It was recently revealed that lefty economist Robert Reich is not – gasp – an economist. It turns out he’s just a left-wing lawyer.
The joke is on those who think Reich’s lack of a PhD is the source of what some deem ignorance. In truth, some of the most economically ignorant individuals on earth have economics PhDs. If you doubt the previous claim, think of just one (of many) horrifyingly wrong, but near-monolithic beliefs held by economists: that WWII ended the Great Depression.
Yes, economists are near unanimous that what killed and maimed humans, that what eviscerated cooperation among humans without which there’s no progress was actually economically beneficial. No, Reich’s ignorance is not rooted in his lack of an economics doctorate.
Speaking of work divided, it never gets old to point out that productivity grows as the number of hands and machines involved in production grow. This is as basic as it gets, and it’s why Adam Smith began The Wealth of Nations with recall of a visit he made to a pin factory. Work divided is the path to specialization, productivity emerges from specialization, and soaring abundance at prices that continue to fall is the reward for both.
It’s just a reminder that all economics is microeconomics, it’s about the individual. And as individuals, we’re not economically harmed by the arrival of more individuals into the workplace right next to us, across town, several states away, across the country, or on the other side of the world. The more workers and machines there are, the better the pay. Pay increases result from rising productivity that is a consequence of rising specialization that is always and everywhere a consequence of more workers.
It’s simple economics, but not seemingly to Wall Street Journal columnist Greg Ip and the credentialed economists he discusses economics with. Ip’s recent piece, “U.S. and IMF Disagree on China” would be a worthy attachment to any piece explaining why Reich’s lack of a PhD is not what holds him back.
Ip writes that the IMF was founded in 1944 “to prevent the sorts of economic imbalances that had brought on the Great Depression.” Ip wrote the latter given his fear (and that of the economists he pals around with) that “imbalances once again threaten global harmony.”
No, that’s not serious. An “economy” is just individuals. If we ignore that the Great Depression had absolutely nothing to do with “imbalances” as is, we can’t ignore that economies are always balanced simply because individuals are. As individuals, our production is our demand. What we don’t demand as a consequence of our production amounts to savings, savings that make us benefactors of others who require near-term access to goods, services, and labor in order to expand their own production.
To Ip and economists in general, a lack of consumption is a bad thing. The columnist writes that “The U.S.” (explicitly) and “the IMF” (implicitly) disdain China’s alleged economic model of “holding down consumption while subsidizing manufacturing and exports, inflicting collateral damage on its trading partners.” This is what economists believe.
Actually, no act of saving subtracts from consumption. Ever. By virtue of producing, the Chinese are driving enormous leaps in consumption, including global consumption that doesn’t necessarily take place in China. Lest Ip et al forget, most of the world’s savers don’t put the money in the proverbial coffee can. What they don’t spend after producing is shifted to those who do spend it.
Which brings us to Jake Sullivan (Biden NSA head) and Jay Shambaugh (U.S. Treasury undersecretary). They lament that “China” is “producing far more than domestic demand, dumping excess onto global markets at artificially low prices, driving manufacturers around the world out of business, and creating a chokehold on supply chains.” Let’s just say those who can, do, and those who can’t become economists. There’s quite simply no such thing as producing “more than domestic demand,” at which point all production is demand. By definition.
As for the Chinese producing “at artificially low prices,” that’s the Chinese at worst subsidizing the rest of the world. As prices fall, we get more in return for our work. Such is the genius of global labor division. The more of it there is, the lower the prices we all enjoy.
Furthermore, others doing doesn’t keep us from doing. Economies aren’t blobs, they’re just people. And people benefit from work divided. It’s all in the introductory pages of The Wealth of Nations, but it’s also in our daily lives. No PhD required.c
