Guest Post by Walter E. Williams
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? Dr. Larry Summers, top economic adviser to President 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.
Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate webpage at www.creators.com.
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Economics is a completely fraudulent ‘profession’. I’m no economist and I’ve said the same thing this article proffered for decades. The parts of economics that make sense are all common sense appropriated from common sense.
Economists can’t agree on any particular issue because they have no empirical facts to guide them. Their bogus profession is nothing more than opinion. Their opinions are used to provide cover for the banksters never ending sneaky predatory practices.
Economics was invented to give fractional reserve banking a population of cheerleaders that would saturate the globe with the praises of fractional reserve banking, the merits of Central Bank control, and eliminate all discussion of alternative finance methods (like gold backed currency). It’s another Gate Keeper piled on top of all the other Gate Keepers whose job it is is to ensure the productive class remains enslaved to the non-productive class.
Succinct and very well said.
The more complex, incomprehensible, and convoluted a “science” becomes, the further it strays from the true state of Nature.
……..And the more it confounds and confuses the average Joe, so much so, that the 99% have no idea what’s happening and therefore are unable to complain or revolt but are quietly robbed of their wealth and production. That’s why I have spent the last 20 years trying to get people to understand what the banksters are doing:
The author mixes facts with moral. If there is a catastrophe there will be economic effects (production stalls and -hopefully- regains strength) which you can measure.
The aversion to number these economic effects is a moral one (“How dare you…”) but has nothing to do with economics. I doubt that the economics at George Mason University is any better than elsewhere.
Exactly. Thank you for backing me up. Before I said “boo.”
It’s not a moral decision to include the costs of catastrophe along with the gains to specific parties; it’s an honest one.
So…. Destruction leads to prosperity. Give me your address and I’ll start on your garage. Gonna make you RICH!!!!
That was some mighty fine logrolling.
Here’s the thing- we live in a closed system so it isn’t a zero sum game. It is extremely fluid and at times robust and in places fragile. Economic activity, or more accurately behavior, is a creation of the human mind, a manifest reality rather than a natural phenomenon. Human beings can choose what level of participation they engage in, geography and circumstances of birth can limit your participation rather than your desire and contributions, in fact it obeys very few of the implied behaviors one would associate with- as Walter puts it-fundamental principals of economics.
Comparing economics to gravity was especially trenchant, although not for the reasons he intended. Both concepts are rooted in the belief that these things, which roughly attempt to describe what can be observed, are immutable truths when in fact they are deeply flawed theories, completely unsatisfactory across the full spectrum of observable reality. He benefits economically from writing this type of things and from teaching it to the young, but there are those who are far better writers or who can easily unwind his spurious claims and find no takers in the open market for their work. Thus his economic benefit is rigged because it helps to perpetuate something that is clearly not based upon concrete reality.
His question are natural or man-made disasters good for the economy? doesn’t yield a yes or no answer. They are for the economic situation of the people and companies that do the cleanup and rebuilding, not so much for the people or cities that lose everything. What serves the economic interests of one country (USA) requires the systematic destruction of another (Iraq/Afghanistan), so trying to say this is good or that is bad in economic terms is more a matter of perspective than the laws of physics. For example the atomic weight of gold is universally accepted as 196.966 for all mankind at all times and in all states, whereas the value of a single ounce for a refugee is a thousand fold more valuable economically than it is for a billionaire.
That’s the difference between reality and concept.
You think I can get George Mason University to cut me a check for correcting their professors work?
You’re making too much sense, so, no, they aren’t going to invite you in to spoil their scam.
Isn’t this idea of “order from chaos” just a macro-application of the broken window fallacy?
One of my favorite poems by Someone No One ever heard of.
My father and my Aunt Martha loved this poem and being similar in nature, they both taught us the meaning with huge buckets of water which we all splashed around in like kids do. The only real difference we could make was to empty the tubs with our splashing but there was always more water, Dad said.
But, is there?
https://www.investopedia.com/terms/f/frederic-bastiat.asp
Information about Bastiat
Blah , blah blah, your economics assessment is just as silly as you think the authors is. Truth is we need more economists like this author and his like minded colleagues that look at the entire economic picture and teach it. For you, to teach the next generation of economists that will one day run economic policy, all we need to do is tell them economics is nonsense. Just make sure you do not complain when our economy is run by clueless fools and it shows.
I want to live in a society where no one “runs” the economy.
“Economic activity, or more accurately behavior, is a creation of the human mind, a manifest reality rather than a natural phenomenon.”
Incorrect. There is a direct relationship between civilization’s economic activity and energy and resource consumption. It’s even a constant.
https://arxiv.org/pdf/1010.0428v3.pdf
You’re isolated ‘reality’ about winners and losers assumes that losers can lose indefinitely with not costs to winners. There is a domestic system of winners and losers. There is a global system. Feeding my domestic enemy with foreign conquest is how my domestic enemy got too big to fail. Eliminating producers is a loss for humanity and the team average. An economy is a system, and it can crash. We could pay people to pick up and drop a single piece of trash every day. The benefits to these bureaucrats would be amazing. If the wealth of the economy contracts, it faces the limit of zero. More importantly, economic weakness invites foreign invaders. So does cultural weakness. You seem to reject win-win behavior. We can’t survive without it, and we can’t do it either. We are going extinct and deserve it. We evade the organic process at all costs because it’s risky. It’s riskier in the long-run to stagnate and to live by the sword. *smh*
Doug, I’m sorry, but you don’t make any sense, at all.
your an enigma, wrapped in a puzzle, inside a locked box, with no key.
for good reason, no key.
Men of today are Homo sapien sapien meaning we instinctively work with our hands and minds. This is what creates the economy. The US is presently a controlled economy where government and corporations for good and for bad control the collective output of this economy for their own subjective and objective reasons.
The human animal was built for work and that is why a working man is happier than a non-working one.
A non-working man leads a destructive path for himself and others around him.
A prosperous country; such as the US is, is one where people work either with their hands or their minds; or both.
As I listened to the State of the Union address last night President Trump said something that really struck me. He said that the government will be introducing vocational training back into the high schools across the country. This tells me that manufacturing is coming back to the US. This is really great news because manufacturing jobs will raise the standard of living for many. But what is really important about manufacturing jobs is that it will fulfill the instinctive urge of homo sapiens and that is to work.
Our present day secular economists are lacking one important part in their education about economics and that is spiritual economics. And this lack of an understanding of spiritual economics distorts their concept of economics in general.
In the material realm we live in a world of substance all around us. This substance is ours to form into anything we desire using our hands and our minds. Spiritual economics tells us there is a process we must use to develop this substance. And this process is developed in us through mind. The mind we were given by our creator. When we fail to use our mind to create our prosperity then we are failing our creator and subsequently will become poor in mind and physical living.
There is no static living conditions. The universe is dynamic. Either we become prosperous or we become poor. Hence the saying; the rich get richer and the poor get poorer.
A working slave has dignity? And a slave that refuses to work has none?
Bringing back vocational training so white males are not subjected to college crazies, where they see their tax dollars going to brown skinned people because their daddy left their baby momma and these kids were not subject to taking the ACT or SAT for enrollment to college and were given a scholarship a free ride while whitey pays the taxes and college tuition and reminded daily of whiteys privilege of paying for said tuition….at least whitey will not cuck himself or his vote because he was not brainwashed in college and went the vocational route and has skills and know how And a means to earn a living. Unlike the masses of weirdos and minorities that suck the tuition scholarship tit for a decade and finally graduate under a equality for all therefore they did not grade anything but their efforts and making it to class once a week showed good effort therefore they get a masters in some bullshit and work for the gubberment where they cannot be fired and rule over whitey who, there, will also do all the heavy lifting and make brownie look good….vocational training will stop this. Brownie gubberment manager will rule over another brownie idiot and nothing gets done because whitey went vocational and owns his own metal shop etc. Now watch as politics enters grammar and high school. They will become as liberal as college campuses in the next ten years. Mark my words. These communists will stop at nothing unless its lead at 2200 fps.
https://www.investopedia.com/ask/answers/08/broken-window-fallacy.asp
Really?
Walter? I think a lot of your colleagues spout such inanities, as well as some insanities.
I read Bastiat’s “The Law” and thought it brilliant, why don’t we all just do that. Then, instead of out of chaos, order, we can draw our order our “order” out of the common sense approach to law and justice. Oh, dear, I just the J word, which leads to the ultimate question: Who decides what is Just in an Unjust world?
So, I’m calling you on that one comment, Walter. There is nothing special about your colleagues at George Mason except they are serving their own special brand of self-interest.
As you are, as well.
The law of unintended consequences ! Like the judgement proof individual who plays the game one step ahead of the REPO MAN !
That is how our nations finances are run shifting credit balances from one account to another while enjoying the luxury of printing currency devaluing every thing prudent people save .
Then taxing everything in sight as the debt implosion happens !
Property tax , now there is a royal scam pay up or we take what you thought you own to pay others , government insiders mostly !
Ain’t freedom great , be careful any attempt to challenge the jack booted power of the yoke around your neck will be meet with excessive force including deadly force !
My friend hot his crystal ball reading degree there. Great school. He paints houses.
“In other words, the U.S. [is] forcing Americans through tariffs to pay higher prices for wood and thereby raising the cost of building homes.”
False, and merely a Democratic talking point.
It ignores the facts that (a) there is no “force” involved, merely economic incentives; and (b) the consumer can simply avoid the tariff by avoiding the higher costs (thereby encouraging lower usage of the tariffed product), or buying the product from another (non-tariff) source, or use of similar products from a non-tariff source. If the consumer decides to purchase the product anyway, that is their rational choice, made despite the higher cost.
So why is your government getting involved in the building of your house? Are we punishing Canada or just fucking with the home builder by reducing choices? Paying a higher price is not a rational choice, defending government intervention is rationalizing.
“So why is your government getting involved in the building of your house?”
Where have you been all these decades? The government has been involved for many years. It is a cash cow for them.
Why is there so many gated communities being built with Home Owner Associations, HOA charging fees and telling people how to live on their property?
“Paying a higher price is not a rational choice”
Buying an ice cream stick house is not a rational choice. People are not into making rational choices. They are into what their reptile brain tells them e.g. it looks good, it feels good.
“defending government intervention is rationalizing.”
No it’s not. It is what their reptile brain wants. It is security.
I have been calling neighborhood “prison cell, block D”. And one day As my wife and I were driving past million dollar 3 acre homes I said “look honey, Prison block A where the more equal get to live”. Look at it from google earth and it makes you sick as it is so dystopian….
I see the wood we use today from young trees to build houses. I call these houses ice cream stick houses. I think it is time to change our codes and use other materials now available to build houses.
With the weather becoming more violent in many areas we need to rethink our building practices.
Our building codes are no longer practical.
Shark, thanks for pointing this out. It made me realize the argument in the article is one-sided, incomplete, and misleading.
” 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?… 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.”
What was left out of the argument is that little piece about tariffs on Canadian goods protecting American wood suppliers from Canadian competition. Kind of an important piece of why we impose tariffs in the first place; a big reason why Harley Davidson is still in business today.
Lumber cost to build my home $27,000…..
Instead bought 25 acres (Heavily treed with mature wood) $12,000
Clear cut 25 acres cost $20,000
Sold the trees $68,000
Kept enough wood to build my home and paid off the land and avoided tariffs……priceless
I have always really enjoyed listening to Walter Williams what he says just makes sense .He was on Mark Levin’s show last Sunday evening what a great show.
Trade deficits mean that actual trade– the exchange of goods for goods– is not taking place. Trade deficits mean that mere cash sales are taking place. Cash sales mean that both money and jobs are being exported in exchange for the goods received. Those goods may be cheap for consumers to purchase, but they come with a broader and long term cost to the nation that overshadows and nullifies the cheapness of the goods received.
An easy way to see part of this: if the U.S. were still on the gold standard, persistent trade deficits would mean that all our nation’s gold would eventually end up in China. And even though we now have a fiat currency, sending even that money to China (on a net basis due to the massive $500 billion annual trade deficits) is economically debilitating.
Finally, sending all that money to China enables the communist government there to modernize and expand its military capabilities. And anyone can see that that is very bad for the U.S.
You’re pretty close to being dead-on. If we were on a gold standard, there would be no trade deficit. Gold is “real money”, meaning it has intrinsic value. Trading gold for goods would be like trading oil or lumber for goods. No “deficit”.
The only real “trade deficit” would be if one party got something on credit and hadn’t paid yet. Well, as J.P. Morgan said, “Gold is money, everything else is credit”, meaning especially fiat currency.
So, we’re getting real goods and China is getting a promise to pay; who’s getting screwed? As far as the Chinese military goes, it was also Bastiat that reportedly said, “When goods don’t cross borders, soldiers will”. It isn’t a bad thing that millions of Chinese have been lifted out of abject poverty. Their government would be expanding its military regardless.
None of this is hard, but there are sure a lot of people who apparently cannot get it. Thank God for people like Williams.
As you stated, Gold is “real money”. So exchanging gold for goods is not trade, but a monetary purchase. In any case, all our gold ending up in China would be disastrous for us.
BTW, try suggesting to the Chinese that they shoulder a $500 billion trade deficit for a change. They would politely explain that this is not currently advisable for them. Translation: they are not economic fools.
Chinese soldiers are not going to cross our borders. Certainly not for a trade war.
The Chinese government could not expand its military to any where near the extent it has been doing without the annual $500 billion trade surplus they enjoy.
DJG
Secular government is always changing in form. The United States started as a republic and now it is a oligarchy. Russia became a soviet republic for 70 years and that form of government fell into it’s present form. China has a communist government but circumstances there are rapidly changing since it embraced capitalism.
True China is for China. But it’s silk road project involves the entire world. A 100 year plan. Who knows what the world will be like in 100 years.
Over time people change and so do their thinking. One thing is for sure. This silk road project will open up the entire world for development and commerce like no other time in history.
China is not changing at all.
The silk road will be silk bondage.
This professor might be more credible if he wasn’t an economics professor at George Mason U – renowned for being bought and paid for by the Kochs.
You don’t need to believe me – the Kochs say so themselves: https://www.charleskochfoundation.org/george-mason-facts/
It’s the broken window fallacy which has been comprehensively disproved
Yes, free trade is generally better, though one could argue that enriching and enabling a country dedicated to taking over and stealing all the IP it can is a bad long term play.
It could be that one uses the threat of tariffs or actual tariffs to induce the other side to negotiate to reduce or eliminate them. As anyone with real world negotiation experience knows, eliminating most academics and politicians, if you are known to be bluffing and not willing to get tough the other side will never give in. We tried bluffing for the last 40 years.
All positions must be assessed by way of critical thinking in order to separate the truth from what sounds good on its face. While it is true that the cost of tariffs are ultimately paid by the consumer, it is also true that tariffs encourage domestic production vs. importation. It is also true that tariffs act as a sales tax, which is to say they are a voluntary tax in that people have the choice to purchase items or not. Taxes come in two classifications, voluntary, and taxes by force under threat of violence. Tariffs and sales taxes are voluntary taxes where and income taxes and property taxes are taxes by force under threat of violence. If you think threat of violence is an exaggeration, simply refuse to pay your income tax or property tax and see if you do not end up facing armed officers at your door to either arrest you or steal your property. Voluntary taxes are the only moral taxes, and the only taxes authorized by the original Constitution. Income taxes and property taxes are immoral taxes by force designed to make slaves from once free citizens.
The income tax is unconstitutional that is why it was never ratified by congress and is actually a voluntary tax. Go read history and perform research.