EKIP– Expert Club for Economics and Politics A Different Opinion
Jeffrey Dorfman, Forbes
Today's political climate is highly partisan. Debates are filled with personal attacks, harsh words, and outright disagreements, as each side clings tightly to its beliefs. Both sides believe and warrant that their opinion constitutes fact. With that in mind, here are ten economic facts that today's "liberals" need to learn.
1) Government cannot create wealth, jobs, or income. Because it must first take money from someone to spend/redistribute, there is no economic benefit to its redistributive function. Money collected in the form of taxes or loans would be spent or invested in the private sector. Every job the government claims to have created is at the expense of other jobs that would have been created if people had their own money.
2) Income inequality does not (negatively) affect the economy. Poor people spend a larger portion of their income compared to richer people who save a portion of their income. Saving is as good for the economy as consumption (if not better). National income equals consumer spending plus investment plus government spending on goods and services plus net exports. Investment is the result of previously saved money. In fact, savings that lead to an increase in capital will lead to a higher national income in the long run. This is because capital generates income year after year, not just once.
3) Low wages are not exploitation. In a free country, people voluntarily accept employment, so all workers consider their current jobs to be the best of all possible choices. If a business pays its workers much less than they produce, one of its competitors will offer more and hire them. As consumers, when we shop, we enjoy low prices. We certainly don’t want to pay an unreasonable price. The same is true of a business when it buys labor. Workers only get paid more when they become more productive or when the price of what they produce goes up.
4) Environmental overregulation is a regressive tax that hits the poorest hardest. When we worry about pollution more than we need to, about climate change more than we need to, or restrict access to natural resources more than we need to, prices go up. Because the poor spend a larger percentage of their income, price increases are a bigger penalty on the poor.
5) Education is not a public good. We offer publicly funded education to everyone, but it produces human capital, which is privately owned. This human capital means more job skills, more developed talent, and greater productivity potential. People with more human capital tend to earn more, reaping the returns on their education in the form of higher incomes. One argument for the argument that education is a public good is worth refuting here. Yes, education helps people create inventions that benefit society, but in return they will expect to be paid, not given away for free in exchange for their education.
6) CEOs' high salaries are no worse than those of athletes or entertainers. Top professional athletes, TV and movie stars, singers, lawyers, and hedge fund managers all earn large sums of money. But they do not reduce the wages that ordinary workers will receive. The effect of an athlete's high salary on the organizers of a music concert is the same as the effect of an athlete's high salary on anyone else. Only the shareholders of a given company have the right to complain about the CEO's high salary.
7) It's not consumer spending that drives the economy up. One extra leva of investment, government spending, or net exports adds just as much growth as one extra leva of consumer spending. Robert Solow, a Nobel laureate in economics, concluded that nations are richer in the long run if they save a portion of their income – known as the golden rule of savings. So if we can save more and spend less of our income, our children and grandchildren will be better off.
8) When the government provides something “free,” it will be of low quality, will cost more than it needs to, and may not be available when it is needed most. Public education, free healthcare, social programs—does anyone think they are high quality and cost-effective? During the last recession, just when many people wanted to gain new professional skills, colleges in the United States had to cut their budgets and offer fewer classes. The “free” disappeared at the worst possible time.
9) Government cannot address cosmic injustice. No one wants to witness cosmic injustices: children with serious health problems through no fault of their own, families whose homes are destroyed in natural disasters, etc. However, when government intervenes to address cosmic injustice, the price must be paid by someone—typically individuals who have nothing to do with the injustice. Thus, every time government corrects a cosmic injustice, it creates a new entanglement. We as a society may be willing to pay for one cosmic injustice, but we cannot create a world without any superhuman or cosmic injustice.
10) There is no such thing as a free lunch – someone always pays the bill. This is true of all government regulations that promise to provide us with something good; the costs are hidden somewhere in the background. Raising the minimum wage by law not only takes money out of employers’ pockets, but also raises prices for all customers and puts low-wage workers out of work.
Let's not forget economic laws because of political bias
Statists love to talk about compassion. Compassion is great, but it doesn’t negate economic truths. When we support raising the minimum wage, we need to know that jobs will be lost and prices will rise. Protecting the environment is a wonderful thing, but it is also expensive and affects the poor. Politicians like to claim that government spending creates jobs, but the real effect they achieve is to shift employment from one place (sector) to another. Greedy businesses cannot exploit workers, because another greedy business would be happy to exploit them a little less to beat its competitors in the marketplace, and so on until the exploitation disappears.
There is nothing wrong with political disagreement; different beliefs lead to different answers about optimal economic policy. Thus, two people may want to have different opinions about whether a given economic policy should be undertaken, even if they completely agree about its expected effects. What we need to get rid of is disagreement about expected outcomes, not about which outcomes are most desirable. Because everyone is entitled to their own opinions, but not to their own facts.
Translation: Daniel Angelov, originally published on his blog
