Clicking on banner ads enables JWR to constantly improve
Jewish World Review Feb. 13, 2003 / 11 Adar I, 5763

Robert W. Tracinski

JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Ann Coulter
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
David Limbaugh
Michelle Malkin
Chris Matthews
Michael Medved
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Roger Simon
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports

Bad economics in one lesson | On Tuesday, the Economic Policy Institute (EPI), a left-leaning Washington think tank, published a full-page ad in The New York Times condemning the proposed Bush tax cuts. This pro-tax statement is signed by more than 400 economists, including 10 Nobel laureates -- for what that's worth.

Apparently, it's not worth very much, because the economists' statement is a classic lesson in bad economics.

The EPI economists oppose cutting taxes because that would mean "a permanent change in the tax structure and not the creation of jobs and growth in the near-term." What, then, is the right approach? "To be effective, a stimulus plan should rely on immediate but temporary spending and tax measures to expand demand, and it should also rely on immediate but temporary incentives for investment." Their mantra is "immediate but temporary." The basic message: think short-term.

In his classic 1946 book "Economics in One Lesson" -- an amazingly clear and eye-opening introduction to free-market economics -- Henry Hazlitt described the "one lesson" required for good economics. "The art of economics consists in looking not merely at the immediate but at the longer effect of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." The basic message: think long-term.

Most of today's economists have never learned Hazlitt's one lesson. Instead, they are followers of his more famous contemporary, John Maynard Keynes, whose philosophy was expressed in his famous quip that, "In the long run, we'll all be dead." Based on such shallow wisdom, today's economists feel free to ignore anything but the shortest of short-term consequences.

This focus on the short term, for example, leads the EPI economists to tell us that our first priority should be to "expand demand," i.e., boost immediate consumer spending. But immediate spending only uses up the inventory of goods that have already been produced. The decision to produce new goods -- the decision to spend current revenues to build factories and hire workers -- is a matter, not of consumption, but of investment. These investment decisions are what drive the economy in the long term -- and they are made based on returns projected one year, or three years, or 30 years into the future. They are made with the long term in mind.

The stubbornly myopic outlook of today's economists is expressed in the absurd call for "immediate but temporary incentives for investment." Investment, by its nature, is that which is not "immediate but temporary."

To increase the long-term reward for investors, what we need is precisely a "permanent change in the tax structure." This is particularly true of the proposal to eliminate taxes on stock dividends, a move that would increase the value of long-term stock holdings, an immediate and permanent incentive for investment. Yet the EPI economists single out this measure for special criticism, dismissing it as "not credible as a short-term stimulus."

After all, in the long run, we'll all be dead.

The EPI economists cling to one fig leaf of concern for future consequences: they say they are concerned about the "long-term budget outlook," i.e., deficit spending.

This is a legitimate failure of the Bush budget; it cuts taxes while only seeking to limit the growth of spending. Yet these economists are not really concerned about deficits; their real goal is to protect the welfare state. The problem, they say, is that deficits "reduce the capacity of the government to finance Social Security and Medicare benefits as well as investments in schools, health, infrastructure, and basic research." Note that they see no value in encouraging long-term private investment -- but heaven forbid that we should threaten government "investment" in middle-class entitlements and pork-barrel spending.

This is the deeper lesson of good economics. If the economist should look at remote consequences and the long term, economics itself must look at its ultimate consequences: the moral ends for which we live.

In the minds of leftist economists, the economy does not exist so that productive individuals can enjoy the fruits of their labors. It exists for only one purpose: to divert money from the successful to the unsuccessful. If these economists seek to "stimulate" the economy, it is only so that productive people can, temporarily, become more vigorous draft-horses to drag along a cart loaded with an ever-heavier crowd of unproductive hitchhikers.

What are the consequences of a social system that sacrifices our best producers for the sake of parasites? That is the long-term in which we will, in fact, all be dead.

Enjoy this writer's work? Why not sign-up for the daily JWR update. It's free. Just click here.

Comment on JWR contributor Robert W. Tracinski's column by clicking here.

02/06/03: Defending America's second front
01/29/03: The self-made state of the states
01/23/03: The Iraq charade
01/17/03: Atlas Shrugs in Venezuela
01/03/03: Goodbye to Gehry's bad joke
12/19/02: The Dems' sorry lot
12/11/02: Venezuela's lonely rebellion
12/05/02: Red-tape conservationists
11/27/02: The craven appeasement of Islam by the West
11/20/02: The real revolutionaries
11/14/02: President must still release himself from political trap
11/06/02: The election we deserve
10/31/02: The rush from judgment
10/23/02: The grand illusion
10/17/02: Loose lips in the pressroom
10/10/02: Permission to speak
10/03/02: The bear market makes the case for privatizing social security
09/27/02: Enron vs. Atlas Shrugged
09/19/02: Bush loses the war, again
09/11/02: What have we lost?
09/05/02: The case for "destabilization"
08/29/02: "Sustainable" development's unsustainable contradictions
08/22/02: The photographing of public art and architecture has apparently been deemed a threat to the Republic
08/14/02: Talk vs. ideas
08/12/02: Blood for oil
08/06/02: The welfare debate we're not having
07/30/02: Newsflash: Hauling CEOs away in manacles makes market soar!
07/23/02: Clearing the way for real airport security
07/16/02: The war on CEOs
07/09/02: Small-time crooks
06/27/02: Martha and the tall poppies
06/21/02: The post-colonialist famine
06/12/02: America's Maginot Line
06/07/02: Time's up for Pakistan
05/28/02: Freedom's defenders
05/22/02: What they knew and when they knew it
05/16/02: The mixed-economy monster
05/08/02: Conference in Cloud Cuckoo Land
04/25/02: The 'Palestinian" victims?
04/18/02: Why Israel must not withdraw
04/09/02: LIVE FROM RAMALLAH: The Theater of the Absurd
03/26/02: Campaign finance corruption
03/21/02: Who is George Bush?
03/14/02: The prophets of defeatism
02/21/02: The war on terrorism and the war on reality
02/14/02: Multilateralism's one-way street
02/05/02: The Powell Problem
01/29/02: A profligate and irresponsible distortion of congressional priorities
01/22/02: Liberal conspiracy theories
01/15/02: Fading shock and fading resolve
01/08/02: Argentina's intellectual collapse
12/31/02: The real person of the year
12/26/01: With friends like us ...
12/19/01: Ending the "peace process war"
12/11/01: The ruthless grip of logic
12/04/01: War powers without war
11/27/01: An Afghanistan Thanksgiving
11/20/01: The end of the beginning
11/06/01: The phony war
10/30/01: A war against Islam
10/23/01: The economics of war
10/16/01: A culture of death
10/11/01: An empire of ideals
10/01/01: Why they hate us
09/24/01: The lessons of war
09/20/01: What a real war looks like
09/17/01: America's war song
09/12/01: It is worse than Pearl Harbor
09/11/01: Out of the fire and back into the frying pan
09/05/01: The UN Conference of Racists
08/28/01: Waging war on profits and lives
08/20/01: The Bizarro-World War
08/08/01: The death toll of environmentalism
07/31/01: Where does America stand?
07/25/01: Barbarians at the G8
07/17/01: The carrot and the carrot
07/11/01: The real Brave New World
07/03/01: The child-manipulators
06/19/01: The scientist trap
06/11/01: The National Academy of Dubious Science