Saturday, July 25, 2009

Funny Economics

Fred Barnes calls president Obama the know-nothing-in-chief. Because Obama supposedly doesn't understand economics.

I wouldn't be surprised by that, to be quite honest. Most economists don't really understand economics (says she in a snarky voice while filing her scales sharper). Economics is a very fuzzy science and not in that cuddly way.

But Barnes himself has gaping holes in his grasp of the Dismal Science:

Obama professes to believe in free market economics. But no one expects his policies to reflect the unfettered capitalism of a Milton Friedman. That's too much to ask. Demonstrating a passing acquaintance with free market ideas and how they might be used to fight the recession--that's not too much to ask.

But the president talks as if free market solutions are nonexistent, and in his mind they may be. Three weeks after taking office, he said only government "has the resources to jolt our economy back into life." He hasn't retreated, in words or policies, from that view.

At his press conference, Obama endorsed a surtax on families earning more than $1 million a year to pay for his health care initiative. This is no way to get the country out of a recession. Like them or not, millionaires are the folks whose investments create growth and jobs--which are, after all, exactly what the president is hoping for.

There's that free market animal again. It might come as a surprise to Mr. Barnes, but the concept of 'a free market' is not terribly common in economics. There are unregulated markets, true, and there are what economists call competitive markets.

But an unregulated market is not necessarily a competitive market and truly competitive markets are a little less common in real world than in the conservative religion which worships the Jealous God of something called free markets.

Then there's the idea of the rich people as the ones who give the rest of us jobs and growth, through their investments. But actually those people are called entrepreneurs, not rich people. Some rich people have inherited their wealth and some rich people invest and spend it abroad, not here at home.

Note also how Barnes ignores the demand side of the economy altogether. The entrepreneurs are not going to invest if there's no demand for their products and that demand depends on consumers having money. One way to get that money into consumers' paws is through government projects.

Barnes goes on the same way, by focusing on some issues and completely ignoring other issues. For example, he bemoans the high U.S. corporate tax rate and argues that it makes U.S.firms uncompetitive, but he fails to point out that the ultimate corporate tax payments in the U.S. are not high when compared to similar countries, because of all the loopholes the U.S. tax laws allow firms to use.