Before You Debate Economics ...

Gentle Respect ^ | 5/16/2007 | Justin

[Jibaholic]

There are two dangerous stages of economics knowledge, one leans left and the other leans right. The first is ignorance, which leads to a zero sum worldview and a failure to appreciate that there ain't no such thing as a free lunch. The next stage is the free market zealot, who employs a priori reasoning from first principles based on perfect competition.

Here is what you need to know to get past both stages.

• The business cycle The president has little impact on the ups and downs of the economy. The Federal Reserve's monetary policy does. Understand the liquidity trap, why it is caused by price stickiness, and how managed inflation helps. Also learn New Keynesian theories of price stickyness. Also learn the austrian theory of the business cycle. Self-test: which theory works better for Japan's recession?
• Deadweight loss from taxation. Taxes do not raise enough money to pay for themselves (except in very circumstances) but they do result in faster economic growth and more jobs (except in rare circumstances). Laffer may be wrong, but Feldstein is right.
• Unintended Consequences of Price Controls. Learn how laws that raise the price - such as minimum wage - result in surplusses (unemployment) and how laws that lower the price - such as rent control - result in shortages. Well-intended economic policies can hurt those they intend to help.
• Game Theory and Market Failure The freerider problem, the tragedy of the commons and public goods. Lean about possible free market alternatives to government interference. Apply this to tax competition and the "race to the bottom."
• Imperfect Competition and market failure. Monopsony, elasticity and market power, and other possible market failures. Also grapple with the austrian theory of market process. Critical tests: Microsoft and cheap consumer electronics.
• Second Best Economics. A sword that cuts both ways. Liberals use to justify government intervention, conservatives use to defend failures of partial deregulation. (see here).
• Productivity. Adam Smith's story of the pin making factory. You'll never look at outsourcing the same way again.
• Public Choice Theory (AKA "government failure") Regulatory groups tend to be "captured" by the industries that they are supposed to regulate. Voters are less knowledgeable than consumers. Structural incentives that lead to government becoming opaque and unresponsive.
• Empirical knowledge of Europe. In particular, hidden unemployment, hourly productivity, demographics, and immigration.

[Kevmo]

Interesting. I try to bump whenever I see “ tragedy of the commons “. I think George Bush followed this line of approach when he tried to introduce the “ownership society”.

http://www.freerepublic.com/forum/a391f6d546577.htm
Pursuit of Liberty: The Tragedy of the Commons

The Tragedy of the Commons
Garrett Hardin (1968)
“The Tragedy of the Commons,” Garrett Hardin, Science, 162(1968):1243-1248.

[onja]

Interesting. I’ll check it out. I have some basic knowledge from comparative politics class, but nothing very specific.

[steve8714]

Business cycles can be intensified by excessive monetary fiddling. The best monetary policy would keep enough money to keep up with expansions or contractions of real GDP as closely as possible, adjusting marginally as numbers are adjusted over time.

[PeteB570]

Man, I really need another cup of coffee.

I thought the title said “Ebonics”.

I’m reading through your post, scratching my head going “When is he going to get to the Ebonics debate part.”

[gcruse]

“Taxes...result in faster economic growth and more jobs”

Then you DO know of a country that taxed itself into properity! Where were you when John Kerry needed you?