Boudreaux on Economic Principles
By David Henderson
Questioner: How’s your wife?
Henny Youngman: Compared to what?
I thought of this old Henny Youngman joke while reading Don Boudreaux’s excellent post this morning, “On the Principles of Economic Principles.”
Don is responding to a statement from blogger Ezra Klein: “”There’s nothing more dangerous than somebody who’s just taken their first economics class.”
I was stunned when I read that statement. Nothing more dangerous? How about someone who hasn’t taken his/her first economics class? Thus the Henny Youngman joke above. Don nicely lays out what you can learn in your first economics class. It does depend, of course, on who teaches it. You’ll probably learn a lot about market failure and little about government failure. So on that I can agree with Ezra, although I don’t know if that’s what he was getting and I strongly suspect that it wasn’t. But you’ll also probably learn that free trade is generally good, if you care about people’s welfare as seen by people themselves, that rent control destroys housing, that the minimum wage destroys jobs for unskilled people, and that high profits in an industry attract entrants, assuming that government doesn’t prevent entry.
Don then goes on to point out, in a Bryan Caplanesque way (and I mean that as a high compliment to both Don and Bryan) that the politician who criticizes free trade doesn’t do so because he/she has a sophisticated view of free trade, but, rather, because he/she doesn’t understand the first thing about free trade.
The typical politician does not oppose free trade because he took an advanced econ course and learned there that, under just the right combination of real-world circumstances, an optimally imposed tariff can be justified on economic grounds. No. The typical politician opposes free trade because he doesn’t understand the first thing about economics. He doesn’t understand that the purpose of trade – any trade – is to enrich people as consumers and not to enrich people as producers. He doesn’t understand that exports are a cost and that imports are a benefit; he thinks that it’s the other way ’round. He doesn’t understand that the specific jobs lost to imports are not the only employment consequences of trade; he doesn’t understand that trade also ‘creates’ jobs in the domestic economy. He doesn’t understand that domestic producers protected by government from competition have diminished, rather than intensified, incentives to improve efficiencies of their operations. He, in short, doesn’t understand the first damn thing about the economics of trade. And nor do most of his constituents. If these constituents understood basic economics and basic economics only, they would better understand that this politicians’ policies are economically harmful and that his policy statements are malarky.
I do have one criticism of this. Don writes above:
He doesn’t understand that the purpose of trade – any trade – is to enrich people as consumers and not to enrich people as producers.
Each trader has his own purpose. There’s not the purpose. If the two people trading are consumers, then Don’s statement is absolutely true. But if one is a producer, it’s absolutely false. The producer is trading because he/she hopes to gain as a producer. Now, of course, the ultimate end of production is consumption. But when I teach gains from exchange, I show that the gains to the consumers are measured by consumer surplus and the gains to producers are measured by producer surplus.