Economic Illiteracy

 

Hardly a day goes by when I am not surprised by how little people know about basic economics. It may be in conversation with someone but more often is a guest commenting on politics during a news program. They reveal how little they understand basic economic principles.

 

Admittedly, I majored in economics in college and loved it. Also, I set aside time virtually every day to study history through the lens of economic conditions at some point in time.

 

One area that I feel deserves some of the blame for the lack of understanding of the economy is in economic departments of American colleges and universities. Very few schools appear to properly merchandise to students the obvious merits of a free market economy.

 

What they do is bore students in introductory courses with endless supply/demand curves. And, they are injecting high level math into courses which many students find challenging.

 

As an undergraduate, I was a history major. I signed up for an economics course entitled, “History of Economic Thought” taught by a man who would become a great mentor to me. I was hooked. The next semester I took Economic History, Money and Banking and Microeconomics for majors. By the end of my senior year, I was doing an independent study with a young Monetarist and I was on fire academically. Looking at graduate schools, my mentor sat me down and asked me about the strength of my math. I told him it was acceptable.

 

He said that graduate schools were getting enormously math based and unless I was a math whiz, I could never get a PHD in economics (remember this was over 50 years ago!). So, I pursued an MBA and life turned out just fine.

 

I stayed in touch with both of my favorite economics professors for decades. The younger one, the Monetarist, told me that he was getting great results from a course entitled, “Economics of Everyday Life”. Instead of supply/demand iterations and the infamous ISLM curve, he talked 100% in terms of issues students could relate to easily. So, instead of focusing on Federal Reserve policy regarding interest rates, he discussed how interest rates influenced car loans, home mortgages and student loans. The response was terrific and he picked off a few students each semester to become economics majors.

 

Many schools do not seem to grasp that very few students will ever pursue graduate study in economics. So introductory courses need to be more user friendly and get across basic concepts such as scarcity, what causes inflation and how free markets work better than collectivism. Also, the old saw about “the rich get richer and the poor get poorer” is not true if the pie keeps getting larger in a growing economy. Yes, how the pie is divided remains an issue but tax or political policy could resolve some of that.

Please do not misunderstand me. I am not attacking academic rigor but hitting 19 year-olds with high level math leads to confusion and fear rather than understanding some concepts that can largely be explained verbally with real world examples.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.

 

 

 

$31 Trillion and Counting

 

The 2022 U.S. Midterm elections are now largely over. Over my entire adult life, I have always been a huge consumer of business and political news and this fall was no exception. I read news accounts and stump speeches and especially viewed much of the advertising in most states and congressional districts via You Tube.

 

Most of the issues raised by candidates of all stripes were valid and included inflation, general economic conditions, crime, reproductive rights, climate change and threats to democracy. To me, there was one glaring omission---the growing national debt.

 

As I write, the national debt is at $31 trillion dollars. Remember, a trillion is a thousand billion. In recent years, I have tried to bring up the looming problems that this will cause and 95% of the people to whom I speak do not care. A few have told me something along these lines—“Why should you care? At your age, you will be dead before it really hits.” Maybe so.

 

It appears that I am one of the few deficit hawks left in America. It does not matter whether a Democrat or Republican is in office; the debt continues to spiral. The media does a rotten job of coverage of this issue. Some will say look how the deficit had gone down this year. The deficit did not go down-- it increased! What they are saying is that the increase in the deficit is lower than it was the previous year. Also, with interest rates popping from virtually zero to about 4%, the debt service will go up dramatically as much of our borrowing is short term.

 

Let me be clear. I am not one of those who argues why can’t the Federal government manage their money as families do sitting around the kitchen table. Governments have the power to tax and print money that citizens do not. At times, governments need to deficit spend. Yet, sooner or later, the Federal government’s credit card will hit its limit and they will not be able to make interest payments. It may be due to a long economic downturn, a dollar crisis, or international tensions where foreigners cease to buy our long-term debt. Indeed, it could be many years away but it seems that virtually almost everyone in government is content to “kick the can down the road”.

 

Recently, I found an ally. Steve Rattner is a financier, a Democrat, and a frequent guest on Morning Joe on MSNBC. He and I do not share many political opinions but I love the data based charts that he often presents on air. In a guest editorial in the November 4^th, 2022 NEW YORK TIMES he wrote a wonderful piece entitled “The Huge Problem That Nobody Cares About.”

https://www.nytimes.com/2022/11/04/opinion/national-debt-spending.html

 

Rattner reported that the Congressional Budget Office projects that the debt will jump to $45 trillion in a decade.

 

The article concludes with “But a nation in which debt is growing faster than the economy will eventually be brought to its knees.” Well said, sir.

 

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.