A good exercise for economics students is to find instances of economic nonsense in a politician’s speech. In his speech of last Wednesday before Congress, President Joe Biden provided good course material. The proverbial Martian landing on Earth would have thought that Biden’s goal was to emulate his immediate predecessor.
Even some elements of style—the interrupted and hanging sentences, and the repeated words, for example—look like an imitation. By the way, render unto Caesar what is Caesar’s: it’s all to the honor of the White House to have reproduced multiple misspeaking events in the official transcript; refreshing honesty, it seems! But this is not what I want to focus on; I will give instead three substantive illustrations of Biden’s “economics.”
On free trade, he comes close to 17th-century protectionism and to his immediate predecessor. Among other anti-economic statements, he said:
There is simply no reason why the blades for wind turbines can’t be built in Pittsburgh instead of Beijing. No reason. None. No reason.
What about the following reasons? Because the blades are cheaper in China so that “we” can use the savings to give money to the poor. Or because they are cheaper in China so that “we” can use “our” national resources to produce something else to export in exchange for more blades—which is, ignoring the collective “we,” the essence of the law of comparative advantage.
Another big problem lies in what used to be called “equal pay for equal work.” As proposed by the Paycheck Fairness Act adopted in April by the House and sent to the Senate, it is not only about the fair sex but about any other sex too: the bill redefines sex as including “gender identity” (“regardless of the individual’s designated sex at birth”) as well as “sex characteristics, including intersex traits.” But let’s ignore these refinements and think of women’s remuneration compared to men’s. In his speech, Biden declared:
We need to ensure greater equity and opportunity for women. And while we’re doing this, let’s get the Paycheck Fairness Act to my desk as well — equal pay.
I assume Biden means “equal pay” for equal work by any person. The problem is, what is equal work? Politicians and bureaucrats don’t know that and cannot calculate it; they can only define it in any way they want (like they do when, for example, they redefine “sex”). Only the market—that is, the free interactions among 160 million individuals in the American labor force plus those with and among the owners of American companies—can compute what a specific job is worth. So “equal work” means nothing but work having the same value on the market or alternatively work with equal pay. Thus “equal pay for equal work” reduces to “equal pay for equal pay”—which goes without saying in classical logic.
It is true that if employers or their employees or customers have what Nobel laureate Gary Becker called “a taste for discrimination,” some pay discrimination can survive competition, although Biden did not mention this argument. But the market has built-in mechanisms against discrimination. It is in an employer’s interest to increase his profits by poaching with a slightly higher wage somebody who, because of discrimination, is not paid the value of his productivity. Any employer not doing so is leaving money on the table. So those who discriminate will automatically pay a price for their discriminatory preferences. This is why free markets usually minimize discrimination better than governments, as was shown by Jim Crow laws.
Ultimately, if women are still paid less than their actual productivity, why don’t women entrepreneurs start companies hiring only women? Investors would be excited to invest in such obvious money-making ventures. If one replies that current anti-discrimination laws would forbid that, one has just confirmed my argument about the inefficiency of the government in fighting discrimination.
If you are not persuaded by this argument, replace “women” by “Caucasians” (Whites excluding Hispanics) and “men” by “Asian Americans,” and ask yourself whether Caucasian households earn less (on average) than Asian American households because they are discriminated against (at equal productivity).
Source: Maddison Project. Reproduced from my book review “From the Republic of Letters to the Great Enrichment,” Regulation, Summer 2018, p. 59.
Last but not least, Biden declared that
trickle-down economics has never worked and it’s time to grow the economy from the bottom and the middle out.
This big ideological statement flies in the face of economic history. The Industrial Revolution and the two centuries that followed showed that capitalism, at least if not too regulated and controlled by the government, benefits nearly everybody in society. The three charts I reproduce illustrate how “trickle-down economics” has worked extraordinarily well for ordinary people. It would be a mistake to think that the main cause for this incredible growth was technological progress, which could not have developed without 19th-century capitalism and even the constrained capitalism of the 20th century.
Observe the meteoric growth in world GDP per capita (that is, production per capita) since the early 19th century, first starting in England and then spreading to the rest of the world. In constant dollars, world GDP per capita went from less than $1,000 in the early 19th century—roughly where it had been since the beginning of our era—to nearly $8,000 in 2010.
Many observations and estimates show how ordinary people benefited from this increase in production and consumption; how, not surprisingly, it “trickled down.” One instance, related to many consequences of economic growth (such as better nutrition, health conditions, housing, etc.), is life expectancy. With the Industrial Revolution in England, life expectancy increased from about 40 years to today’s 81 years. The whole world followed, with an average increase of life expectancy from 30 to 73 years. (Click on the figure to see a larger image.) In most countries, the most humble person lives longer than most privileged individuals in times past.
Reproduced from Johan Norberg, Progress: The Reasons to Look Forward to the Future (London UK: Oneworld, 2016)
Just over the last 70 years, world undernourishment has decreased from half the world population in 1945 to barely more than 10% in 2015. Despite technical progress around them, under-developed countries took off economically only after abandoning the straightjacket of communist-inspired central planning. (In China and India, the return of authoritarian central planning could reverse the trend.)
A final point, more normative: in a speech that wanted to look historic and to celebrate “the American idea,” Biden did not once mention the word “liberty”; he did not once mention the word “individual” either. This level of Newspeak is a feat that even his predecessor did not manage to accomplish.