Why macroeconomics should be a required course for a high school diploma
Anyone with the time should check out this TNR article by Judge Richard Posner. Posner, a star of the law-and-economics movement, has never been known for brevity, but you should at least scan over it. Here’s a paragraph that just jumped out at me:
On the principle that in politics the word "truth" is a synonym for "blunder," [Michael] Chertoff [Secretary of Homeland Security] has been criticized for stating the truism that, other things being equal, fewer resources should be devoted to preventing a terrorist attack that kills thirty people than to preventing one that kills three thousand. The criticism reflects the incapacity of our political class, and not just of the general public, to think in cost-benefit terms. For want of such thinking, we are busy squandering untold billions of dollars to rebuild New Orleans in time for the next flood, an expenditure of conscience money for the government's failure to have responded competently to the hurricane. We cannot even waste money efficiently. Instead of giving the displaced persons cash and letting them decide where and how to live, the government is buying them their housing and thus telling them where and how to live.
Hostility toward cost-benefit analysis is probably the most far-reaching effect of the public’s broad ignorance of basic economic theory. We wouldn’t need tort reform if juries could just be relied upon to apply a reasonable cost-benefit calculation to determine negligence. Instead, corporations and people are punished for doing exactly what they’re supposed to be doing: weighing the costs of precautions against what they will actually prevent. The Ralph Nader-ite on TV or trial lawyer in the court room calls this “costing out”—conjuring up visions of evil actuaries in green eyeshades totting up the cost of settlements to people horribly injured by their unsafe product to see if it costs less than installing the magic-bullet safety device. The standard fall-back is “if we can save just one life...” or “you can’t reduce human life down to a dollar figure…” (Except that’s exactly what they do when they ask for damages based on future earnings, loss of consortium, etc.)
The runner-up for most damaging economic misconception is the idea that supply creates demand (Posner doesn’t touch on this, but since I’m on a roll I figured I pitch this in—it’s one I particularly loathe). This belief animates the charge that marketing is to blame for obesity, smoking, etc. Here’s a good example:
[A]s Marion Nestle points out in her convincing treatise, Food Politics (2002), the food industry now produces 3,800 calories a day for every person in the United States (2,200 to 2,500 would be adequate). That's a 500 calorie-a-day increase since 1970. And, as Nestle notes, the American weight spike in the late 1970s exactly corresponded with the invention of supersizing in fast-food marketing.
Luckily, Congress has gotten ahead of the plaintiff’s bar on this one, but it’s truly sad that there was even a need for it. Hell, even entire countries fall for this claptrap: France is using the same theory to justify proposed tariffs on American books, music, and films. Of course, that’s not saying much—a quick glance at the numbers tells us that France doesn’t grasp most economic concepts. Anybody else bothered by this, or am I way off base here?
On the principle that in politics the word "truth" is a synonym for "blunder," [Michael] Chertoff [Secretary of Homeland Security] has been criticized for stating the truism that, other things being equal, fewer resources should be devoted to preventing a terrorist attack that kills thirty people than to preventing one that kills three thousand. The criticism reflects the incapacity of our political class, and not just of the general public, to think in cost-benefit terms. For want of such thinking, we are busy squandering untold billions of dollars to rebuild New Orleans in time for the next flood, an expenditure of conscience money for the government's failure to have responded competently to the hurricane. We cannot even waste money efficiently. Instead of giving the displaced persons cash and letting them decide where and how to live, the government is buying them their housing and thus telling them where and how to live.
Hostility toward cost-benefit analysis is probably the most far-reaching effect of the public’s broad ignorance of basic economic theory. We wouldn’t need tort reform if juries could just be relied upon to apply a reasonable cost-benefit calculation to determine negligence. Instead, corporations and people are punished for doing exactly what they’re supposed to be doing: weighing the costs of precautions against what they will actually prevent. The Ralph Nader-ite on TV or trial lawyer in the court room calls this “costing out”—conjuring up visions of evil actuaries in green eyeshades totting up the cost of settlements to people horribly injured by their unsafe product to see if it costs less than installing the magic-bullet safety device. The standard fall-back is “if we can save just one life...” or “you can’t reduce human life down to a dollar figure…” (Except that’s exactly what they do when they ask for damages based on future earnings, loss of consortium, etc.)
The runner-up for most damaging economic misconception is the idea that supply creates demand (Posner doesn’t touch on this, but since I’m on a roll I figured I pitch this in—it’s one I particularly loathe). This belief animates the charge that marketing is to blame for obesity, smoking, etc. Here’s a good example:
[A]s Marion Nestle points out in her convincing treatise, Food Politics (2002), the food industry now produces 3,800 calories a day for every person in the United States (2,200 to 2,500 would be adequate). That's a 500 calorie-a-day increase since 1970. And, as Nestle notes, the American weight spike in the late 1970s exactly corresponded with the invention of supersizing in fast-food marketing.
Luckily, Congress has gotten ahead of the plaintiff’s bar on this one, but it’s truly sad that there was even a need for it. Hell, even entire countries fall for this claptrap: France is using the same theory to justify proposed tariffs on American books, music, and films. Of course, that’s not saying much—a quick glance at the numbers tells us that France doesn’t grasp most economic concepts. Anybody else bothered by this, or am I way off base here?
posted by rattlerd | 11:34 AM
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