because it pleases their vanity to contemplate your supposed ignorance in the matter—or, more likely and worse, because like John McCain they do not understand quite enough calculus and are worried that you might notice. Either way, you and I are not obligated to honor their vanity.

But for those that wish to understand the basic theory in detail, to study the notes could be a profitable exercise nonetheless.

Howard J. Harrison
The Economic Nationalist

(It is regrettably necessary to note that the title does not refer to the president-elect, for to taunt high public officials is not and has never been this blog’s style. Many have the name of Barry. This regards one of the others.)

The Proverbs of Barry:

• In a bear market, money returns to its rightful owner.
• The market is not benevolent.

The Economic Nationalist does not feel sure that it wholly yet understands the first of Barry’s twin proverbs, but both proverbs provoke thought, do they not?

Here is the first article in a planned short series on basic concepts of economic theory, introduced here. (more…)

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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Three insightful articles on the state of the U.S. economy have recently appeared. The first is from the The Economist and
regards the U.S. housing market:

Even the Fed’s most hawkish governors are now hinting at more cuts in interest rates. The weak dollar and strength in emerging economies will indeed boost exports…. Even so, powerful signals point to a long period of sub-par growth. The huge backlog of unsold homes suggests house prices have further to fall—by around 20% going by housing futures. Lower house prices will force Americans to spend less and save more—a process that has hardly started.

(more…)

Ho ho! A whale of a discussion thread on economic theory is now hot underway at What’s Wrong with the World. If you happen not to be Catholic or Orthodox, then some parts of the thread might not speak to you; but if you like economics and you can spare a solid hour for some dense reading, to click the hyperlink now is recommended to you.

(more…)