Posts Tagged ‘Adam Smith’
August 19th, 2011 at 7:31 pm
Economics Isn’t That Hard, Stupid

In case you missed it, Stephen Moore of the Wall Street Journal explains “Why Americans Hate Economics” with two wonderfully clear paragraphs.

The first explains where economics as a discipline went wrong:

How did modern economics fly off the rails? The answer is that the “invisible hand” of the free enterprise system, first explained in 1776 by Adam Smith, got tossed aside for the new “macroeconomics,” a witchcraft that began to flourish in the 1930s during the rise of Keynes. Macroeconomics simply took basic laws of economics we know to be true for the firm or family—i.e., that demand curves are downward sloping; that when you tax something, you get less of it; that debts have to be repaid—and turned them on their head as national policy.

The second shows where Keynesians err:

The grand pursuit of economics is to overcome scarcity and increase the production of goods and services. Keynesians believe that the economic problem is abundance: too much production and goods on the shelf and too few consumers. Consumers lined up for blocks to buy things in empty stores in communist Russia, but that never sparked production. In macroeconomics today, there is a fatal disregard for the heroes of the economy: the entrepreneur, the risk-taker, the one who innovates and creates the things we want to buy. “All economic problems are about removing impediments to supply, not demand,” Arthur Laffer reminds us.

Knowledge becomes inaccessible only when an influential group decides that reality doesn’t fit their ideal.  The Keynesians have had their day.  It’s time for the proponents of sound money and economic growth to have their turn.