The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

Judgemental Economics

02/09/2020

Walter E. Williams is a long-time economics professor at the conservative George Mason University.  His most recent article is interesting.  It is entitled “How to tell good economists from the bad,” explaining a good economist can see the obvious – obvious to his eyes, anyway.  He gives two examples.  First, who pays tariffs?  He goes on to explain that tariffs, like taxes, can only be paid by somebody – some human somewhere.  You may tax a corporation, for example, who can raise prices that the customer pays.  Or, the company can decrease their earnings, which means the shareholders pay.  Second, are natural disasters good are good for the economy, because reconstruction expense increases GDP.

His first example is totally correct, which reveals my Austrian economic beliefs.  However, his second example is more problematic.  It has more to do with accounting than with economics.  If a natural disaster does a billion dollars of damage, yes, GDP is boosted by the expense of reconstruction, but the nation’s balance sheet has decreased a like amount.  Whatever existed before the destruction is removed from the balance sheet.  When it is rebuilt, the balance sheet is restored, except insurance company reserves has been decreased.  It is still a net decrease.

Regardless, nobody would argue that we are better off with a bigger GDP and a smaller balance sheet.

What bothers me about his article is the title — “How to tell good economists from the bad” — which is unnecessarily judgemental.
Just because someone agrees or disagrees with me does not determine whether he/she is good or bad.

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