Nonsense posing as wisdom – time for an economics lesson

“We’re going to cooperate with who?”
Daylife/Getty Images used by permission

Those who said after President Barack Obama’s speech last week to Congress that government does not create wealth, does not create jobs and cannot stimulate the economy spoke nonsense. So do those who say that only private business creates wealth, as if any revenue going to taxes destroys wealth.

Adam Smith, who figured out market capitalism in his 1776 book “The Wealth of Nations,” could set them straight. We have plenty of equally competent economists who understand these issues today. They just do not get the attention that the news media lavish on high-profile politicians and pundits who speak with absolute certainty on matters about which their words show they know nothing.

So why are politicians and commentators who speak economic nonsense treated as sages? And why do so many journalists uncritically repeat their nonsense?

Sadly, the answer is that too few people in public life understand economics, numbers or algebra. Too few people learned, or remember, the crucial concept underlying matters of economics and finance known as accounting identities.

Accounting identities are statements that must be true no matter how you arrange the components. Thus 2+1=3 just as 3-1=2. Likewise, net worth equals assets minus liabilities just as assets equal liabilities plus net worth and profits equal revenue minus costs. But water plus flour does not equal steak.

In economics, Gross Domestic Product equals consumer spending plus government spending plus investment plus the net of exports and imports. Or in its simplest form: Spending = Output = Income.

Economics is like a circle, as Smith figured out 235 years ago. More spending by government creates jobs, whether at war plants making smart bombs, dredging ports so cargo moves efficiently or stimulating the gray matter between young ears to create productive adults. Bombs ultimately destroy value, while ports and education add value.

Now…consider these statements by three prominent Republican lawmakers:

“We need to cut spending now in order to create jobs in America” — House Speaker John Boehner on the floor of the House of Representatives in July 2010. “If government spending would stimulate the economy, we’d be in the middle of a boom” — Senator Mitch McConnell in March 2011. “Government doesn’t create jobs, you do” — Representative Nan Hayworth, M.D., speaking in January to business leaders in her New York district.

None of the comments makes sense. The first violates the accounting identity that spending equals income. The second assumes that the stimulus was big enough to make up for the fall in private sector jobs, when it was less than half what accounting identity algebra showed was needed. The third is just plain nonsense…

RTFA for a tad bit more Economics 101. I’m not going to turn this blog into an economics and history course. But, if you watched business news on business news channels – instead of the news as entertainment channels – you’d bump into a fair number of economists. Yes, there are a few who care more for ideology than history. Damned few compared to the clowns in Congress or the patent leather pundits on TV or cluttering up the Web.

Investors and business people need sound information. That’s why polls, surveys and interviews with people who are participating in the global market economy are more optimistic about the future of our economy, more positive about the remedies being advanced by Obama to resolve our jobs crisis – than the crap sources offered by TV talking heads. There are, after all, essential solutions that have been applied successfully since the Great Depression.

Dissent from folks with a modicum of economics education – like yours truly – is generally of the “you’re not trying hard enough, not committing enough to the fight!”

Dissent from people like the Republicans and their Tea Party brown shirts – is generally of the “Hoover was right, screw the working people and The South will rise again!”

2 thoughts on “Nonsense posing as wisdom – time for an economics lesson

  1. E Trams says:

    Three middle aged or old white men, why am I not surprised (and embarrassed being white myself).

    …and all of them collecting a check from taxpayers along with paid healthcare.

    I have a really good idea about what to tatoo on their foreheads….hypocrit.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.