Economic Literacy Is Not Enough

Better Thinking about the Economy Will Not Dissuade Legalized Plunder

Economic Literacy

Bylund has prepared an intellectually rigorous book, with a tilt towards the Austrian school of economics. (Sebastián Díaz)

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One of the world’s leading authors of economics textbooks—Gregory Mankiw—once shared that all the great ideas in economics are taught at the undergraduate level. Per Bylund of Oklahoma State University, working with the Mises Institute, has sought to compile those great ideas into a single, accessible work: How to Think about the Economy: A Primer (2022).

Economic LiteracyImproving on Economics in One Lesson (1946) by Henry Hazzlitt is no easy task. Bylund has prepared a more intellectually rigorous book, with a tilt towards the Austrian school of economics. With so much foundational economic rationale densely packed into 142 pages, however, that rigor comes at a price. Economics has been my passion for nearly three decades, so I gladly waded into How to Think about the Economy, but the layman will struggle to get excited about the egghead content—at least he will not be as engaged as with Economics in One Lesson.

On the plus side, Bylund’s description of the field aligns it more closely with philosophy or logic than with mathematics or statistics. The latter is the direction economics has evolved, while the former is more intuitive and meaningful to nonprofessionals. One does not need sophisticated mathematics, for example, to understand how minimum-wage laws price workers out of the market and usher in technological replacement.

If readers could come away with just one of the ideas presented, that would be a tremendous step forward. That idea would be scarcity. Since we live in a world of scarce resources, all actions entail tradeoffs. That is the logic behind the phrase, there is no such thing as a free lunch. In other words, whenever we hear of a touted outcome stemming from a policy or action, our immediate questions should be: (1) how much does this cost and (2) what is the next best alternative? The economic mind looks beyond the seen to the unseen, as expounded by Hazlitt and the nineteenth-century political economist Frederic Bastiat

An Eerie Realization

As I finished Bylund’s work, though, I began to feel an uneasiness. Among those of us who care about sound economic reasoning and, in Bylund’s words, “the market’s ongoing, unfolding evolution,” there is a widely held assumption: given broader economic literacy, we will find ever more skeptics of intervention and redistribution. Bylund even goes so far as to write that “economic literacy is the antidote to destructive policy.”

If only that were so. No doubt it is the case for some students of the field. However, public-choice economics suggests a less rosy view. It assumes rational, self-interested decision making in the public domain. Public choice has had a profound impact on my own thinking, and it has opened my eyes to the unsavory reality that rent seekers are well aware of their actions. From public-sector unions to the medical-industrial complex, countless individuals and the organizations that represent them knowingly engage in legalized plunder and regulatory capture.

That stands even when they understand the suffering they impose on others, be that for the taxpayer or the consumer. In fact, heightened awareness could lead even more individuals and organizations to join the plunder and prey on the helpless: if you cannot beat them, join them.

Concentrated Benefits, Dispersed Costs in Latam

Since the Impunity Observer focuses on Latin America, let us consider a few examples of rent-seeking in the region. These cases exhibit conscious parasitism, in which the predator is aware but cares not for the harm he causes.

Does anyone for a second think the dictatorship insiders of Cuba, Nicaragua, and Venezuela genuinely believe in the purported benefits of their socialist revolutions? There might be a few useful idiots on the ground, but those atop the regime perches can see the destruction all around. Even Fidel Castro, later in life, admitted Cuba’s communist system did not work.

Were he and his ilk about to give up on the gravy train? Not for a second: regime continuity was and remains their product. Although Fidel passed away in 2016, his brother and heirs are more than willing to live like medieval kings while the vast majority of Cubans remain captive as modern-day prisoners and slaves.

Consider the fixed exchange-rate system in Argentina. The official and black-market (dólar blue) rates diverge markedly and cause resource dislocation and waste. In particular, the fixed exchange rate reduces willingness to invest and suffocates development. This is clear to anyone with eyes to see in Argentina, including the beneficiaries.

However, those beneficiaries are the ones who are well connected and have access to the favorable exchange rate. They can buy US dollars and foreign goods on the cheap while everyone else suffers. This pattern of concentrated benefits and dispersed costs is so ubiquitous that it has become well known among economists. Once your eyes are opened, you see it nigh everywhere.

Bylund is right that economic literacy is “mind opening because it allows us to truly understand how the world works.” However, his promotion of “proper economic reasoning,” albeit carefully and precisely conveyed, is not uplifting. We realize the stated justifications for interventions are usually a façade, behind which rests ulterior motives. This mind opening can engender cynicism toward human behavior and lead to Bastiat’s conclusion that “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”

Fergus Hodgson

Publisher: Fergus Hodgson, CAIA, is the director of Econ Americas, a financial and economic consultancy. He holds an MBA in finance from Rice University and bachelor’s degrees in economics and political science from Boston University and the University of Waikato. He was the founding editor in chief of the PanAm Post. Follow him on Twitter and LinkedIn.

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