Its professors and students lovingly refer to the field of economics as the “dismal science.” The pervasive cynical humor of economists aside, economics is very much a science, complete with experiments and theories. It is a science in the same way that something like climatology is science, albeit far less difficult.
President Obama’s recent comments about economics while at a “climate change” conference in Paris struck me with brutal irony like a bolt of oblivious lightning from our commander-in-chief: “This is a classic market failure. If you open up an Econ 101 textbook it’ll say the market is very good about determining prices and allocating capital towards its most productive use, except there’s certain externalities…”
It was an impressive display of glossary terms. Obama is correct—this is what a basic economics textbook would tell you. It just seems strange that, for most of his presidency, Obama has completely ignored it.
We Know the Science, We Just Don’t Like It
Several major economic policy positions of the Obama administration fly in the face of widely accepted economic theories, even those taught in Economics 101. Just as Obama said in his press conference last week, “The market is very good about… allocating capital towards its most productive use.”
This is a fundamental economics lesson that people like Thomas Sowell, Milton Friedman, Friedrich Hayek, Ludwig von Mises, Adam Smith, and on have been trying to beat into the heads of those with political power for centuries in order to prevent things like taxpayer bailouts of major corporations, such as General Motors and Chrysler.
Of course, this didn’t stop Obama from giving billions of taxpayer dollars to the companies, which they could not otherwise earn by convincing people to buy their products. In short, the market was allocating resources away from unproductive uses (building cars and trucks nobody wanted), until the government under Obama and the Democratic Congress stepped in and said otherwise.
Many will point out that the auto companies survived following the massive cash injection, yet another fundamental lesson in economics, championed by Frederic Bastiat and later Henry Hazlitt reminds us to consider the seen versus the unseen. We see General Motors and Chrysler (the latter now under Italian ownership) still producing cars and trucks, yet we do not see what free Americans could have otherwise done with the billions of dollars taken from them and given to corporations who didn’t meet their demands.
What other companies could have filled the void? Would Americans have invested more in other forms of transportation? Would they have made investments in reducing their dependence on motor vehicles entirely and increased investments in thriving businesses such as Amazon and telecommunications companies that eliminate the need to leave the home for work and shopping altogether? Perhaps they would have simply just bought better cars and certainly more efficient cars.
Funny enough, all of the above would have undoubtedly helped achieve the goals of Obama and his allies at the Paris climate talks. The science of economics teaches us that there is a price to pay for poor allocation of resources, even if it isn’t readily obvious.
This is the same way climate activists keep their favored industries alive: on the backs of taxpayers. Production tax credits have transferred billions of dollars to the solar and wind industries over the last several years only to have these power sources fail to meet the needs of our grid. All of our wind and solar provided our nation with a combined 2.2 percent of the energy we consumed in 2014, much of it at market-distorting prices.
Ignoring Economic Laws Hurts People
Speaking of prices, Obama also mentioned the price system as one of the ways the market is “very good” at allocating resources. But of course he and many politicians like him forget that the economic principles behind prices also apply to the labor market.
Obama has routinely called for increasing the minimum wage to over $10 an hour, nearly a 40 percent increase from the current federal minimum of $7.25. Democratic Socialist senator and presidential candidate Bernie Sanders backs a hike to $15 an hour, which is more than a 100 percent increase!
Yet if either of them or their ideological allies actually read the Econ 101 textbook Obama referred us to in defense of his climate strategy, then they’d know that setting a price floor above the market equilibrium results in a surplus of supply and a deficit of demand. In the case of the labor market, this situation is better known as higher unemployment. This kind of unemployment strikes particularly hard at younger and poorer people, eliminating job opportunities where they could gain valuable skills and a firm footing at the bottom of the economic ladder. Instead, minimum wage policies only pull the ladder up higher.
This goes beyond theory. Low-wage jobs young and low-skilled people usually hold are simply eliminated. We see evidence everywhere, from the crises caused by record youth unemployment, particularly in minority communities, to the mundane. When was the last time an usher led you to your seats at the theater or someone pumped your gas for you outside of New Jersey?
Who Are the Real Science Deniers?
The list of policies proposed and enacted by the Obama administration and Democrats in Congress that simply defy the laws and widely accepted theories of basic economics is practically endless. Yet, ironically, these are the same people who scold anyone who is even remotely skeptical of the latest climate catastrophe theory, be it global warming, global cooling, climate change, or whatever it is being called these days to avoid inconvenient truths. Some even go so far as to suggest criminalizing this dissent.
The term “science denier” is frequently hurled at those who have any question relating to the relationship between human activity and our immensely complicated climate system and its associated science. Yet those who hurl this stone tend also to be the same people who ignore the most basic tenets of our beloved yet dismal science of economics. Any suggestions as to what we ought to call them?