An Economics Reality Check

I have been teaching economics since 1967–40 years of it at
George Mason University in Fairfax, Virginia. During that interval, economic
reality has not changed. Just as Galileo’s law about the independent influence
of gravity on falling objects has not changed, neither have the fundamental
principles of economics.

Economics is fun and simple. It’s made complicated by some
economics professors–fortunately, not by my colleagues at George Mason
University. Let’s apply some simple tools of economics to reveal outright
myths, lies, and tricks.

Who is punished by tariffs on imported goods? Let’s go
through the steps.

The Canadian government imposes high tariffs on American dairy
imports. That forces Canadians to pay higher prices for dairy products and
protects Canada’s dairy producers from American competition. What should be the
U.S. government’s response to Canada’s screwing its citizens?

If you were in the Trump administration, you might retaliate
by imposing stiff tariffs on softwood products built from pine, spruce, and fir
trees used by U.S. homebuilders. In other words, the U.S. should retaliate
against Canada’s harming its citizens by forcing them to pay higher dairy product
prices, by forcing Americans through tariffs to pay higher prices for wood and
thereby raising the cost of building homes.

Many politicians, pundits, and some economists would have us
believe that corporations pay taxes, but do they?

Economists distinguish between entities who ultimately bear the tax burden and those upon whom tax is initially levied. Just because a tax is levied on a corporation doesn’t mean that the corporation bears its burden. Faced with a tax, a corporation can shift the tax burden by raising its product prices, lowering dividends, or laying off workers.

The lesson here is that only people pay taxes, not legal fictions like corporations. Corporations are simply tax collectors for the government.

Similarly, no one would fall for a politician telling a homeowner, “I’m not going to tax you; I’m going to tax your property.” I guarantee that it will be a person, not the property, writing out the check to the taxing authority.

Again, only people pay taxes.

Here’s a question: Are natural or manmade disasters good for
the economy? Dr. Larry Summers, top economic adviser to President Obama, said
about the Kobe, Japan, earthquake: “(The disaster) may lead to some
temporary increments ironically to GDP as a process of rebuilding takes place. In
the wake of the earlier Kobe earthquake Japan actually gained some economic
strength.”

After devastating Floridian hurricanes, it’s not uncommon to
read newspaper headlines such as “Storms create lucrative times,” or
“Economic growth from hurricanes could outweigh costs,” or “It’s
a perverse thing … there’s real pain, but from an economic point of view, it
is a plus.”

Then there’s Nobel Laureate Paul Krugman who wrote in his
New York Times column “After the Horror,” after the 9/11 attack,
“Ghastly as it may seem to say this, the terror attack–like the original
day of infamy, which brought an end to the Great Depression–could do some
economic good.” He went on to explain that rebuilding the destruction
would stimulate the economy through business investment and job creation.

One would never hear my colleagues in George Mason University’s economics department spouting such insanities.

Just ask yourself whether the Japanese economy would have faced even greater opportunities for economic growth had the earthquake also struck Tokyo, Hiroshima, Yokohama, and other major cities? Would the 9/11 terrorists have made a greater contribution to our economy had they also destroyed lives and buildings in Chicago, St. Louis, Los Angeles, and Atlanta?

The belief that a society benefits from destruction is sheer
lunacy.

French economist Frederic Bastiat (1801-1850) explained it
in his pamphlet “What is Seen and What is Not Seen.” He said,
“There is only one difference between a bad economist and a good one: the
bad economist confines himself to the visible effect; the good economist takes
into account both the effect that can be seen and those effects that must be
foreseen.”

That’s why my George Mason University colleagues are good economists.

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