The Dismal (But Necessary) Science Written on Thursday, May 9, 2013 by Robert Owen
One of the first things my economics professor told our class was that economics has been referred to as “the dismal science”. The second thing he told us was that the economics textbook could cure insomnia. I found that in his second thought he was absolutely correct. The book was deadly boring. But economics as a dismal science is totally wrong.
While the book was useful for looking up individual facts, it was unreadable. In class, however, with human interaction in the form of questions and debate, economics became vibrant and exciting. So much of human interaction is based on economics, I cannot understand how people are not excited by it.
I have felt, for many years, that the college “economics 101” course should actually be taught as a required senior level high school course. What brought me to this opinion was watching “man on the street” interviews on politically based TV shows and reading the comments section of news articles. I have found that there is a dearth of economic understanding in this country and perhaps in the world. Maybe this is why politicians get away with so much spin. If you sound like you know what you are talking about, and the people you are addressing know less than you do, they will, often, just accept your statements as fact.
Economic changes too often create unexpected results. As an example; It is popular among politicians to want to raise the minimum wage. The claim being that a family can’t survive on a weeks pay that low. But the minimum wage is for someone just coming in to the working environment without skills, training, or education. The employer does not know if a new hire will work out. Usually, as skills increase, and as responsibility increases, and a new hire proves their value, raises are forthcoming. Typically, the first raise is after a three months trial period. A person with a family has usually gone through this process years before and is a proven employee. A more typical minimum wage employee would be a recent high school graduate or a part timer still in school with no experience or job history.
Many small businesses that hire at minimum wage are marginally profitable and have competition to worry about. Raising the minimum gives them two options. They can raise prices which may cause a loss of business or they can lay off their least experienced workers and put them on unemployment. Laying off lower quality workers would be the typical decision.
Now these people are on unemployment, draining the coffers, and not paying FICA taxes any longer. They also might alter their spending habits, so business in general suffers. It’s like “Whack-a Mole” with dollars.
One other thing that people need to understand about economics is that you can’t always trust the published statistics. Here are a couple more of my best bad examples. The government just reported 165,000 new jobs in the last month. The problem is that the bulk of these are part time jobs. The total number of full time jobs went down. So we are really not gaining in quality employment.
My second example is the GDP. The GDP has been bouncing along the bottom of dismal swamp for five years now. The big announcement last month was that it went up to 2.5 % on an annual basis. Ladies and gentlemen, that is nothing to brag about. It really needs to be up around 4 %. But from the tone of the announcement you would think that this was a major breakthrough. No, it was not. But wait, there’s more. The Bureau of Economic Analysis, the kind folks that keep track of the GDP for us, announced they are going to change the way they do their calculations. They are going to add the dollars that are spent on research and development. Even if this research produces nothing, the value is going to be added into the GDP. This would be the equivalent of a household adding the value of the garbage they throw away into their net worth. You have to know this is not being done to make the figures more accurate. It’s sole purpose is to give the administration a boost in the business news.
Our economic structure is what supports our country. Handled well, we all have good jobs if we really want them. There is room for new entrepreneurs. Existing business can expand and grow. We all benefit and the world benefits. Handled badly we have, well just look around you…..
