God Rest Ye Thrifty, Gentlemen

The latest video from the folks who brought us the excellent Fight of the Century is another winner! Here’s their holiday special, “Deck the Halls With Macro Follies”:

As usual, they’ve done their homework, and provided an informative backstory on the men and ideas presented in this video:

Each year, our attention turns to the holidays… and to holiday consumer spending! We’re told repeatedly that, because consumer spending is 70 percent of measured GDP, such spending is vital to economic growth and job creation. This must mean that savings, the opposite of consumption, is bad for growth.

This view of macroeconomics was first popularly asserted by Thomas Malthus in 1820, nearly 200 years ago. Malthus believed recessions were caused by “underconsumption” because there was a “general glut” of goods unsold. To recover from a recession and grow, we needed to stop all the saving and spend more to buy up all the goods on store shelves. Savers are like the miserly Ebenezer Scrooge. If you want a happy holiday, you’ve got to clear those shelves and give people a reason to produce more and create jobs. Or so Malthus thought…

Read the rest here.

Have a happy, economically responsible holiday season, everyone!

I, Pencil

The Competitive Enterprise Institute has produced a great little film based on Leonard Read’s classic essay on the complexity of the free market and Adam Smith’s concept of the “Invisible Hand”. It’s well worth six minutes of your time!

There’s a reason that the “you didn’t build that” rhetoric resonates so well with people: it’s true! To a point. Our President is correct that nothing is built independently of the work of others, but he is absolutely wrong in his application of our interdependence.

Unfortunately, a lot of conservative responses have been equally wrong, insinuating that people are solely responsible for the results of their labor. This fails to grasp the complete picture of how markets work. Understanding the complex principles involved in free trade helps us see that it is precisely this interconnectedness that provides the foundation for our concepts of property rights and the right to profit from one’s own labor. Leonard Read’s essay is one of the very best illustrations of how this works.

CEI is also producing a series of educational videos based on I, Pencil that provide further commentary on the economic ideas it contains.

Here is the first, on “Spontaneous Order” and “Connectivity”:

More videos will be available soon at this website, where you can also find curriculum and other educational resources for teaching these concepts (or learning them yourself). Enjoy!

Stimulating Sandy

Every time a natural disaster strikes, it serves as an opportunity to remind people about the “Broken Window Fallacy”. This faulty economic idea basically states that things like wars, natural disasters, and other destructive actions actually provide a boost to the economy. In his terrific book Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics (my review), Henry Hazlitt wrote that “the broken-window fallacy, under a hundred disguises, is the most persistent in the history of economics.”

We see this fallacy in action in the writing of New York Times columnist Paul Krugman (a winner of the Nobel Prize in economics), who wrote three days after the terrorist attacks of 9/11, “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 even do some economic good.” Similarly, he said last year that fabricating an invasion of space aliens would provide a great way to end the economic slump.

With the arrival of Super Storm Sandy, several publications (including, again, the NYT) have been quick to point out the silver lining that this will result in “increased economic activity”. But while it’s true that there will be increased economic activity that we can see, this type of thinking fails to account for the lost economic activity that we cannot see. Here’s a great video from LearnLiberty.org that demonstrates why the Broken Window Fallacy is wrong:

If this whets your appetite to learn more about economics (one of my favorite subjects!), a great place to start is the aforementioned book by Henry Hazlitt. Additionally, you might check out Frederic Bastiat’s 1850 essay, “That Which Is Seen, and That Which Is Not Seen”, which is the origin of the “broken window” illustration. I also highly recommend the Economics for Everybody DVD series by R.C. Sproul, Jr.

Think Monetary Policy Is Hard to Understand?

Don’t tell that to this 12-year-old, who seems to have it pretty well sorted out. Well done!

Want to educate yourself better about how central banks work? A great place to start is Ron Paul’s book End the Fed. To see why economics is such a big deal (and why I talk about it so much), see my post called Greed and Virtue.

The Road to Serfdom

In honor of F.A. Hayek’s birthday, I thought I’d share this video, which is a five-minute cartoon summary of his excellent book The Road to Serfdom (more about the book below).

This book (available as a free download here), written near the end of World War II, warns that the policies being proposed by many of the allied nations ran the risk of destroying everything they’d been fighting for in their opposition to Hitler. Many economists (such as John Maynard Keynes) were suggesting that after the war, the governments should continue planning all economic activity, just as they had during the war. Keynes, on the other hand, argued that this type of central planning would NOT lead to economic prosperity, but would instead destroy individual freedoms and result in the same type of totalitarianism the world had just seen in Germany.

It was the Keynesian view of economics that prevailed in the 1930′s and 40′s, but time has given more credence to Hayek’s views. The economic debate between Hayek & Keynes has been termed the “Fight of the Century”, and dramatized in two fantastic hip-hop videos (you heard that right) that I posted last year.

Do yourself a favor and read up on economics. Hayek is a great place to start, as is Henry Hazlitt’s Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics (my review).