The horizon is not so far as we can see, but as far as we can imagine

What Economics Gets Wrong (Almost Everything)

Economics as a discipline is nearly worthless. What it teaches mostly isn’t true.

  • Decreasing price does not always increase demand and increasing price sometimes increases demand (aka. the law of supply and demand isn’t a law.)
  • People do not optimize utility (by any definition that is not circular).
  • People are not rational.
  • The market is not rational.
  • The market does not discount the future well at all.
  • Competitive markets are created by government, and destroyed by private actors.
  • Markets do not and never have properly priced externalities and never will do so while humans remain human. The only way to price externalities properly is thru government or custom (government in drag.)
  • Profit or loss in any enterprise in a modern economy is a social choice, entirely based on government and social decisions and mostly unrelated to fundamentals like energy in and energy out.
  • Railroads are far more efficient, energy wise than roads, but govt. subsidizes roads.
  • The vast majority of profit is based on market position and sustained profit is almost always based on having an unfair advantage that makes the market less competitive and therefore not have the virtues of competitive markets.
  • Genuine competitive markets don’t exist, and no businessman wants them to because they drive profits to almost zero.
  • The best economies the world ever saw went out of their way to keep wages and prices high, not to reduce them.
  • Any concentration of market power that is not regulated or broken up will engage in practices intended to buy/undermine government and destroy wages.
  • Higher CEO pay is correlated with lower company performance.
  • You cannot have a good economy for long without keeping the rich poor, weak and under your thumb. It is impossible.
  • Monetary efficiency between countries is bad. It should be hard to move large amounts money in and out of another currency or country.
  • Financial market efficiency is generally bad, and effectiveness and shock pads should be optimized for rather than financial efficiency.
  • Countries should, if it is possible, make or grow everything important inside their own borders and not trade for it.
  • People perform better when happy, healthy and at least moderately autonomous. The literature on this is so abundant it is silly. Bosses are authoritarian assholes because they like being authoritarian assholes who micro-manage employees. It’s what Bezos gets out of being Bezos.
  • Private money creation concentrated in a few hands is destructive to the economy, democracy and freedom (authority: Thomas Jefferson). It is also anti-competitive market, since you can’t compete with people who create money out of thin air.
  • Moderate levels of inflation are good, not bad, if they include assets, because they take away the control of people who won the past so they don’t control the present and the future.
  • Taxes should be low on ordinary people and high on anyone rich, including wealth and estate taxes. No one should be rich because their parents were.
  • People who lend money should lose that money if the person who they loaned it to can’t afford to repay it. The function of lending is “I know how to pick people who will use the money well.” If you can’t do that you deserve to lose the money, and govt shouldn’t collect it for you
  • bankruptcy should be easy, fast and leave people whole. Economically crippled people are not in the interest of society as a whole.
  • A UBI’s main function is allowing people to do what they want to do, and forcing bosses to make jobs good, not shitty.
  • Pensions should simply be handled by government or a general UBI.
  • Comparative advantage is a terrible strategy for improving your economy.
  • Free trade is garbage for most countries.
  • Raising the minimum wage is not correlated with increased unemployment
  • The unemployment rate measures supply driven wage push inflation pressure, not how many peole can’t get a job.
  • Initial capital for capitalism was primarily acquired by theft, first of European commons, then of non-European land, people and resources.

Essentially everything Economics teaches is wrong. If and when their prescriptions for action are followed, disaster ensues. With almost no exceptions every country which ever developed did so by not doing what economists say to do.

Economics also has a morally corrosive affect on those who study it.  People mostly don’t free ride or otherwise act according to the maxims of economics: but people who have studied economics do.

Because economics is wrong and harmful about almost everything, and because economists do not say “please don’t follow our advice”, Economics should probably be banned and all Economics faculties shut down.








Week-end Wrap – Political Economy – April 24, 2022


The Bottom Line On Ukraine As An Example Of Decision Analysis


  1. Willy

    I remember a blog where the commentors, boomers all, decided to discuss that particular moment when they realized that things were changing for the worse.

    One described being a new freshman at a small leafy university in the early 80’s. They felt immediately relaxed by the laid-back culture, everybody all chill in their casuals, live and let live, in that era of “find a career you love and you’ll never have to work a day in your life”. One day they noticed this oddball standing out from the norm. Severe and humorless, hyper-competitive, dressed like a white collar conservative corporate wannabe, a sort of young Gordon Gekko. He was an economics/MBA student. He laughed at all the “humanities losers”. The commentor said that by the time he was a senior that more of that kind had arrived and they were glad to be graduating. They described the feeling as being like watching leaves turning brown after a pleasant summer.

    Not sure why I told that story. I could’ve just reiterated that the Invisible Hand turned out to be a greedy, corrupt and stupid kleptocrat selling snake oil, when something ‘more scientific’ was needed. But we already knew that. Plus I remembered that girl, the one who blinded me with science.

  2. NR

    I feel like there should be something here about privatization of profit and socialization of risk, which is one of the biggest aspects of western economies today. Otherwise mostly a good list.

  3. NR

    Ian, this might be of interest to you:

    A pro-democracy/pro-environment party has defeated the ruling populist party in Slovenia. It might be worth taking a close look at how they were able to do it.

  4. Z

    cap*i*tal*ism (/ˈkapədlˌizəm/)
    Def.: A religion of false profits


  5. Stirling S Newberry

    This is why Economics needs to be scientifically not just mathematically correct.

    What do I mean by this?

    The economics is mathematically correct and is based on von Neumann and Morgenstern’s Theory of Games. Many of the adherents of this are now be represented (and misrepresented) in popular art: A Beautiful Mind, The Imitation Game, etc. (we need one on Gödel and Tom Schelling, but that is aside from the issue)

    However, mathematics is not based on anything but interest. Science needs some number that you can measure. We do not have this, as yet.

  6. anon y'mouse

    “The unemployment rate measures supply driven wage push inflation pressure, not how many peole can’t get a job.”

    i am having a difficult time making a mental map of what this is saying.

    the unemployment rate is a made up construct that doesn’t include and tries not to include long term unemployed, so yes it removes “people who can’t get a job” (for whatever reason) out by definition.

    guess this is a plea for a conversation or expansion on this idea, and if not then it will take a few more cups of coffee and more pondering and maybe some diagrams. thank goodness philosophy taught me to diagram concepts in order to understand them better! or i would have believed the hogwash they were spewing in Econ101/102.

    nah, who am i kidding? the well intentioned professor (who had worked in Applied Econ for the state school district for 30 years, so had a better grasp on reality than most) couldn’t even explain money creation and had no clue about currency trading, so i was wary from the off. if a doctor can’t tell you how blood comes into being, do you trust that they know about the vascular system?

  7. Soredemos

    A UBIs main function is to provide an excuse for businesses to pay shitty wages. I’m sorry, but you can’t have a functioning industrial society where everyone can just do only what they want. Society runs on a vast amount of dirty, tedious jobs that simply have to be done, and can’t be magically made to not be dirty and awful. All the kinds of things that appear on Mike Rowe shows (the one that always sticks in my mind is that periodically parts of sewer systems get so encrusted with literal shit that someone has to go down there and hose everything down. No one would willingly do this job unless they were paid to do it). Maybe one day this will change and humans will live in a wonderful post-scarcity and post-tedium Star Trek world where machines do all the boring and dirty stuff and people are free to flourish. But such a world isn’t coming anytime soon.

  8. which are the great economies that had high wages and prices?

    also curious how all profit or loss is a social choice? certainly large corporations it’s about accounting and what you want to show. but for new and smaller businesses isn’t there a question of getting to break even or proof of concept to whether it’s a moneymaking concern?

  9. different clue

    What Stirling Newberry calls for ( an economics based on actual factual science) has been attempted. If/when I have several unbroken hours in front of a computer, I will try engineering my best pure-layman’s comment about that while keeping it short enough and informative enough to hopefully enough be worthy to publish.

    Unless somebody else does it first and does it so well that I don’t have to do it at all.

    HInt: the name “Frederick Soddy” will be one of several names that would belong in such a comment.

  10. Ian Welsh

    America during its good period had high prices and wages (this is exactly the policy set that FDR followed, actually, and the post-war liberal consensus policy.) Japan likewise. You can find other examples.

    Profit: intellectual property, corporations, tax rates, subsidies, etc, etc… all determine profits much more than anything natural. They are government decisions. I’ve written articles on this, I believe, but my search skills are failing me right now. Anyway, it’s obvious if one can think past economics propaganda just a bit.

  11. Howard

    echoing anon ‘y mouse’ comment. Could you explain for this lay person the meaning of ” supply driven wage push inflation pressure” ?

  12. different clue

    ” I come not to praise the New Deal, but to bury it. ”

    –Slickus Willus Clintonius

  13. Ian – if you reeled this list off just when you sat down at the keyboard, I’m simply awed. Great list!

  14. Tony Wikrent

    Kevin asks: “which are the great economies that had high wages and prices?”

    The standard historical interpretation of the American System and American School of Political Economy is that there were three legs to national policy: 1) protective tariff; 2) internal improvements; 3) bending the financial system to a public purpose. I have come to believe that there was a fourth leg just as important, but which most historians have overlooked or ignored (and perhaps some even suppressed?):
    The Doctrine of High Wages.
    These policy legs are fundamental to national policy under the Federalists led by Washington and Hamilton; the Whigs, led by Henry Clay; and the early Republican Party, led by Lincoln, Charles Sumner, Thaddeus Stevens, and most especially Henry Carey.
    Unfortunately, I don’t think there were any American System proponents who explicitly called it the Doctrine of High Wages. It is clearly implied in Henry Carey’s polemics about preventing American workers from having to compete with the cheap labor of the British empire. In 2016 I posted what I know so far at two sites:

    If I recall correctly, I think I first came across the phrase Doctrine of High Wages in a book I highly recommend: Securing the Fruits of Labor: the American Concept of Wealth Distribution, 1765-1900, by James L Huston (Louisiana State University Press, 1998). Huston argues the idea the “inequality in income and wealth arises from differences in the ownership of the means of production,” is largely a twentieth century concept. But in the nineteenth century, and especially at the time the United States was founded as a constitutional republic, the common understanding was that inequality in income and wealth were products of corrupted politics. I found this historical interpretation of income inequality corroborated by Bernard Bailyn, in his very important book Ideological Origins of the American Revolution (Harvard University Press, 1967), and Gordon Wood in his book The Creation of the American Republic, 1776–1787 (University of North Carolina Press (Chapel Hill, NC), 1969).

    Proponents of the Doctrine of High Wages argued in the 19th century that not only were American workers better paid than their counterparts in England and Europe, but they were far more productive as well. In fact, American school economists argued that high wages created a virtuous circle, in the superior productivity of American workers allowed them to be paid much higher wages than anywhere else in the world, while those high wages provided American workers a much higher standard living, which, in turn, enabled them to be more productive.

    Both the American school of political economy and the Doctrine of High Wages have been almost entirely driven out of the professions of economics and history over the past century. In the economics profession, the DHW has been replaced by the idea that high wages are a primary cause of inflation and monetary derangement. In the history profession, the entire founding of the USA republic and the actual history of the policies by which it industrialized have been dismissed as irrelevant because of the subsequent development and rise to power of economic liberalism and rentier capitalism . Any attempt to differentiate proponents of the American school from the slave holders — who admired, mimicked and preferred the British imperialists — is ignored and derided as apologia for American exceptionalism.

    Just look at how protectionism is lampooned by the USA PMC today. But. in his 1851 book, The Harmony of Interests: Agricultural, Manufacturing & Commercial, Henry Carey wrote
    “Men are everywhere flying from British commerce, which everywhere pursues them. Having exhausted the people of the lower lands of India, it follows them as they retreat toward the fastnesses of the Himalaya. Afghanistan is attempted, while Scinde and the Punjab are subjugated. Siamese provinces are added to the empire of free trade, and war and desolation are carried into China, in order that the Chinese may be compelled to pay for the use of ships, instead of making looms. The Irishman flies to Canada; but there the system follows him, and he feels himself insecure until within this Union. The Englishman and the Scotsman try Southern Africa, and thence they fly to the more distant New Holland, Van Dieman’s Land, or New Zealand. The farther they fly, the more they must use ships and other perishable machinery, the less steadily can their efforts be applied, the less must be the power of production, and the fewer must be the equivalents to be exchanged, and yet in the growth of ships, caused by such circumstances, we are told to look for evidence of prosperous commerce!

    “The British system is built upon cheap labour, by which is meant low priced and worthless labor. Its effect is to cause it to become from day to day more low priced and worthless, and thus to destroy production upon which commerce must be based. The object of protection is to produce dear labour, that is, high-priced and valuable labour, and its effect is to cause it to increase in value from day to day, and to increase the equivalents to be exchanged, to the great increase of commerce. (pp. 71-72)”

    Yet, it is exactly the American school that was studied and implemented by those who plotted the industrializations of Germany (reference, Friedrich List), Russia (reference, Sergei Witte), Japan, Korea, and Taiwan (reference List and E. Peshine Smith). The Korean economist Ha-Joon Chang is very explicit about how his country simply copied the Hamiltonian policies underlying the industrialization of USA and other countries.

    Why are professional historians and economists so hostile to the American school that they refuse to even acknowledge its existence? That’s a really interesting question.

    My own thinking is that the deliberate ignorance of the American school and its policies such as the Doctrine of High Wages, is one of the main drivers of the loss of civic virtues. We are fare removed from the American school now, when a significant part of the citizenry can be riled up to anger with the misbelief that taking measures to preserve the public health are a violation of individual liberties.

  15. Ian Welsh

    Should turn the Doctrine of High Wages into a post, Tony. If you do, happy to have it here.

  16. I distinctly remember reading, some 30 to 40 years ago, and article on an official Japanese policy of the 1950s-1960s, for “income doubling” every ten years (or five years, or some number of years). That is, the official policy of the Japanese government in the 1950s and 1960s was to double the personal income of the Japanese people within some period of time that I can no longer recall. I have tried a couple times to find this article again, or more material on this Japanese policy. but have not been able to. Hopefully, this picques someone’s curiosity, and they are able to find more than I have so far.

  17. Soredemos

    @Tony Wikrent

    Sounds like something Chalmers Johnson would have written about at some point

  18. Jorge

    North American economics is, at heart, a priesthood. The function of the priests, and their scripture, is to convince normal people of whatever is good for the very rich.

    There is no real truth in what they promote, only whatever it is that rich Americans have consensus on: free trade, imperialism, and nepotism (meritocracy).

  19. Yes, academic economics is a religion with a priesthood, but there are a few heretics left, myself included. I’ve taught undergraduate principles (micro/macro) in China and the U.S. since 2018, and I include as much of your list as I can.

    However, I still think economics is not entirely useless. If we survive (a prospect I am becoming increasingly pessimistic about), we will still need to apply mathematics and science to the production, distribution, and consumption of stuff.

  20. different clue

    I looked up Lawrence Hamelin on the interweb and this is what I found.

    If this is the same Lawrence Hamelin as the commenter just above, it shows that we have at least one professional university-level teacher of economics reading these threads. If there is one, there could be others. Perhaps it is Ian Welsh’s applied policy of firm pre-moderation that is keeping these threads high-quality enough that a professional will find it worth his time to come here.

    It reminds me of an exactly opposite approach taken once by Riverdaughter of The Confluence. Her blog was beginning to attain a wider readership and one fine day the economist Dean Baker came by and left a favorable comment. For some reason Riverdaughter decided to take some kind of information-free offence and wrote a nasty information-free insult in return. Dean Baker never came back, of course. Why would he bother?

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