Today Steve Horwitz Enters This Year's Stupidest Economist Alive Contest
Entry submitted by Karl Smith:
Working For the Weekend: There are so many things wrong with this Steve Horowitz post its hard to know where to begin.... Matt Yglesias does an excellent job responding to the claim that we should focus on increasing production not consumption.
People talk about demand during downturns because in a downturn you have an unusually large number of unemployed people. That’s people producing nothing who the year before were producing something. If there were more demand, they’d produce something.... [Y]ou can find lots of examples of countries with lower unemployment rates... that are nonetheless poorer than the United States.... [W]hen you’re not in a downturn, the only way for a country to improve its living standards is to actually get better at producing stuff.... Productive capacity matters—a lot. But when lots of people who want jobs aren’t doing hobs, you’ve got a different problem. A failure to mobilize the productive people you already have...
There is a certain “click” when a concept becomes more than a set of principles or equations but is imbedded into your fundamental understanding of reality. You can see that business cycle macro has “clicked” in what Yglesias writes.
I... want to address another claim that Horwitz makes:
The great irony is that leftists frequently argue that capitalism equals “consumerism.”... [W]e are charged with providing the ideological cover that justifies the consumerism they see as deadening lives and wasting resources. What the leftist critics miss is that economists never saw consumption as the driving force of economic growth and prosperity until the Keynesian criticisms of free markets became ascendant...
So, first off, obviously the desire to consume is the beating heart of all economies. Remember
It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest...
[T]hat “own interest”... is their interest in consuming... using resources to satisfy their wants and needs.... Investment – which is perfectly good Keynesian demand by the way – is using the resources of the universe to create tools that will allow me to make even more stuff in the future. However, I don’t just do this for the hell of it. I hope that one day this investment will lead to a world of even greater consumption. Consumption is still the ultimate goal. Nor does consumption equate with “consumerism”.... [T]aking time off to spend with your kids is consumption.... [I]nvestment... allow[s] us to have more [consumption] in the future. I might not see my kids for two weeks while I build a machine that automatically grades papers for me. I forewent consumption, spending time with my kids, for investment, building a machine. However, once the machine is built I can spend even more time with my kids as the machine does my work for me. That’s the essence of economic growth....
The desire to provide the things we want for our loved ones and community - the desire to consume - is the entire point of the economic exercise and the ultimate source of all of our motivations. Consumption doesn’t mean consumerism. Walks in the park are perfectly good consumption. As is flying kites with your grandkids...
