Even economists can lose sight of basic principles in the complexities of modern economics. More ominously, economic illiteracy is endemic among the general public. Fortunately, Professors Gwartney and Stroup have produced a very clear, crisp primer which will help everyone keep basic economic ideas straight.
They begin by explaining ten fundamental ideas: (1) incentives matter; (2) free lunches don’t exist; (3) voluntary exchange promotes economic progress; (4) so does lowering transaction costs; (5) increasing real output increases real income; (6) growth rests on skills, technology, capital and organization; (7) income is earned by meeting others’ needs; (8) profits steer businesses to productive activity; (9) markets harmonize individual and social interests; and (10) secondary and long-term effects must be kept in mind.
Hence economic progress rests on private ownership, free exchange, competition, efficient capital markets, stable money, low taxes, and free trade. A government that ensures them will preside over prosperity. To wreck an economy, it need only do the opposite. Gwartney and Stroup illustrate this with data giving international comparisons for real interest rates, inflation, marginal tax rates, tariffs, and economic growth.
What then is the economic role of government? The authors sort it out admirably. Government can help by protecting life, liberty, and property, and providing certain public goods. It is, however, capable of great mischief. Constitutional rules are vital to prevent deficits and special-interest governance. Substituting political decisions for market ones, central planning turns in inferior results. Income redistribution costs more than the intended beneficiaries gain. Worse, when government helps some people at the expense of others, “resources will move away from production and toward plunder.” Hear, hear.
Straightforward without being simple-minded, the book is a master clarifier. An analogy illuminates the economic disruption caused by inflation: “money is to an economy what language is to communication. Without words that have clearly defined meanings to both the speaker and the listener, communication is impossible.” On the economic significance of government protection of life, liberty, and property: “Simply put, this protection provides citizens with assurance that if they sow, they will be permitted to reap. When this is true, people will sow and reap abundantly.”
They offer a “positive program for prosperity”: protection of private property, voluntary exchange, and free trade; requiring Congressional supermajorities to spend, run deficits, and mandate expenditures by states or businesses; and committing the Federal Reserve to a sound dollar and price stability. “It is limited government, not majority rule, that is the key to economic progress.”
Give your future a chance. Send a copy to your Congressman.
John Attarian is a freelance writer in Ann Arbor, Michigan with a Ph.D. in economics, and an Adjunct Scholar with the Midland, Michigan-based Mackinac Center for Public Policy.