“Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You about Economics,” by John Tamny. Regnery (April 2015), $27.99.
You’re an economist and you don’t even know it. Oh, and your high school economics teacher didn’t know anything. These are two of the main points of John Tamny’s new book, “Popular Economics.”
Tamny, who edits RealClearMarkets and the political economy section of Forbes, uses his 240-page book to remind everyone of the importance of applying basic economic principles to understand the world. Topics previously viewed as boring or confusing, such as capital gains, comparative advantage, anti-trust law, and currency devaluation, clarify though entertaining connections to popular culture.
Tamny echoes the insights of the great nineteenth-century French political economist Frédéric Bastiat throughout the book. People justify too much government policy based on its “seen” positive effects. However, a policy’s negative “unseen” effects are just as real, and can more than outweigh any promised benefits.
Economics Can Be Intriguing
As for the blame, Tamny places it squarely on economists for “mystifying” their profession. Instead of working to describe human action and how voluntary exchange leads to value creation, modern economics has become obsessed with overly complex formulas and charts that are far-removed from reality. Many people detest the hours they had to spend sitting in an Econ 101 class.
But this is not an indictment of the students or a problem with actual economics. The problem arises with how the subject is taught and viewed by academic economists who often suffer from a form of physics envy.
Economics studies human action, so encompasses an inherent problem with attempting to model this with the precision expected of the physical sciences. People left to their own devices are diverse in their ideas, perspectives, and motivations. The Progressive mindset is that greater government control over individuals makes it easier to predict outcomes. However, free choice and innovation do not lend themselves to accurate prediction by mathematical models.
People do not always act rationally, especially when it comes to money. This is just one way in which the real world is much more complex than neoclassical economic models suggest (and most economists wish). Even when economists have laudable intentions, they cannot guarantee their predicted outcomes as long as prices change and individuals have freedom to choose. Better to leave individuals free to create value though innovation and trade.
The Abortive Effects of Big Government
What are some of ways to understand economics under the Tamny, anti-economics-as-physics approach? First, the rich will be just fine if politicians raise their tax rates. Don’t stop reading here, as that is not the point. When marginal tax rates creep up, government takes more and more money from innovative, successful people. Every dollar that Sergey Brin, Peter Thiel, or Jeff Bezos lose to taxes is another dollar they cannot invest in the next promising entrepreneur. This is how companies such as Uber, Facebook, and Apple all got their start.
Entrepreneurs need capital, and the only way government can accrue capital is to take it from citizens through taxes. Instead of flowing to entrepreneurs from those who have been successful, this redirects capital towards “wasteful government spending” (what Tamny claims is a redundant phrase).
Against the seemingly-endless calls for more government spending to create jobs, Tamny argues that “the important question is not how much should government spend to create something as transformative and life-enhancing as the internet, but how much sooner would something as transformative and life-enhancing as the internet appear without the heavy spending of government?” John Maynard Keynes is probably rolling in his grave.
Government bureaucracy is rarely (accurately) described as innovative—as every Department of Motor Vehicles or U.S. Post Office visitor knows. Moving to regulation, Tamny’s main argument is that regulators are always a step or more behind their peers who work in industry, as the best and brightest rarely pursue rigid, tedious government jobs when potential fortunes tantalizingly wait in the private sector.
This is one reason no government bureaucrat could have foreseen the economic appeal or effect of any Apple product, much less designed it. Every time politicians and regulators look down at their iPhones, iPads, or Apple watches, they should be reminded just how the economy actually grows.
We’re All Millionaires Now
The benefits of economic growth extend far beyond tech billionaires. Advances in Internet technology, which remains one of the least-regulated sectors of the economy, have allowed most Americans to carry millions of dollars in their pockets. This means, as Tamny explains, is that the capabilities of all the features in a mid-tier iPhone would have cost over $3 million the year before Bill Clinton was elected president. The opportunity to earn massive profits is what propelled cell phones from the comical bricks the top 1 percent of 1 percent of Americans toted around in the early 1980s, to today’s pocket-sized phone-camera-encyclopedia-television-computer hybrids.
On income inequality, Tamny writes that “growing income among the top earners is a sign that enterprise is being rewarded and technology is advancing… a decline in wealth inequality would be cause for worry, because it would signal reduced opportunity for the ambitious and a stagnating standard of living for everyone else.”
Since those who occupy the top rungs on the income-distribution ladder change, and they earn their fortunes by providing value to others, income inequality “simply does not matter” in a society that allows new entrepreneurs and investors to take chances that could pay off in a rise to the top. In other words, income inequality provides incentives to invest in the proverbial next big thing, then it transforms that next big thing from a luxury good into a common good.
In addition to the smartphone example, much of the latest technology is offered free to users. Everything from Facebook to Twitter to Google search costs users no money. The information age has extended its near-endless benefits to those with low incomes.
As for money, many people, including key policymakers, view saving as a waste. They adopt the archaic view that when someone saves a dollar it sits idle as if it were simply hidden under a mattress. This is not true. Instead, saving or investing money allows capital to move from those who have little use for it now to those who do. A dollar saved is a dollar spent—just more effectively. No one would honestly argue that a professional athlete who wastes his millions on useless toys and ends up penniless is doing the right thing for himself or the economy. Yet this is essentially the thrust behind government stimulus spending for the sake of spending.
Too often people view markets (or governments) as a single-acting body. Rather, as Tamny writes, “Markets are not a living breathing organism any more than an economy is. Markets are simply people with differing views on the price of just about everything. For that reason, markets cannot be said to function properly or improperly; they just function” (italics in original). For this reason, distant bureaucrats cannot control the economy. When policymakers do try to control markets, they skew the important information that true market prices convey.
Tamny covers a variety of other controversial topics including the estate tax, energy independence, and outsourcing. The first he argues is bad, the second pointless, and the third positive. He is persuasive, along with his assessment of how presidents Hoover and Roosevelt mishandled and prolonged the Great Depression.
Even those well-versed in Tamny’s view of economics will walk away from reading the book as more-effective communicators of their views. Those who tune out when they hear the word economics perk their ears when topics such as cars, movies, or sports are discussed. Others, especially those who hated economics in school, will realize that they, too, act as economists every day. “Popular Economics” shows that the keys to economic growth are as easy to understand as why LeBron James applies his talents by playing basketball instead of football.