One hallmark of a “junk science” is that the more you learn it, the less you can grasp basic truths that even kids may be clear on. I maintain that economics has long since degenerated to that state.
I don’t know if John B. Taylor would agree with me there, or what his politics are. But he has kindly blogged on some charming graphics from a 1968 children’s book on economics, Richard Scarry’s “What Do People Do All Day?”
Here we see the ideas of production and trade, which power the economy. Farmer Alfalfa must produce, before he can consume. In relation to society: Farmer Alfalfa must produce something that others will want, before he can consume beyond his own produce.
Also implied is the idea that you make your efforts to benefit yourself and your family, and that you peacefully enjoy the fruits of your labor. And the idea of sound money: we see money facilitating trade – and gosh, it looks like physical silver.
Other graphics from Scarry’s cute book (shown at Taylor’s blog) highlight the concepts of savings that, when invested intelligently, can increase production. And that is how an economy grows.
Obama would disagree. Obama said early in 2009 that “credit is the lifeblood of the economy”, which touches somewhat on the idea of trade, but which he also meant to imply that borrowing-and-spending money is the primary economic act; that the economy grows if/because we all borrow, print and spend the government’s fiat money.
Obama also famously said that he wants to “spread the wealth around” (as in, redistribution with confiscatory taxes) because after all, any given business person deserves to be told “you didn’t build that” (about their business). These little phrases (has Obama said anything else that is memorable?) together capture his economic philosophy. It is the philosophy that many of today’s PhD economists teach in essence, and it is deeply misguided.
In reality, people don’t produce just because a bunch of paper money is spent (i.e., thrown at them). People produce because (and only if!) that money will enable them to buy other people’s good production. Money is only worth the production that it can buy. If goods and services aren’t being produced, money has no value^^. And if production is stagnant (failing to grow faster than money), then money’s value erodes – also known as inflation.
So production and trade are the primary economic acts, and how an economy grows. “Freedom of production and trade” is what the government must nourish, if it wants a good economy. If it does, then spending and credit will also be plentiful – as mere consequences, and for those who earn them.
(^^To be precise: Fiat money has no value, if goods and services aren’t being produced. Sound money may be a good in itself like cattle, gold or silver, and so may retain some value even if people aren’t producing.)