Lesson 1: Why Is Economics So Dismal?

 

"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."

-- Murray Rothbard

Economics is truly dismal. This is probably not what you were expecting from an opening, but there can be no escaping this label, which was infamously decreed by the Scottish historian Thomas Carlyle during the Nineteenth century. Despite the fact that most individuals have never heard of Carlyle, its no surprise that they would agree with his claim. Whenever I ask someone what they know about economics, the two most common reactions I receive are not unlike the owls you see depicted above. Once the initial dread and discomfort of this question wears off, the most frequent response I am told is that economics has something to do with money, or financial markets. This sort of answer is not necessarily incorrect; economics does have a lot to do with money, but the problem is that this response is that is sort of like saying the ocean has something to do with boats. Clearly, there is a great deal missing if the only thing we know about the ocean is what takes place on its surface. So despite the fact that I agree with Carlyle’s label, the truth is that Economics is not dismal for the reasons he thought it was then, nor for the reasons you think it is today. Economics’ alleged dismalness in fact stems from several issues which this lesson will attempt to address.  

In sum, the reason why Economics is dismal is because it remains one of the most painfully misunderstood subjects known to man.

It problem isn’t that Economics is scarcely known. The problem is that what little most of us do know about Economics is likely steeped in error. For example, even though few individuals claim to be experts in Physics, nearly everyone still possess a correct understanding of many of the principles of physics, such as gravity. Most generally understand that gravity is a universal constant in our world, one whose forces actively guide our actions. As such, we do not find groups of individuals who claim that the Law of gravity doesn’t apply to them. There isn’t anyone who flippantly denies that gravity is a myth - for example, in the case of houses or automobiles - because that would be demonstrably untrue. Yet these are precisely the sort of claims made about the forces of Economics, even by individuals who actually claim to understand them. 

Unfortunately, these sorts of errors in understanding are not surprising. Most of us have had next to nothing in regards to an education in the principles of Economics. Even those whose primary school actually took the subject seriously enough to teach it are likely to have already forgotten everything they learned - with the exception of the words Supply & Demand. Education in general seems quite intent on pushing Economics off the table in order to make room for the seemingly more important subjects of Art, Music, Agriculture, Technology, Architecture, History, Medicine, or Engineering. For example, the American Council of Trustees and Alumni surveyed 100 leading universities across the country to identify which ones require their students to take at least one introductory economics class. Only two institutions - the University of Alaska in Fairbanks and the United States Military Academy at West Point - have an economics requirement. The rest, including the entire Ivy League, the top liberal arts colleges according to U.S. News & World Report, and the flagship public universities in each of the other 49 states, are not doing anything to ensure that their graduates are economically literate.

It goes without saying that the subjects above are indeed important fields of study. No one would deny this. Yet while plenty of movements and public cries can be found calling for students to enter into and preserve these precious academic fields, economics has remained largely ignored. This is profoundly ironic considering that Economics has been the catalyst through which all of these other subjects have even been allowed to develop. Indeed, without the development of modern civilization; without the creation of wealth with allows for greater and greater accomplishment of goals (such as efforts that culminate in the creation of the first computer) it is easily arguable to claim that none of the subjects above would be as advanced as they are today. That understanding alone should help us grasp just how important Economics truly is. Yet the reality is the opposite. Practically no one hold Economics in high regard. But again, why would anyone hold Economics to be critically important, when by its omission alone, we have been essentially taught that the role it plays in our lives is negligible?

However, as much as a lack of educational emphasis for economic literacy remains a problem, it is only half the problem. The other half is that those who actually come to recognize this importance and attempt to learn economics find their first exposures comparable to that of learning an alien language[1]. Just ask anyone unfortunate enough to stumble across a televised discussion on economic issues, and they are likely to conclude that the panel of speakers all sound remarkably similar to the “wonking” teacher from Charlie Brown. In fact, former FED Chairman and Economic guru, Alan Greenspan, fit this illustration frighteningly well, as he was notorious for speaking on Economic topics with such obscurity that even well educated listeners began dubbing his comments as “Greenspeak.” Additionally, most books on Economics aren’t very helpful either. Many are filled with abstract terms and mathematical models that often conflict, confuse, or read like VCR instructions. So while many of the students who take classes in Economics find that they can memorize the subject material, it is often given no practical sense of meaning, which is why they often fail to apply it to the real world, and thus forget most of it by the time they enter adulthood. Sadly Economic education has become the equivalent of teaching cavemen how to operate an automobile. The cavemen might be able to open the doors or operate the pedals, but they still possess no conceptual understanding of what an automobile is or how it mechanically operates.

At the end of the day, widespread economic illiteracy is clearly a problem, but the reasons for it are obvious. If abstract mathematical models and Alan Greenspan have become the archetypes for all things Economic, how could anyone come to the belief that Economics is one of the most important, if not relevant subjects they could ever learn? Even if someone were to concede that economics was important, most individuals would still claim that it wasn’t important enough for them to understand it personally. To most, the notion that everyone should possess some understanding of Economics seems just as impractical as the idea that everyone should possess some understanding of mechanical engineering. Most would say that Economics understanding is only necessary for an eccentric few; inside the walls of a financial establishment where groups of balding men with furrowed brows sit around a large table and discuss interest rates[2].

The Importance of Economics

And thus we have come full circle: Economics is dismal for young adults because it is often seen as complicated, boring, and insignificant – which is why so few understand it. But the good news for you is that the imagery depicted above is quite possibly the very antithesis of everything that Economics is truly about. Economics is not difficult to learn, and in fact can be one of the most interesting subjects you can learn. But sadly, much of what makes much up the confusing and boring stigma attached to Economics today is based less on what Economics actually is and more on what it has become[3]. In many ways, Economics has taken on a sort of ugly duckling syndrome in that it is regarded negatively (and thus avoided) because it is not seen or understood for what it actually is. Because of this, most individual have inadvertently dismissed any practical importance that it has in our lives.  

Yet as mentioned before, what Economics actually is, is responsible for the existence of modern civilization. Indeed, apart from the sound understanding and application of economics, civilization as we know it today would not exist. Now this is not to say that civilization only came about by of the efforts of Economists and their models: Men did not move from caves and loincloths to condos and skinny jeans because Economists got together and engineered our modern civilization from within some lab. Instead, our modern world of technology, irrigation, electricity, arts, entertainments of every conceivable type, machinery, vast arrays a food, air conditioning, the Shake Weight and conceivably everything that we see around us, would not exist as they do today were it not for the tools of social cooperation, capital accumulation, division of labor, and exchange – all of which are purely economic. It has been only by the productive ability of our economies to abundantly produce these goods and services that our lives are even possible, let alone enjoyable. Even a typical day at the beach would be awful apart from the free time, soft towels, comfortable chairs, tanning oils, and skimpy bathing suits that make this experience so much fun!  

However, this point goes far beyond the simple comforts of modern civilization. It undergirds the existence of civilization itself.  For without the gains made through Economics, it is an inescapable fact that most of the world’s population wouldn’t exist. Without the advances in medicine, technology and the productive capacity of our economies to generate the sort of wealth we have today, the plain and simple reality is that most of us could not have been born, let alone well nourished, educated, and kept free from disease. Without this productive capability, there would be nowhere near enough goods and services by which the current population of the world could be fed, kept healthy or even employed. If that wasn’t bad enough, those of us who did managed to survive our birth and infancy would live far shorter lives comprised of poor health, malnourishment, little to no education and backbreaking labor.

Brazen at it may sound, much of the reason why you are able to read these very words is owed largely to Economics.

So if Economics carries any weight of importance at all, it does so because it seeks to answer one of the most important questions of all mankind: How do we create prosperity? Economics asks how individuals might make the best use of what they have so that they might increase their standards of living. It asks how humanity can progress from the rural agrarian society, towards that of the industrial, technological and beyond. The study of Economics should be considered a noble one, because it is the study of how mankind overcomes poverty – the single most destructive force on Earth. For whether it is disease, starvation, low birth rate survival, malnutrition, general poor health or even crime - poverty is either directly or indirectly responsible for more death and suffering than any other force on Earth. Indeed, more so than any other factor, how a nation understands and applies economics ultimately determines whether that nation will look like North America or North Korea.

We Don’t Understand Wealth Creation/Destruction

The biggest problem however, is that the weight of this importance remains lost to most of us. Americans, students in particular, are so wealthy that they have no idea of what true poverty is really like; the sort of destitution experienced by Third-World nations, like North Korea, India, parts of Africa, or Haiti. We have no conception that something as simple as a cell phone, clean running water, or even a pen could depict radical economic progress because we are practically born with them in our hands. In contrast, Journalist and author Barbara Demick has often written and spoken of those whose lives are starkly different than our own. On National Public Radio, Demick recalled one particular the story of a North Korean man who fled his native country, at extreme risk to his life, simply because he learned that the average citizens of South Korea had access to cars and pens. Compare this to many of Americas poorest, who still have a place to live, a television, phone, clean running water, access to food, a microwave oven, a car and all the pens they could ever want. We have no idea what it is like to endanger our very lives all for the possibility of owning pens. 

The point here is not to say that we should feel guilty for the wealth we have created, quite the contrary. However, we should feel some guilt at the fact that we are an extremely wealthy people who have no conception as to how that wealth was created, how it can be preserved, or how it can be lost. It is only once we begin to examine this ignorance that we begin to truly understand why Economics is dismal.

For instance, historian Thomas Woods has cited several ironies regarding our wealth ignorance, such as the fact that most Americans have to come to assume that our standard of living is the standard that should naturally exist everywhere else on Earth. Whenever Woods speaks on the topic, he often jokes that Americans hold candle light vigils and awareness rallies to spread the seemingly shocking knowledge that poverty actually exists somewhere in our world – all the while vigorously demanding that something be done about it. But the irony, Woods explains, is that we have it completely backwards: Poverty is the norm. What we would even label as extreme poverty today is the standard by which most of the world has historically lived since the dawn of time. It was only until very recently that practically every living soul fully understood that their lives would be comprised of hard labor and grinding poverty - followed by swift death. Even if we were to historically turn the dial back just two hundred years, most would like find the average Americans living standard to be practically barbaric: There was no retirement, no pension plans, no vacations to tropical locals and no instant micro-waved gratification - none of the luxuries we enjoy today.

Unfortunately, many of us believe that wealth is something that already exists: That wealth is the simple byproduct of hard work and intelligent minds. However, this overlooks the fact that there have always been hard working and intelligent individuals everywhere on Earth - even in the poorest of countries. Haiti is one such nation which possesses an abundant labor force, a close proximity to one of the richest trading partners in the world (the U.S.), and a tropical climate that is ripe for producing crops. Yet even after receiving billions of dollars in both private and public foreign aid for decades, rather than joining the rest of the modern world, Haiti has remained entrenched in devastating poverty for what seems like forever. Conversely, similar territories that were once just a poor as Haiti, such as Hong Kong, have exploded from decrepit shacks into Skyscrapers within mere decades – without any foreign aid whatsoever. In just fifty years, Hong Kong was transformed from abject poverty into a city that rivals New York despite the fact that it possessed almost no natural resources and an even greater population density than that of neighboring India – which has also possessed terribly poor economic conditions for generations.

Our lack of economic understanding has also made us arrogant. Woods adds that we like to sneer in disgust at the horrific practices made in the past, such as the notion that children were made to work in factories or fields. We see this act comparable to that of slavery and frequently decry against any nation that allows for the existence of child labor. Yet despite our good intentions, we fail to understand that throughout all of history, children have had to work. We fail to understand that the existence of child labor is not primarily the by-product of greedy businessmen with long mustaches looking to shove kids down coalmines for pennies a day, but because economies were so poor that if children did not add to the productivity of their family - then their family would likely starve. By working, these children actually set the groundwork to create enough wealth so that their children might not have to work at such a young age. It is this very productivity that eventually enabled countries like the U.S. to grow wealthy enough that child labor became largely unnecessary. In fact, by 1930, only 6.4 percent of kids between the ages of 10 and 15 were actually employed, and 3 out of 4 of those were in agriculture.[4] The sad truth is that in our ignorance, many attempts to end legitimate child labor in third world countries has forced those children into far more horrifying and illegitimate practices, such as begging, crime and prostitution.  

Finally and worst of all, because most of us do not understand Economics, or Economic History, we fail to understand how wealth can also be destroyed. For instance, most of us inherently accept the false notion that Economics has historically moved along a continually progressing trend. That once discovered, the knowledge for creating economic prosperity cannot be lost or diluted. We believe that each subsequent economic thinker throughout history has continued to refine and espouse a greater understanding of the principles of economics. Its only makes sense that mankind would only get better at understanding a particular realm of science, after all, this is how all the sciences have more or less progressed throughout time. Unfortunately, a reading of Murray Rothbard’s two-part tome, An Austrian Perspective on the History of Economic Thought, thoroughly reveals how history has been repeatedly plagued with societies whose fallacious notion continually derailed, diluted or corrupted both the science of Economic Theory and its application. The results of enacting these fallacies were civilizations that halted technological progress, stifled economic growth, fell into poverty, and destroyed themselves from the inside out. 

Perhaps one of the clearest examples of this was that of the great Roman Empire, a civilization that remains one of the most startling examples of human prosperity and accomplishment. Indeed, throughout its reign, there was nothing like the wonder, power and accomplishment that was Rome: It created structures, such as the Colosseum and the Circus Maximus, which even to this day remain architectural marvels, and also developed one of the first aqueduct systems that brought clean water into the homes of Rome’s one million residents. In its prime, Rome was the center of economic progress; art, philosophy, military tactics, agriculture, mathematics and even entertainment all made vast gains during Rome’s best eras. It has even been suggested that Rome came incredibly close to creating the first industrial revolution, the gains from which would have completely reshaped the world we see today[5]. Unfortunately, Rome never saw such a revolution, which then came about some 1200 years later, because it completely collapsed around the fifth century, after having fallen from its high position and decayed for nearly four centuries prior. 

The question of what caused Rome to fall has been of critical importance because it is key in understanding how wealth (and thus civilization) is destroyed. The truth is that we already have its answer, as historians such as Michael Rostovtzeff and economists such as Ludwig von Mises, have demonstrated how unsound economic policies played the primary role in the impoverishment, decay and eventual collapse of the Roman Empire.[6] And while Rome may have been one of the clearest examples of how economic progress can be reversed and ultimately destroyed, Rome was by no means the only example. Countless other nations have faded away in exactly the same fashion - not at the hands of a more powerful military adversary - but as a result of abandoning sound economics, and thereby crippling these civilizations ability to even sustain themselves. 

Its true that the science of Economics has made advances over time, but this does not infer that sound Economic theory and application cannot be slowed, crippled or even reversed. In fact, real economic progress has only occurred in small pockets of explosive growth within areas such as Ancient Greece, the American and European Industrial Revolution, parts of Ancient China and more recently, Hong Kong and Singapore. Generally speaking, true economic progress has been an extremely rare event throughout history, and sadly, most of the civilizations that have managed to create this explosive growth have also managed to lose it.

Which bring us to today.

The West in general, and the United States in particular, show lifelines that similarly reflect the life of the great Roman Empire[7]. Just a few hundred years ago, most of the world lived in what we would classify as poverty. Yet somehow, America enabled itself to grow at such a startling rate that those Americans who died at the end of the 20^th century died in a world that barely resembled the one they were born into. In the measly span of roughly one hundred years, North America went from horse drawn carriages to manned missions into Space. This kind of technological progress has never occurred in all of human history combined! Yet as expected, our lives of intercontinental travel, instant worldwide communication, retirement, advanced medicine, computer technology, and all manner of entertainments that can make one blind - were all the products of employing sound economics.

Yet just like Rome, where we find ourselves today is a global economy struggling to survive one of the largest economic shocks it has ever experienced, the cause and duration of which are completely alien to most of us. As the U.S. economy still remains stagnant as of the time of this writing (2013), most of us have no clear answers regarding how we arrived at this position, to say nothing about how or when we’ll get out of it. What we see instead are answers and even entire movements that prey on the animosity we feel from having lost our jobs or seen our standards of living reduced. Unfortunately, such animosity merely reflects what Economist Thomas Sowell refers to as our inability to see beyond “Stage One”.  Sowell correctly writes that because individuals don’t possess an economic knowledge to understand the causes for economic problems, they instead supplement causes that placate their emotions. Ultimately lacking any depth of economic analysis, most simply claim that “the economy crashed because [insert people group] were greedy.” Empty statements like this are akin to remarking that a plane has crashed into the ground because of gravity. The answer may be fundamentally true, but not only is it completely devoid of a thorough explanation; it also does nothing to prevent another plane crash.

Economics and Your Life

As we will see, it is a general law of Economics that all humans wish to improve their state of being. All of us want to have better, longer, happier and healthier lives in some fashion or another. But despite the fact that individuals are always working towards achieving better states, our efforts for achieving the outcomes we wish to see are greatly hindered by the fact that we do not understand Economics. Economics is not simply about what takes place on Wall Street, it directly concerns every aspect of our lives.

This is why individuals, such as Robert Murphy, have sharp criticism for those who continue to relegate the importance of economics off to economists such as himself. Murphy asks how anyone could hold any interest in the ills of modern life - energy scarcity, unemployment, quality of education, outsourcing of labor, pollution, crime, endangered animals, lack of affordable housing or transportation, traffic jams, gas prices, income inequality, the falling quality of medical services, or the ever-rising costs of living – and not realize that they have taken an interest in something that is inexorably related to economics? How could anyone wish to see better medical services, better job opportunities, better cell phone services, safer schools or healthier foods without Economics? How could anyone desire an easier way of life and yet still remain woefully oblivious to the role Economics plays in these practical day to day issues? Worse yet, how is it that so many of us hold strong opinions regarding these issues, as well as positions on how they should best be resolved, yet based on no understanding of economics whatsoever?

This is the fundamental problem with Economics and the reason why it has become truly dismal: We possess history-defying levels of wealth, prosperity and abundance, yet most of us have no real clue as to how this wealth was actually created, nor how it can be maintained. Instead, we have been taught to ignore the very science that reveals to us how our world works; how its manifold problems come about, and how they might best be resolved so that individuals can create prosperity. While at its best, this ignorance robs our complaints of any credibility, at its worst, this ignorance does nothing to bring about the solutions we desperately wish to see in our world. 

Therefore, since Economics is inexorably bound to the sort of lives we will live, shouldn’t the general understanding of, and fervent adherence to, that which enables us to create economic prosperity (and end economic destruction) be nothing if not our obligation to understand? 

On this, Economist Ludwig Von Mises correctly answers;

"Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen." [8] (bold added)

Yet even Mises understood that this is no simple (or welcome) task, which is why he adds the following; 

 “the flowering of human society depends on two factors; the intellectual power of outstanding men to conceive sound, social and economic theories and the ability of these or other men to make these ideologies palatable to the majority.”[9] (bold added)

Mises was right: The proliferation of economic understanding doesn’t stand a chance apart from those individuals who can cogently explain it without causing the rest of us to collapse from a brain aneurism. That is where this work comes in. My purpose here is merely that of the translator; to convey the theories and ideas which brilliant men, such as Mises, have conceived in order that you might better understand and actively apply Economics to the world around you. Understanding the difference between what Economics actually is versus what is has become today is another main aspect of this work, because it is a key factor toward understanding why the Economics you read here may appear in stark difference to the economics you see in your classroom or textbook. 

In conclusion, if we truly possess any desire to have lives that consist of relative peace and prosperity, then we would do well to acquire some understanding of the science that enables us to bring such prosperity about. We would do well to understand solutions that can help create a better world; one with newer technologies and innovations that enable individuals to live longer, safer and more prosperous lives. Perhaps most importantly, we would do well to learn about economic fallacies; those policies and notions which - no matter how well intentioned or wondrous they appear to be – destroy wealth and create misery and even death because they ultimately ignore or reject the Laws that Economics is built on. 

It is upon this very concept that our study will begin. 

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[1] This comparison was taken from the authors personal experience.

[2] For Economists, this is known as a party. 

[3] We will examine more of this in later sections.

[4] See EH.net's "Child Labor in the United States" by Robert Whaples, Wake Forest University.

[5] If the first industrial revolution had occurred during Roman times, it is entirely possible that inventions such as the steam engine, the printing press, and the computer could have been created over 1000 years before they eventually were. Just imagine how the world might look if the computer had been created in 1000A.D. 

[6] Rostovtzeff, Michael. Social and Economic History of the Roman Empire. The Clarendon Press. 1926
Mises, Ludwig von. Human Action. Ludwig von Mises Institute; 3rd edition (2010)

[7] For other parallels between America and Rome, see Cullen Murphy’s Are We Rome? Mariner Books; Reprint edition (May 5, 2008)

[8] Human Action. Page 875

[9] Human Action. Pg. 860 Ludwig von Mises Institute; 3rd edition (2010)