An Economics Reality Check
An Economics Reality Check
I have been teaching economics since 1967—40 years of it at George
Mason University in Fairfax, Virginia. During that interval, economic
reality has not changed. Just as Galileo’s law about the independent
influence of gravity on falling objects has not changed, neither have
the fundamental principles of economics.
Economics is fun and simple. It’s made complicated by some economics
professors—fortunately, not by my colleagues at George Mason University.
Let’s apply some simple tools of economics to reveal outright myths,
lies, and tricks.
Who is punished by tariffs on imported goods? Let’s go
through the steps.
The Canadian government imposes high tariffs on American dairy
imports. That forces Canadians to pay higher prices for dairy products and
protects Canada’s dairy producers from American competition. What should be the
U.S. government’s response to Canada’s screwing its citizens?
If you were in the Trump administration, you might retaliate by
imposing stiff tariffs on softwood products built from pine, spruce, and
fir trees used by U.S. homebuilders.
In other words, the U.S. should retaliate against Canada’s harming
its citizens by forcing them to pay higher dairy product prices, by
forcing Americans through tariffs to pay higher prices for wood and
thereby raising the cost of building homes.
Many politicians, pundits, and some economists would have us
believe that corporations pay taxes, but do they?
Economists distinguish between entities who ultimately bear the tax
burden and those upon whom tax is initially levied. Just because a tax
is levied on a corporation doesn’t mean that the corporation bears its
burden. Faced with a tax, a corporation can shift the tax burden by
raising its product prices, lowering dividends, or laying off workers.
The lesson here is that only people pay taxes, not legal fictions
like corporations. Corporations are simply tax collectors for the
government.
Similarly, no one would fall for a politician telling a homeowner,
“I’m not going to tax you; I’m going to tax your property.” I guarantee
that it will be a person, not the property, writing out the check to the
taxing authority.
Again, only people pay taxes.
Here’s a question: Are natural or manmade disasters good for the
economy? Larry Summers, top economic adviser to President Barack Obama,
said about the Kobe, Japan, earthquake: “[The disaster] may lead to some
temporary increments ironically to GDP as a process of rebuilding takes
place. In the wake of the earlier Kobe earthquake Japan actually gained
some economic strength.”
After devastating Floridian hurricanes, it’s not uncommon to
read newspaper headlines such as “Storms create lucrative times,” or
“Economic growth from hurricanes could outweigh costs,” or “It’s
a perverse thing … there’s real pain, but from an economic point of view, it
is a plus.”
Then there’s Nobel Laureate Paul Krugman who wrote in his New York
Times column “After the Horror,” after the 9/11 attack, “Ghastly as it
may seem to say this, the terror attack—like the original day of infamy,
which brought an end to the Great Depression—could do some economic
good.”
He went on to explain that rebuilding the destruction would stimulate the economy through business investment and job creation.
One would never hear my colleagues in George Mason University’s economics department spouting such insanities.
Just ask yourself whether the Japanese economy would have faced even
greater opportunities for economic growth had the earthquake also struck
Tokyo, Hiroshima, Yokohama, and other major cities?
Would the 9/11 terrorists have made a greater contribution to our
economy had they also destroyed lives and buildings in Chicago, St.
Louis, Los Angeles, and Atlanta?
The belief that a society benefits from destruction is sheer
lunacy.
French economist Frederic Bastiat (1801-1850) explained it
in his pamphlet “What is Seen and What is Not Seen.” He said,
“There is only one difference between a bad economist and a good one: the
bad economist confines himself to the visible effect; the good economist takes
into account both the effect that can be seen and those effects that must be
foreseen.”
That’s why my George Mason University colleagues are good economists.
An Economics Reality Check
Sarah and Marty Krocak look over their year-end
financial records before learning they are nearly $50,000 in the hole
for the year Dec. 9, 2019, in Montgomery, Minnesota. Dairy and crop
farmers across the Midwest are going out of business due to the
Trump-era tariffs and the operating costs of farming, which have made it
impossible to turn a profit. (Photo: Ricky Carioti/The Washington
Post/Getty Images)
financial records before learning they are nearly $50,000 in the hole
for the year Dec. 9, 2019, in Montgomery, Minnesota. Dairy and crop
farmers across the Midwest are going out of business due to the
Trump-era tariffs and the operating costs of farming, which have made it
impossible to turn a profit. (Photo: Ricky Carioti/The Washington
Post/Getty Images)
I have been teaching economics since 1967—40 years of it at George
Mason University in Fairfax, Virginia. During that interval, economic
reality has not changed. Just as Galileo’s law about the independent
influence of gravity on falling objects has not changed, neither have
the fundamental principles of economics.
Economics is fun and simple. It’s made complicated by some economics
professors—fortunately, not by my colleagues at George Mason University.
Let’s apply some simple tools of economics to reveal outright myths,
lies, and tricks.
Who is punished by tariffs on imported goods? Let’s go
through the steps.
The Canadian government imposes high tariffs on American dairy
imports. That forces Canadians to pay higher prices for dairy products and
protects Canada’s dairy producers from American competition. What should be the
U.S. government’s response to Canada’s screwing its citizens?
If you were in the Trump administration, you might retaliate by
imposing stiff tariffs on softwood products built from pine, spruce, and
fir trees used by U.S. homebuilders.
In other words, the U.S. should retaliate against Canada’s harming
its citizens by forcing them to pay higher dairy product prices, by
forcing Americans through tariffs to pay higher prices for wood and
thereby raising the cost of building homes.
Many politicians, pundits, and some economists would have us
believe that corporations pay taxes, but do they?
Economists distinguish between entities who ultimately bear the tax
burden and those upon whom tax is initially levied. Just because a tax
is levied on a corporation doesn’t mean that the corporation bears its
burden. Faced with a tax, a corporation can shift the tax burden by
raising its product prices, lowering dividends, or laying off workers.
The lesson here is that only people pay taxes, not legal fictions
like corporations. Corporations are simply tax collectors for the
government.
Similarly, no one would fall for a politician telling a homeowner,
“I’m not going to tax you; I’m going to tax your property.” I guarantee
that it will be a person, not the property, writing out the check to the
taxing authority.
Again, only people pay taxes.
Here’s a question: Are natural or manmade disasters good for the
economy? Larry Summers, top economic adviser to President Barack Obama,
said about the Kobe, Japan, earthquake: “[The disaster] may lead to some
temporary increments ironically to GDP as a process of rebuilding takes
place. In the wake of the earlier Kobe earthquake Japan actually gained
some economic strength.”
After devastating Floridian hurricanes, it’s not uncommon to
read newspaper headlines such as “Storms create lucrative times,” or
“Economic growth from hurricanes could outweigh costs,” or “It’s
a perverse thing … there’s real pain, but from an economic point of view, it
is a plus.”
Then there’s Nobel Laureate Paul Krugman who wrote in his New York
Times column “After the Horror,” after the 9/11 attack, “Ghastly as it
may seem to say this, the terror attack—like the original day of infamy,
which brought an end to the Great Depression—could do some economic
good.”
He went on to explain that rebuilding the destruction would stimulate the economy through business investment and job creation.
One would never hear my colleagues in George Mason University’s economics department spouting such insanities.
Just ask yourself whether the Japanese economy would have faced even
greater opportunities for economic growth had the earthquake also struck
Tokyo, Hiroshima, Yokohama, and other major cities?
Would the 9/11 terrorists have made a greater contribution to our
economy had they also destroyed lives and buildings in Chicago, St.
Louis, Los Angeles, and Atlanta?
The belief that a society benefits from destruction is sheer
lunacy.
French economist Frederic Bastiat (1801-1850) explained it
in his pamphlet “What is Seen and What is Not Seen.” He said,
“There is only one difference between a bad economist and a good one: the
bad economist confines himself to the visible effect; the good economist takes
into account both the effect that can be seen and those effects that must be
foreseen.”
That’s why my George Mason University colleagues are good economists.
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