Teaching Myself Economics, Part I
By P.J. O'Rourke
I taught myself economics.
I'm not saying I did a very good job. But I am saying that the principles of economics are understandable even for a guy like me. I was an English major. I never took a single economics or business class in college.
I wasn't even really an English major. My chosen field of study was "whatever classes meet after noon, preferably only on Tuesdays and Thursdays."
The English professors at my college happened to be a hard-drinking bunch. They didn't get up too early. They were usually hors de combat on Monday and overserved by lunchtime on Friday.
What made me an even worse "econ ignoramus" was the fact that it was the 1960s, and I was a hippie. Hippies considered things like work, savings, investment, and profit to be "a bummer." (Although, with all the "wacky tobacky" we were trafficking, we hippies probably knew more about supply and demand than anybody in the business school.)
I got over being a hippie, but I went on to be a humorist, foreign correspondent, and political commentator who cared nothing about economic matters (other than my own paycheck).
It wasn't until I was about 50 that I finally realized one thing linked every subject I wrote about – whether I was making fun of pop culture, covering a war in the Balkans, or reporting on political campaigns.
Money.
Money isn't the root of all evil. Money is the root of everything. An economic motivation lurks somewhere behind every news story. And I didn't know anything about economics.
I started out by reading the schoolbooks that I would have read if I'd been taking sensible courses in college. Foremost among these was Economics by Paul A. Samuelson and William D. Nordhaus, which was the standard Econ 101 textbook in my day.
Ouch! For one thing, a new hardback copy of Economics retails for $305.37. For another thing, it's 800 pages long and written in a style that's as much fun to read as it is to take the book, lift it above your head, and drop it on your bare foot.
Plus, Samuelson and Nordhaus – while not being left-wing nuts – are pretty much standard-issue big-government liberal tax-and-spend neo-Keynesians. In other words, they're the kind of economists who got our economy into the trouble it's in today.
But it's an important book. Hillary Clinton, Donald Trump, and I are all about the same age. This is likely the book from which Hillary and Trump derived their basic understanding of economics.
The fact that Hillary and Trump don't have a basic understanding of economics makes it all the more important to find out what books they were flipping through and what words they were underlining that made them so ignorant.
I read the whole damn thing and several other typical Econ 101 textbooks. Here's what I learned...
Economists claim to study production, distribution, and consumption. But production requires actual skills, and so it can't be taught by Econ professors because they'd have to know how to do something practical.
And consumption is a private matter. Consider the consumption of toilet paper, condoms, frozen pizza eaten straight out of the microwave in the middle of the night, and cigarettes in the carport when your spouse thinks you've stopped smoking.
Therefore, economics tends to concentrate on distribution.
When economists say "distribution," however, they mean the distribution of everything, not just finished products like the pizzas and the microwave ovens to cook them.
There is also the distribution of raw materials – the seeds and fertilizer needed to grow the pizza toppings and the petrochemicals necessary to make the wood-grain plastic laminates decorating the ovens.
Then there's the distribution of labor – the effort required to freeze the pizza and round up all the microwaves.
And the distribution of capital – the money to buy plastic laminates and market pizzas that taste like quality pizzas.
There's distribution of ideas, too. (Whose idea was it to put pineapple chunks on a pizza?) And there's even distribution of space and time, which is what grocery stores, appliance stores, and Internet-shopping sites really sell us.
They gather the things we want in a place we can get to fast. And voilà, a fattening midnight snack.
All these things that get distributed are called "economic goods." To an economist, anything is an economic good if it can be defined by the concept of "scarcity." And the economist's definition of scarcity is so broad that practically everything can be called scarce.
Air is an economic good. If air gets polluted, we have to pay for catalytic converters and unleaded gasoline to make it breathable again. Even if the air is free, we have limited lung capacity. The more so if we've been out in the carport huffing Camels.
Air is an economic good for each of our bodies, and we hope our bodies are using the air economically – getting lots of O2 into the bloodstream and not just making burps with it.
From an economist's point of view, everything is scarce except desires. Sexual fantasies are not economic goods. But if we try to act on them, they rapidly become economic (or highly uneconomic, as the case may be).
Goods are limited. Wants are unlimited. This observation leads economists to say that the fundamental purpose of economics is finding the best way to make finite goods meet infinite wants (though it never seems to work with sexual fantasies).
While trying to make finite goods meet infinite wants, economists spend a lot of time mulling over something they call "efficiency."
Economists explain efficiency as being the situation in which an economy cannot produce more of one good without producing less of another.
If you have two jobs, you've probably reached labor efficiency. You can't put in more overtime on Job A without putting in less overtime on Job B or the child-welfare authorities will come to your house. You're efficient, although neither of your bosses may think so.
The example of efficiency that Econ textbooks usually give is guns and butter. A society can produce both guns and butter, they say. But if the society wants to produce more guns, it will have to – because of distribution of resources, capital, and labor – produce less butter.
Using this example, you'll notice that at the extreme point of gun-producing efficiency, howitzer guns are being manufactured by cows. And this is just one of the reasons we can't take Econ textbooks too seriously.
Efficiency is a condition that has never been achieved, as you've seen from watching your inefficient Job A and Job B co-workers.
Economists don't really know much about efficiency, and neither does anyone else.
No doubt the citizens of 18th-century England thought they were producing as many lumps of coal and wads of knitting as they possibly could. One more coal miner would mean one less stocking knitter.
Then, James Watt invents the steam engine. Soon, coal carts were hauling themselves, and knitting mills were clicking away automatically. Now, everybody has more socks and more fires to put wet, smelly stocking feet up in front of.
Efficiency is constantly changing, and Econ professors can't keep up with this because they have to grade papers and figure out what "X" and "Y" equal on the graphs they use in their classroom PowerPoint presentations.
One thing that Econ professors do know is that the study of economics is divided into two fields, "microeconomics" and "macroeconomics."
Micro is the study of individual economic behavior. Macro is the study of how economies behave as a whole.
That is, microeconomics concerns things that economists are specifically wrong about. Macroeconomics concerns things economists are generally wrong about.
Or to be more technical, microeconomics is about money you don't have, and macroeconomics is about money the government is out of.
Since these two problems are all tangled up together in real life, I say to hell with the difference between micro and macro.
Economists also make a distinction – for no good reason I can see – between "inputs" and "outputs." Inputs are the jobs, resources, and money we use in order to make the outputs we want, such as money, resources, and jobs.
All outputs – even crap, heartbreak, and enormous illegal profits – turn out to be inputs: manure, movie plots, and legal fees for Panamanian law firms.
Two additional unimportant Econ textbook terms are "supply" and "demand." Scarcity has already explained these. There's lots of demand and not much supply.
Economists measure supply and demand with curves on graphs. When the supply curve goes up, the demand curve goes down. But how true is this? Concerning supply, do I get less hungry because I know I have a freezer full of pizza? My experience with the microwave at 2 a.m. argues otherwise.
As for demand, can we really know how much people want something? The kid "really, really, really" wants a hoverboard. But does he? Or after three times falling on his butt, is he going to leave the thing in the playroom where it catches fire and burns the house down?
Plus, on the supply curve for hoverboard demand, the concept of efficiency shows us that we don't know how many hoverboards can be produced or how cheaply we can produce them. And if we wait until next year, they may be giving out hoverboards free with Happy Meals.
All I learned from reading Econ textbooks is that, of the basic principles of economics, only one is meaningful: "Things are scarce"... which we all knew already.
I didn't feel like I'd gotten very far teaching myself economics from reading Samuelson and Nordhaus. And I hadn't. So I started reading the work of real economists, as opposed to economists writing Econ textbooks. (You can review my thoughts on those works here, here, and here.) And I started to pay attention to the actual economic behavior of actual people.
Fortunately, it turns out that, besides the useless "basic principles of economics," there are "other principles of economics." And these, in fact, are very interesting. I'll cover them in my next column: "Teaching Myself Economics, Part II."
Regards,
P.J. O'Rourke