#124 The March of Foolish Things

By D. Arnott | May 19, 2022
the christian economist dave arnott

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#124 The March of Foolish Things

Senate Majority leader Chuck Schumer wants to lower inflation by increasing taxes.  This is just one of many silly economics ideas that are part of what Thomas Sowell has called “The March of Foolish Things. 

 

Today’s podcast title comes from a Wall Street Journal headline way back in 2015.  It’s based on an interview with the great Thomas Sowell, whom I have declared our greatest living economist.  The title came to mind this week when Senate Majority Leader Chuck Schumer added to the foolish list the following quote, “If you want to get rid of inflation, the only way to do it is to undo a lot of the Trump tax cuts and raise rates.”  Sometimes the level of ignorance on economic matters is just astounding.  Take a look at the graph from my Macroeconomics textbook, authored by Gregory Mankiw.  Notice how the price is artificially increased by taxes when it moves from the equilibrium point on the blue line to the red line.  So Mr. Schumer is saying, “The way to lower prices is to raise prices.”  Kinda makes you wonder which Alice in Wonderland rabbit hole he’s stepped in, doesn’t it?

Ginger and I have this running discussion about determining God’s will for our lives.  The question goes something like, “How do you know when God is closing the door, or Satan is testing you?  Because, if God closed the door, you should stop.  But if Satan is in your way, you should push through.  Our general answer is: The closer you are to the Holy Spirit, the more clear these decisions are.  Ginger and I must not be very close, because we have trouble making some decisions.

You know, the same is true for economics.  When something SEEMS wrong, it probably is.  Or as Benjamin Franklin quipped, “When in doubt, don’t!”  Albert Einstein said, “Science is merely the refinement of everyday thinking.”  Raising prices to stop inflation is NOT everyday thinking.

 

When Prices go Up

I started my Macro class this semester by asking two students simple questions.  I walked into the classroom at 8:00 AM, and didn’t even say “Good morning,” “This is Macro,” or “I’m professor Arnott.”  I approached a young woman and asked, “What’s your name and how much did you pay for the coffee?”  She answered, “Shelby, $4.00.”  I turned to a young man across the aisle and asked “What’s your name, and if the cost of coffee goes up this semester, will Shelby buy more or less?”  His name is Caleb, and he surmised that if the cost of coffee went up, Shelby would buy less.  For the rest of the semester, we called it “The Shelby Rule,” sometimes “The Caleb Rule.”  “Well,” I announced, Caleb has been studying economics for 45 seconds and he knows more about it than President Obama, who edited the Harvard Law Review and was elected President of the United States twice.  President Obama claimed that when you raise the minimum wage, employment goes up.  

Notice the diagram again: As prices go up, less is demanded. The diagram shows the quantity going from 100 to 90.  When you artificially increase the price the quantity demanded decreases.  Back to my story: Then I turn to the class and ask, “Who’s right, your fellow student Caleb or President Obama?”  Some students mumbled, “Caleb.”  And I announced, “Welcome to Macroeconomics,” where a 20-year-old DBU student knows more than a President who earned a total of about 150 million votes in two elections. 

 

Modern Monetary Theory

In a Wall Street Journal article about Mr. Schumer’s plan, the headline states, “Tax Increases Won’t Cure Inflation.”  The subtitle reads, “Another bright idea from the folks who brought you Modern Monetary Theory.”  Good thinking.

I unpack this foolish idea in podcast #31 the Myth of Modern Monetary Theory.  Yes, I like alliteration.  MMT states that the Government can spend without limits, as long as the Fed buys the Treasury bonds to support it.  How foolish.  My sophomores at DBU will tell you pretty quickly, “That decreases the value of the dollar.”  You see, this foolish system works only in a closed system.  So if you never bought or sold anything from outside the US, this MIGHT work.  But we don’t.  My students buy products at Wal-Mart and Target that are made in other countries.

Oh, for even more on the foolishness of Modern Monetary Theory, take a listen to podcast #79 titled There is No Free Manna.  Joe Biden is not Moses, and Jay Powell is not Aaron.  There is no free Manna.  But foolish people will try to convince you there is. 

 

Power

I made this point pretty clearly in my conversation with Dennis Prager this week.  The discussion is available at PragerU, just click on Fireside Chat.  Free Market Capitalism gives people freedom, which we Christians care about.  Socialism is based on power.  That’s reflected in a quote from Modern Monetary Theorist Stephanie Kelton, when she says, “Coordinating higher government spending with higher taxes so that the rest of us are forced to cut back a little to create room for additional government spending,” as MMT evangelist Stephanie Kelton puts it. She says the trick is to “remove spending power from the rest of us” via taxes.”  OH, Ms. Kelton earns high grades for honesty.  She simply wants to remove a LITTLE power from the masses.  At this point, I often ask my DBU students, “Do they still make you read “Animal Farm” in high school?”  Ms. Kelton just wants you to give up a LITTLE spending power.  Then what would she want?

 

Socialists are good at Demand, Not Supply

That’s why there is lots of demand and little supply in places like Cuba, North Korea, and in Venezuela, where about 30% of the population has fled because of a lack of supply.  Oh, by the way, this is a topic for a future podcast, but most of South America is headed in the wrong direction.  Venezuela is economically lost.  Inflation is 50% in Argentina, and Chile and Peru are following Venezuela down the Road to Serfdom, as that guy called it.   As Charles Payne of Fox Business said at the Hillsdale Free Market Forum recently, “You can only vote for Socialism once.”  I just talked about the non-Biblical exercise of power that accompanies socialism.  

You see: This was the theme I visited with Dennis Prager about Christians, well, really anyone who believes in a greater being, is concerned about the economic MEANS because we believe a greater being prescribes our behavior.  Economists care about the ENDS.  Think about that the next time you read any economic analysis.  There is seldom ANY concern for whether the policy is right or wrong, economists almost entirely analyze the outcome.  

Here’s how the great Thomas Sowell expressed it in the afore-mentioned column in 2015, “At one time you had a lot of people who hadn’t had any economics saying foolish things. Now you have well-known economists saying foolish things.”

In 1981, Thomas Sowell argued on a TV program called “Firing Line” that the minimum wage increases unemployment by pricing unskilled workers—young minorities in particular—out of the job market. It’s the same point he makes today, as activists call for a minimum wage of $15.  Do you remember the Shelby rule from the first minute of my Econ class?  As prices go up, people buy less.  And it hurts the poor by cutting off the first step of the ladder of success.  Unions favor minimum wage because they want to saw off that first step.  I unpack that idea in podcast #52 Unions Cause Dis-Union in the Union. 

 

False Gods

The online site openbible.com says there are 100 scriptures about false gods.  I guess The March of Foolish Things was anticipated by God.  Just one today, Matthew 24:11 reads, “Many false prophets will arise and lead many astray.”

Regarding inequality, the great Mr. Sowell says, that people have different outcomes because they make different choices.  There is an assumption that people should be free to make those choices.  The more FREE market capitalism we engender, the greater those choices become.  Notice the accent on the word, “FREE.”  Look, this is pretty simple stuff: Economics is the study of the production and distribution of goods and services.  Christian Economists believe a person should have as much freedom as possible in making those choices.   This produces different outcomes.

“For every year from 1994 to the present, black married couples have had a poverty rate in the single digits,” says Mr. Sowell.  He continues “one of the worst things for blacks is the minimum wage. The worst thing,” he says, is “the public schools run by the teachers’ unions who will protect the most incompetent teacher there is, who will fight tooth and nail against your being able to make a choice and go to voucher schools.”  In podcast #58 titled Why we can’t be Socialist Like Sweden, I point out that EVERY Swedish family is offered a school voucher. 

To purposely limit the choice of individuals is neither Biblically sound nor economically supported.  

In our local church, we sing a praise song titled “Christ be Magnified” by Cory Asbury that includes the lines, “I won’t be formed by feelings, I will hold fast to what is true.”

Quoting Thomas Sowell again, “I think there’s a market for foolish things, and vested interests, too.”  Of course, he’s right.  There IS a market for foolish things.  As I stated to Mr. Prager this week, “If I could give a little sticky note to all talk-show hosts, it would contain for words, “Conservatives think.  Liberals feel.”  And at the end of the interview, I gave Dennis Prager the same encouragement that I will give to you, “Keep thinking.”

Fear God.
Tell the Truth.
Earn a Profit.

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