by Howard Stephenson
The Foundation for Economic Education recently presented its Adam Smith Award to President Václav Klaus of the Czech Republic and to Walter Williams, syndicated journalist and John M. Olin Distinguished Professor of Economics at George Mason University.
As I read their acceptance remarks in the May issue of Notes from FEE I was struck by their clarity about the economic affect of public policy and the reality that economic ignorance has spawned bad public policy throughout history. Their comments caused me to think of a number of bad economic ideas being pushed and good economic ideas being opposed in Utah: The proposed ½ cent sales tax increase for the expansion of mass transit; the proposed $40 million tax subsidy for a soccer stadium; opposition to HOT lanes and toll roads; opposition to competition in the education marketplace; and the 17% increase in state spending this year, to mention only a few.
A portion of Walter Williams comments:
“In making the case for freedom we face three broad classes of people in this world: first, those who are just plain evil; second, those who do evil things because of economic illiteracy; and, third, good people who are economically illiterate. There is little that organizations like FEE can do to fight the truly evil. It is dealing with the latter two that constitutes FEE’s mission. . . Unfortunately, economic illiteracy is intuitive. Take advocacy for increases in the minimum-wage law as an example. What decent person wouldn’t want higher wages for low-skilled workers? If one has the view that an employer needs a certain number of workers in order to perform a given task, then the effect of a mandated higher wage is higher pay for low-skilled workers.
“On the other hand, if you understand that an employer doesn’t simply need a fixed number of workers to perform a given task, you might still be sincerely concerned for the welfare of low-skilled workers but be against increases in the minimum-wage law. Such a person would realize that when the price of a resource rises, employers will seek substitutes. He might substitute capital for labor, he might automate. He might reorganize his productive technique so as to economize on labor costs. He might move his operation to a nation where wages are lower. The workers who lose their jobs will be worse off. Of course, those workers who keep their jobs will be better off, but at the expense of their now unemployed co-worker.
“Some of the responses to the recent sharp rise in gasoline prices show just how intuitive economic illiteracy can be. I’ve heard people offer what they see as “proof” of price gouging by gasoline companies. They explain that they can understand how a supply shock such as Hurricane Katrina or Middle East political instability can cause oil prices to rise. But then they ask: What about all that oil sitting in tanks or in transit, which was purchased before the hurricane or the political disruption? Why does its price rise? That’s what they see as proof of price gouging by the oil companies. What these people don’t realize is that historical prices—what you paid for something yesterday—do not necessarily determine its selling price today. For example, back in 1973, I paid $58,000 for my lovely home in the Valley Forge area of Philadelphia. You can call me a price gouger all you want but I’ll be damned if I’ll sell it for $58,000 in 2006. I’m going to sell it for today’s replacement cost just as the oil companies price their product at today’s replacement cost.
“I am optimistic about the future because I believe that it is ignorance that explains much of what we see. I am optimistic because ignorance is curable. If there is one dereliction of duty by economists, it’s their failure to make relatively simple economic principles available and understandable to the ordinary person,” Mr. Williams said.
A portion of President Václav Klaus’ remarks:
“President Adam Smith will always be acknowledged and admired as the founding father of economics, of this extremely important and powerful social science that I respect and humbly follow. Since the time I discovered it more than four decades ago, the discipline of economics has given me a clear compass, a guiding principle, a very useful and productive way of looking at the world around me. Applicable to everyday life, economics shaped the way I think. It literally opened my eyes.
Adam Smith gave us something more than just a pure science. He viewed economics as an integral part of moral philosophy, and by doing so he provided us with much needed arguments against those who don’t want to understand us and who see us only as merciless, almost inhuman, robot-like utility maximizers. For Adam Smith and for us, economics is a very human science. We believe it is more human, more man-oriented than the moralistic preaching of politically correct, progressive public intellectuals who claim to be better than we are.
“More than that, Adam Smith explained not only the morality, but also the efficiency of markets and, consequently, the immorality and inefficiency of government intervention.
His famous concept of the Invisible Hand, as well as his explanation of the widely dispersed benefits that come from pursuing narrow private interests are of absolutely crucial importance.
“It is important to emphasize that today, at the beginning of the 21st century, the threats to liberty are the same as confronted by Adam Smith 250 years ago . . . The current threats to liberty may wear different “hats,” or better hide their real nature; they may be more sophisticated than before. Due to the high degree of interconnectedness of the whole world those threats may more easily move from one place to another, but in principle they remain the same.
“My understanding of liberty and its preconditions was reinforced by my involvement in the radical transformation of the political, economic, and social systems in my country in the years after the fall of communism.
“We succeeded in liberalizing our country. But in recent years we went through a rather complicated process of approaching and finally joining the European Union. The European Union is an institution where liberty does not serve as the guiding principle. To my great regret we have been moving once again towards a less free and more controlled and regulated economy and society as a whole.
“It is due to this personal experience that I do not see a real threat to liberty in global warming. I don’t see it in the depletion of oil resources; noise pollution; bird flu; and definitely not in insufficient government funding for public schools.
“I see the real threat to liberty, as always, in ideas. I see the threat in policies based on these ideas . . . The substance of such ideas and policies are claims and presuppositions that following private self-interest is always wrong, that people are not rational and not moral and should be controlled, guided, and made better by the anointed who know what is good for the rest of us. Thus the rulers acting in the public interest must restrain freedom in favor of higher values and goals they choose to set.
“We lived in such a system in the past, but I see its many symptoms again in Europe today, and probably, dare I say, in this country as well.
“And finally, there is another danger: the emergence of nonideological but very aggressive ‘isms,’ which are really quite new. Let me at least name them:
• We all care about human rights, but I am afraid of ‘human rightism.’
• We all want to have a healthy environment, but I see the danger in environmentalism.
• To put it politically correctly, I admire the second gender, but I fear feminism.
• We all are enriched by other cultures, but not by multiculturalism.
• I am aware of the importance of voluntary associations, but I fear NGOism.
“In The Theory of Moral Sentiments , published in 1759, Adam Smith tried to understand those who seek to restrain our liberty. He wrote that they want to ‘arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chessboard.’ They do not consider that the ‘pieces upon the chessboard have no other principle of motion besides that which the hand impresses upon them; but that, in the great “chessboard” of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it.’
“I see the current all-embracing legislation influenced by the powerful special-interest groups representing the new ‘isms’ to be a real danger to the liberty of all of us.”