Economics Is the Great Reality Check
There is a sense these days, whether in politics or academia, that people should shape their own realities and each result is as valid or real as any other.
There is a sense these days, whether in politics or academia, that people should shape their own realities and each result is as valid or real as any other. Your truth. My truth. Speaking as a fill-in-the-blank, my view is this and you can tell my theory by the way I just phrased that: identity is truth and there is no other. Let’s all just make things up, dream our dreams and then impose them by force of intimidation or of law.
If nothing else, let’s fight.
Which is precisely why economics is so lovely by comparison. Yes, economists disagree on things. But for the most part, economic science strives to understand universal forces at work, things that unite us and the human experience through time and space regardless of our wishes and dreams. More importantly, regardless of what economists themselves think, economics is an amazing and welcome constraint on flights of intellectual and political fancy.
Last week, for example, Elizabeth Warren’s campaign for the presidency hit a brick wall. That wall was economics. For months, she had faced the demand that she explain how she will pay for her multitudinous promises of hundreds of billions of dollars for everything, because it seemed implausible that a little tax on billionaires could possibly cover the costs. Finally, she coughed up a white paper that explored the revenue side.
Whoops. The numbers didn’t add up. She faced excoriating criticism from people on all sides who said she was essentially engaged in fantasy, and a dangerous one that would lead to a vast pillaging of the middle class. Even that would not be enough. It turns out that it’s not causing reality to change to shout slogans about all the glorious bounties of plenty that would be bestowed upon everyone if only she were given power.
Steven Rattner, who worked for Obama’s Treasury department, notes that Warren’s health care plans propose an
armada of changes (that) would be highly disruptive (for example, to the 156 million Americans who have private health insurance) and expensive (at least $23 trillion over the next decade). To her credit, she proposes to pay for all that spending — but with a mountain of new taxes that would increase federal revenues by more than 50 percent. Talk about expansionary government.
Donald Trump has faced a similar situation over the last 18 months. Somehow he got it in his head sometime in the 1980s that outsourcing production to foreign countries always operates as a cost to the domestic economy. The more dependent Americans are on production outside our borders, he somehow came to believe, the less robust is the domestic economic environment. Assuming the presidency was his time to test the theory. He of all people is reluctant to admit error but even he can’t avoid the reality that American manufacturing has suffered more since his protectionist push began. Markets and business investment have weakened, and the costs of his grand experiment have fallen hard on Americans themselves.
Max Gulker quotes the Wall Street Journal:
The strong evidence is that trade policy is the main growth culprit. U.S. manufacturing has slumped, which is related to slowing exports. Slower growth in China from the trade war has reduced the exports of U.S. farm, industrial and construction equipment. The third-quarter decline in spending for information processing equipment, much of which is exported, was the largest in seven years.
Will either of these two ideological fanatics face the truth that economics is teaching them? It’s hard to say because ideological nuts are hard to crack, especially when their careers depend on keeping them intact. Still, the rest of us can watch and learn and easily observe that their plans are not consistent with any existing reality. They are untenable. Economics is the oracle of truth that exposes political duplicity, intellectual irresponsibility, and fiscal recklessness.
These are beautiful moments when economic reality intervenes and calls out political lies. Economics does this often in the world of politics, exposing dreams and elaborate promises of free things for everyone as nothing but an illusion from Schlaraffenland.
But it’s not only in politics. Economics is a force for keeping things real in all aspects of life. The metaphor of a brick wall is a good one. Economic forces were not erected by any state or powerful interest or even a social-media influencer; economics is baked into the structure of reality itself, a glorious reality check not that different from gravity.
Economics is a ubiquitous and conspicuous set of limits that cause everyone to buck up, cease our simpleton solipsism, face what’s true, become disciplined, get adaptable outside our embedded identity, live within our means, adopt solid values, and lead a good life.
Every one of us at some point has met this reality in our lives. Growing up in a household, we are presented with a world of abundance. Free things come to us in loving homes. We are fed, housed, educated, and kept healthy at the expense of others. This is the only economic reality we know, all the way through our late teen years. You can call it a form of socialism but it’s more accurate to say that we are experiencing affordable benevolence from our caretakers. We just aren’t that aware of it yet.
At some point reality hits. We leave college and get out there and get a job. We find ourselves shocked at how hard it is to earn a buck and how much harder it is to live within our financial means. We realize that if we want nice things tomorrow, we have to forego consumption today. This path works forward through time: the more long term we think and plan, the more security and prosperity we can enjoy.
The other path is to pretend that protesting, screaming something, and inventing far-flung ideologies to justify one’s immaturity will cause reality to bend to our wishes. It’s perhaps understandable in a 7-year old. It’s despicable when this attitude persists into adulthood and takes over politics and academia.
We should celebrate anything that checks this mode of thinking. People denounce economics for being impersonal. In fact, economics is eventually very personal. It bows to no one, no matter how powerful and persuasive. It demands that we shape up, grow up, get real, and face the facts of life. That is precisely why politics and academia today try so hard to ignore it.
[Originally Published at AIER]