They Fight Economics, but Economics Always Wins

– December 28, 2018 Reading Time: 6 minutes

This year began with an audacious attempt to restore American industrial manufacturing by force of political will. The means toward that end were taxes on imports and a forced disruption of global supply chains supposedly to put America First.

Among the results: factory closings, collapsed sales of American-made motorcycles, falling financials, double-digit increases in steel prices laying waste to corporate profits, higher prices and reduced incomes for American consumers, loss of export markets, higher (yes, higher) trade deficits, and a loss of regime stability so that global confidence in the US has taken a hit.

Whoops.

This was not supposed to happen. But it did. And why? Because economics. Someone has to pay these tariffs, and it is not foreigners. Those costs add up and negatively affect profits, which triggers production slowdowns, price increases, and lower sales. It’s not all at once. It takes place at the margin. But over time, in a highly competitive global marketplace, you live or die by small margins. Defying these forces is expensive and pointless: policy makers have to acquiesce to reality at some point, and then they are left with nothing but wasted time and resources.

Another example concerns the protests for a $15 minimum wage, as if wages are set solely by an act of will rather than supply and demand. All around the country, we saw labor strikes, inevitably accompanied by loving media coverage. How did that work out? Today, you walk into a McDonald’s just about anywhere in the country and place your order through a kiosk that works 24/7 and receives $0 in wages. It’s an expensive machine but brings a revenue bounceback. Those protesting workers presumably found other work.

Whoops.

And that’s the truly interesting thing about economics. It’s the discipline that seeks not to control but understand. And what does it understand? Two things. On the happy side, it seeks a greater appreciation for how freedom — the seeming chaos of the market — outwits all intellectual pretense to unleash the full potential of the human mind. On the heavier side, it demonstrates the profound limits on the human imagination by elucidating the rock-hard limits of the political (violent) means of controlling the world.

This has been the role of economics for hundreds of years. It’s the science that says to the prince: your power is limited by forces outside of your control. In every country since the High Middle Ages, it has been this way. In so doing, economics has shot down exchange controls, price floors and ceilings, high taxes, protectionism, producer subsidies, cartels, and every act of government that messes with the price system and market process.

The Boettke Way

AIER contributor Peter Boettke quotes David Prychitko to sum up the idea: “Economics puts parameters on people’s utopias.” That is the theme of his wonderful book Living Economics, 450 pages of wisdom concerning economics and its place in the world of learning and living. “The teachings of the principles of economics should inform as much on what not to do, perhaps even more than providing a guide to public action.”

For this reason, economists just keep bursting people’s bubbles. Don’t control prices. Don’t socialize medicine. Don’t raise taxes. Don’t inflate the money supply. Don’t put up trade barriers. Don’t go to war. Every generation for the past 500 years has seen the battle waged between those who want to use the power of the state to fit some daydream on the one hand and the economists who have seen the futility in this manipulation and warn against it on the other.

For Boettke, the phrase “living economics” means two things: (1) economics is part of life whether we recognize it or not, and (2) economics is a living discipline, rooted in universal principles but always changing in nuance and application.

Professor Boettke’s purpose is to provide a guided tour through the profession as it is now and to say how he would like to see it changed. He does this by first explaining what got him interested in the science.

When the market is allowed to work, beauty and growth results. Humanity flourishes.

It turns out that he remembers the gas lines of the 1970s and recalls being amazed to discover that they were wholly manufactured by Washington policy. It was the price control on oil combined with inflationary pressures from bad monetary policy. Contrary to what the media mavens and politicians were saying at the time, it had nothing to do with producer greed, secret price manipulation, or financial speculation.

That’s what did it for him. He realized that economics is woven into every aspect of our lives. It is inescapable. When the market is allowed to work, beauty and growth result. Humanity flourishes. When markets are truncated and hobbled, people suffer.

Then he realized how little public understanding there is of economics. And he realized that he could play a role in changing this. Since then, he has. His students are now teaching other students in six different Ph.D.-granting institutions, among dozens of other institutions.

Boettke reflects on the decision to make economics his vocation. Economics as a reality in our world will exist whether there are people around to study and explain it or not. As a discipline, it was very late in developing. And it came about precisely to elucidate the way the world works in order to prevent kings and other big shots from using force to interfere with its mechanisms.

As Boettke puts it, “We do not need to understand economics in order to experience the benefits of freedom of exchange and production. But we may very well need to understand economics in order to sustain and maintain the institutional framework that enables us to realize the benefits that flow from freedom of exchange and production.”

What follows this beginning material is a plunge straight into the core of what economics teaches. Boettke chooses a very engaging path. He tells the story through a series of intellectual biographies of the economists he most admires. We read about his teacher Hans Sennholz, about Ludwig von Mises, F.A. Hayek, and Murray Rothbard — his chapter on Rothbard being particularly celebratory. He covers James Buchanan and Gordon Tullock. Perhaps the most interesting sections are the ones that find “Austrianness” in unusual places — in the work of Kenneth Boulding, for example.

In contrast to most books on economics, this book is very warm and humane. He goes all out to describe economics as the science of human choice in the real world. The prose matches his intellectual sense. We are spared the usual academic pomp and the absurdities of trying to cram people and their spontaneous decisions into mechanical models. He never talks down to his readers; this reader found no showing off, no strutting around, no defensiveness or bickering. The prose and line of thinking are open and generous.

It’s no surprise that the Austrian school is at the core of the narrative. And it informs the whole of his worldview, accounts for why he is able to write about real-world problems, and explains the failure of planning in such lucid terms.

At the same time, Boettke cautions: “The main thing that makes someone an Austrian is not the willingness to identify one’s work with that label, but the substantive propositions in economics that an economist identifies with.” With this in mind, he shows that Austrian ideas are much more widespread than one might suppose.

A book like this will provide anyone vast insight into what economics has to offer the world of ideas. It is an excellent overview about what is great and what is awful in the profession today. But even when he criticizes, there is no anger; instead, there is conviction that openness and frankness is the best path to finding truth. I can’t think of a better book for an economics major to have on hand when the lecture content begins to depart from reality.

Boettke has managed to make economists themselves re-excited about what they do. He will do the same for you, and help you appreciate the creativity, courage, and sheer adventure associated with this grand craft that elucidates the workings of our world like no other. His book is a guide to help politicians and other people to stop fighting the losing battle against economics and start seeing economics as the beautiful science of human possibility.

Moreover, if you take Boettke seriously, you realize something even more spectacular: economics makes it impossible that powerful people can finally rule the world.