I teach this course as if it’s the only formal exposure my students will ever have to economics. This approach is realistic, because most of the students in my course will take at most one other economics course during their collegiate careers. I see as my principal responsibility to instill in my students enough knowledge of basic economics so that they, when fully into adulthood, will take an adult stance when encountering economic arguments presented by politicians and pundits.
If I do my job well, each of my students will leave my course at the semester’s end with an understanding of the following ten lessons.
1. Poverty has no causes; wealth has causes. No effort, sacrifice, risk-taking, or creativity is required to be mired in poverty. Following the reverse of Nike’s famous mantra suffices to ensure poverty: Just don’t do it. Poverty is simply the condition that humanity finds itself in if too little wealth is created.
Unlike poverty, wealth doesn’t just happen. To escape poverty requires the creation of wealth. Effort must be put forward, sacrifices must be made, risks must be taken, and creativity must be unleashed – all by us humans – if we are to transform any of the atomic and molecular mash-ups given to us by nature into outputs that improve our lives. Adam Smith signaled this reality in the full title of his magnificent 1776 book, An Inquiry Into the Nature and Causes of the Wealth of Nations.
2. Wealth is created, not “distributed”; therefore, in a market economy the “distribution” of income and of wealth has no policy relevance. To understand that wealth must be created is to understand the indispensable roles of individual human effort, sacrifice, risk-taking, and creativity. Wealth, being a human creation – rather than being goodies created by nature and dispensed like manna from heaven – emerges only from the minds and hands of its creators. It belongs to them. And so in a market economy those individuals who create more wealth have more wealth.
I’m tempted to say that the “distribution” of wealth in such an economy thus has no more policy relevance than does the distribution of “A” grades in a fairly taught-and-tested college classroom. Just as those students who are smartest and who study hardest tend to get the highest grades are entitled to keep their high grades – just as those high grades are not extracted from the grades or brains of students who are less smart or who study less diligently – the wealth earned in markets by high-income earners is not extracted from those people who earn lower incomes. But this formulation doesn’t do the market justice. While in a classroom, “A” students don’t seize their high marks from students who earn lower marks, nor do these “A” students do much to help their less-talented or less-diligent classmates. But in a market economy, individuals who earn high incomes do so only by increasing the economic well-being of other human beings. In a market economy, the higher is Smith’s income relative to that of Jones, the more Smith has done, compared to Jones, to enrich his or her fellow human beings.
3. The economy is impersonal – implying, importantly, that prices and wages are not arbitrary. Nearly all economic phenomena are, as F.A. Hayek was fond of saying, “the results of human action but not of human design.” As Arnold Kling puts it:
Economic outcomes are determined by general forces, like supply and demand, as opposed to the intentions—good or bad—of individuals.
Inflation does not rise because of a surge in greed. And it does not fall because greed recedes.
The grocery store owner does not control the price of eggs. That price is determined by supply and demand.
Market outcomes aren’t intended by anyone – not by God, government, or corporations.
4. It’s good that the economy is impersonal. In an impersonal, market economy you are treated like an adult. What you earn is due, above all, to your efforts and not to your personal connections (or lack thereof), or to the caprice of individuals who might hate you just as easily as might love you.
5. Tradeoffs are inescapable. Save for breathable air on the earth’s surface, every resource, good, or service is scarce – meaning, there isn’t enough of it naturally to satisfy every conceivable human desire that it might be used to satisfy. From this fact follows another – namely, to use a scarce good to satisfy one particular desire necessarily requires that some other desire or desires that could have been satisfied remain unsatisfied. That the market (or any other human institution) fails to satisfy some human desires is true, and will always be true. Good economists understand that this reality is no mark against the market.
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