Business, Economics, Media Criticism, Political Commentary

On The Economic Illiteracy

49 Comments

…of Democrats:

That Democrats are generally illiterate about basic economics is not a matter of mere conjecture. In 2010, Daniel B. Klein and Zeljka Buturovic analyzed answers provided by a random sample of 4,835 Americans to a list of eight questions about economics. The results, which noted the party affiliation of the respondents, were not flattering to our friends on the left. “Those responding Democratic averaged 4.59 incorrect answers. Republicans averaged 1.61 incorrect, and Libertarians 1.26 incorrect.” And these were not arcane questions. They involved elementary concepts, like the effect of price controls, covered in any Econ 101 course taught at the lowliest community college and even some of the better high schools. Yet the average Democrat respondent got nearly 60 percent of the answers wrong.

It is precisely this kind of ignorance that led so many Democrats to believe Obamacare would somehow render health care less expensive. One of the first items covered in any introductory economics course is that the price of any good or service will rise if the quantity demanded increases without an accompanying increase in the available supply of that commodity. Nonetheless, it held no message for the average Democrat that the supply side of the equation was ignored by “reform,” though it increased the number of patients in the health system as well as the range of services to which they are entitled. The issue of supply and demand was utterly lost on Obamacare’s Democrat supporters. Thus, at the time of its passage, fully 78 percent of them favored the law. Even now, 52 percent still support it.

This is typical of the ignorance that was on full display in the president’s speech the other day.

49 thoughts on “On The Economic Illiteracy”

  1. This is typical of the ignorance that was on full display in the president’s speech the other day.

    And by some commenters on this board.

    ObamaCare (laughingly known as the Affordable Care Act) was structured on 10 years of taxes to pay for 5 years of benefits in order to artifically meet the mandate to keep the 10 year cost below a trillion dollars. It should be blatantly obvious that there will be problems, such as what happens in years 11, 12, and so on.

    Some of the tax increases are already in effect. You’d think that money would be going into an account of some kind (a “lock box”, if you will) to provide for the expenditures when they start coming in. From what I’m hearing, that isn’t happening. The money is being spent as fast as it comes it just as many of us predicted.

    Once again, this is a case where if a private insurance company operated like that, they’d be shut down and people would go to jail. However, since it’s government, everything is peachy keen. Wouldn’t it be something if the government were held to the same laws as everyone else.

    I know, that’s just crazy talk.

  2. Speaking of ignorance,

    ObamaCare (laughingly known as the Affordable Care Act) was structured on 10 years of taxes to pay for 5 years of benefits in order to artifically meet the mandate to keep the 10 year cost below a trillion dollars.

    It’s true that the ACA does not really kick in until 2014, in order to keep its CBO ten-year spending total under a trillion. But it is not true that it uses 10 years of taxes to pay for 5 years of benefits. Take a look at Table 2 of the CBO score for the ACA. Revenues — taxes — are minimal until 2013, and the 2010-2014 revenue total ($73B) is only 15% of the 2010-2019 total ($473B).

    It should be blatantly obvious that there will be problems, such as what happens in years 11, 12, and so on.

    Indeed, if the ACA was using 5 years of full-taxes-but-no-benefits to get a revenue head start and keep the overall program in balance for the first 10 years, you’d expect the CBO score to quickly go south once you passed 2019. Instead, the CBO forecasts a much larger deficit reduction from 2020-2029 (0.5% of GDP, or $1.2T) than from 2010-2019 ($118B).

    1. How many old people did the Democrats sacrifice so that they could rig the numbers for Obamacare? They cut around $500b from Medicare, that means they want all the old people to die in the streets right or maybe get rolled off a cliff?

          1. No. Obama uses those Medicare cuts to expand health coverage for the poor and near-poor, Ryan uses them to pay for tax cuts for the rich.

          2. I guess poor people > than old people.

            I don’t think it is right to cut a program like medicare that people have included in their retirement planning. Any changes should only effect people who have enough time to make alternate retirement plans.

          3. I guess poor people > than old people.

            The effect of Obamacare is to transfer health care dollars from those who voted against Obama to those who voted for Obama.

    2. So Jim, why are you using the CBO again? I think dissolution of that propaganda organ would yield immediate mental health benefits for the US.

      Also, CBO doesn’t address what happens to health care demand when government subsidizes insurance and mandates more coverage. It’ll increase demand and increase costs of the ACA.

      Needless to say, I hope the Supreme Court strikes down this abomination.

      1. So Jim, why are you using the CBO again?

        It’s the authority of record for the question of when the ACA taxes take effect. Do you have a better source?

        1. Sure, those think tanks. But projections generally can’t estimate feedback effects like those I discuss in my second paragraph. Namely, what does government do when faced with negative outcomes from this law? When health insurance increases in cost, the question is what happens to the subsidy. Does it chase health insurance or do those people get written off? In the former case, we have a faster than inflation mechanism for driving up health care and health insurance costs. In the latter case, we have a mechanism for increasing the uninsured.

          1. None of those things have anything to do with the question at hand, which is whether the ACA was set up to game its CBO score by collecting 10 years of taxes for 5 years of benefits. On that question, Larry J is just misinformed.

          2. You already admitted it was gamed. You wrote:

            It’s true that the ACA does not really kick in until 2014, in order to keep its CBO ten-year spending total under a trillion.

            The rest of your argument is meaningless. We all know that the taxes collected under the ACA law, as Larry noted, isn’t set aside for ACA only. It goes to the general fund, which is running a deficit. Just like Social Security, which you already told us shouldn’t be provided to those that contributed most to it, ACA will eventually be rationed as well. In fact, to avoid the scenario Karl describes, ACA and CBO counts on many providing their own means of healthcare. As Karl asks, what happens when people decide not to provide their own means?

    3. No, Jim. The taxes are already being collected (and spent on other things) while the ObamaCare expenditures have not began. You’re lying but it might be excusable if the program died at the 10 year mark. Unfortunately, it doesn’t and then there will be deliberate and massive funding underruns. How much will they have to raise taxes to meet the year 11+ expenditures?

      1. I cite the CBO report, which shows that ACA taxes for the first 5 years are <20% of what they are for the second 5 years, and I’m the one that’s lying? Do you have anything to go on besides your imagination?

  3. If it weren’t for economic illiteracy, these Congressional and White House State-shtuppers wouldn’t be able to snow the sheeple and have to find real jobs.

  4. Democrats aren’t only illiterate economically. They also are scientifically illiterate, which is why they jumped on the anti-vaccine bandwagon. They are ignorant of everything except Hollywood gossip and perverse sex. They are inferior intellectually, physically, morally, aesthetically, and sexually.

  5. What a great article, and I agree with the premise. I wonder if it would perhaps be more accurate to substitute “Democrats” with “Congress”. I certainly don’t see enough fiscal leadership and sanity from either side of the aisle

  6. In democratic choice theory, they note that a great many voters are totally ignorant on issues which are decided or influence by their votes. That could be a problem for a democracy that hopes their votes end up generating optimal policy responses. One early idea about this was that the know-nothing voters should be ignorant in a random pattern, cancelling each other out and ensuring that the votes of correctly informed people are still driving policy.

    Upon further examination, it was found that voters aren’t randomly wrong about economics. Their economic ignorance is biased far to the left, and they share many of the same mistaken beliefs. Basically, they vote like a publically schooled slow class. Since there are so many of them, their votes push economic policies far, far away from optimal, hurting everyone.

    It’s a problem.

  7. He’s at it again today:

    “However many jobs might be generated by a Keystone pipeline,” he said, “they’re going to be a lot fewer than the jobs that are created by extending the payroll tax cut and extending unemployment insurance.”

    Like some commenters here, it’s “keep repeating it, eventually its wrongness will get lost in the noise”.

  8. Why is it so hard to believe? Building one pipeline doesn’t create very many jobs compared to a 4% tax cut for every worker.

    1. The pipeline will be contributing to employment for decades. The 4% tax cut only lasts till someone needs to pay the bills. The rich don’t get rich by paying a lot of taxes. Eventually someone is going to need to tax the people who can’t hide their wealth.

      1. “The 4% tax cut only lasts till someone needs to pay the bills.”

        And don’t think business don’t know that. That’s one reason they’re not hiring.

      2. The pipeline will be contributing to employment for decades.

        Says who? The whole point of building a pipeline is so you can move oil without trucking it, so you’re trading permanent trucking jobs for temporary construction jobs. It makes good economic sense, but it doesn’t “contribute to employment for decades”.

        1. The whole point of building a pipeline is so you can move oil without trucking it, so you’re trading permanent trucking jobs for temporary construction jobs. It makes good economic sense, but it doesn’t “contribute to employment for decades”.

          Jim, are you so economically ignorant as to think that the only jobs from building a pipeline from Canada to refineries in Houston will only come out of constructing the pipeline? I should frame this comment somewhere.

          1. Jim, are you so economically ignorant as to think that the only jobs from building a pipeline from Canada to refineries in Houston will only come out of constructing the pipeline?

            No, that’s a strawman you just imagined. The question remains, how many net permanent jobs will Keystone XL create?

          2. Including the ones in Houston? The question remains, how many net permanent jobs will extending unemployment insurance create?

        2. I have to agree with Rand. That argument was not thought out. You have jobs in Canada from exploitation of these resources. You have refinery jobs in Texas. You have maintenance jobs for the pipeline itself. Finally, you have the considerable value of the pipeline itself. The wealth created would in part go into paying for someone’s labor.

          1. The entire premise is economically illiterate. You do not create wealth by shuffling around paper. You create it by bringing new goods and services into the marketplace. Jim’s understanding of all this is on the level of a child.

    3. It’s also a non sequitur and false dilemma. Why should Obama be killing jobs and then justify it on the basis that there’s another tactic that can do better? The better approach would be to do both especially since neither requires him to do more than work on his golf game.

    4. We’ve had the payroll tax cuts for a couple years now and the job growth has been anemic to non-existent. One definition of insanity is doing the same thing over and over while expecting a different outcome. By that definition, Democrats must all be insane.

      Not only that, but you’re now underfunding Social Security and Medicare, requiring supplemental funding (that we don’t have) to meet the expenses years earlier than forecast. Why are Democrats trying to destroy Social Security and Medicare?

    5. Not to mention the fact that the payroll tax cut has been in place for quite some time now and we’ve had lackluster job growth the whole while. Clearly it’s not producing what the Golfer-In-Chief keeps saying it will produce — jobs. But hey, keep repeating a lie often enough and eventually everyone will sing along.

  9. Except that Klein and Buturovic ran the survey again in December, 2010 to get some new data, resulting in Klein printing what essentially amounts to a retraction of his 2010 WSJ article in the December issue of The Atlantic (the article was available on The Atlantic’s website back in early November, which is when I read it):

    I Was Wrong, and So Are You

    Essentially, Klein’s original research and conclusions were little more than confirmation bias, which means that any article based on their conclusions is sure to be just as biased.

    Just sayin’…

    1. No, that is not what the article says. It says the results were correct, but that conservatives did equally badly when questions were added which tended to go against their policy preferences. The bottom line is, people tend to believe what they want to believe (tell us something we don’t know). But, that does not make the liberals any less wrong on the original survey.

    3. The 17 questions on the new survey. The first 8 are from the first study. Answers are here:

      1. Restrictions on housing development make housing less affordable.

      2. Mandatory licensing of professional services increases the prices of those services.

      3. Overall, the standard of living is higher today than it was 30 years ago.

      4. Rent control leads to housing shortages.

      5. A company with the largest market share is a monopoly.

      6. Third-world workers working for American companies overseas are being exploited.

      7. Free trade leads to unemployment.

      8. Minimum wage laws raise unemployment.

      The nine new questions:

      9. A dollar means more to a poor person than it does to a rich person.

      10. By participating in the marketplace in the United States, immigrants reduce the economic well-being of American citizens.

      11. When a country goes to war its citizens experience an improvement in economic well-being.

      12. Making abortion illegal would increase the number of black-market abortions.

      13. Legalizing drugs would give more wealth and power to street gangs and organized crime.

      14. Drug prohibition fails to reduce people’s access to drugs.

      15. Gun-control laws fail to reduce people’s access to guns.

      16. When two people complete a voluntary transaction, they both necessarily come away better off.

      17. When two people complete a voluntary transaction, it is necessarily the case that everyone else is unaffected by their transaction.

  10. One of the first items covered in any introductory economics course is that the price of any good or service will rise if the quantity demanded increases without an accompanying increase in the available supply of that commodity.

    I’ve been pounding that drum for so long, my arms are sore, but few seem to understand. This is why we have an emerging education bubble. We made funding available for anyone to take out loans to go to college who wanted to, but did we accredit more schools? Is college, in reality, any more affordable now than it was before we went down this path? Hardly.

    We can throw money at health care, too, but if we do nothing to encourage production of more doctors and nurses, more medical plant and equipment, etc…, if we, in fact, do the opposite and attempt to control wages and prices discouraging these things, then in the end, we will be WORSE off. It’s a mathematical equation. It is brutal reality which cannot be steamrolled aside based on our wishes.

    Money is only a medium of exchange. You cannot exchange it for something unless that something exists in the first place.

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