In this excerpt from a commencement address, the former president of the Federal Reserve Bank of Dallas makes the case for studying economics.
The Dismal Science
According to the folks at the Guinness book, Marilyn has the world’s highest recorded I.Q. she is interested in economics education, of all things and we met a broad meeting of the national Council on Economics Education. Told her I think economies is a good major for smart students, but if they are really, really smart. I’d rather they become doctors so they could do somebody some good. She said Yes, but doctors help people one at a time, while an Alan Greenspan can help millions of people at a time. She has a point Mr Greenspan is an excellent example of someone making a big difference by applying good economies.
My take on training in economics is that it becomes increasingly valuable as you move up the career ladder. I can’t imagine a better major for corporate CEOs, congressman, or American presidents. Economics training will help you understand fallacies and unintended consequences. In fact, I am inclined to define economics as the study of how to anticipate unintended consequences.
Little in the literature seems more relevant to contemporary economic debates than what usually is called the broken window fallacy. Whenever a government program is justified not on its merits but by the jobs it will create remember the broken window: Some teenagers being the little beasts that they are, toss a brick through a bakery window. A crowd gathers and laments. What a shame. But before you know it someone suggests a silver lining to the situation: Now the baker will have to spend money to have the Window repaired. This will add to the income of the repairman, who will spend his additional income, which will to another seller’s income and so on. You know the drill. The chain of spending will multiply and generate higher income and employment. If the broken window is large enough it might produce an economic boom!
Most voters fall for the broken window fallacy, but not economics majors. They will, say Hey wait a minute! If the baker hadn’t spent his money on window repair, he would have spent it on the new suit he was saving to buy.
Then the tailor would have the new income to spend, and so on. The broken window didn’t create net new spending it just diverted spending from some where else. The broken window does not create new activity just different activity; People seethe activity that takes place. They don’t see the activity that would have taken place.
The broken window fallacy is perpetuated or retention is the primary objective I call it the job counting fallacy. Economics majors understand the non intuitive reality that real progress comes from job destruction. It once took 90 percent of our population to grow our food. Now it takes 3 percent. Pardon me, Willie but are we worse of because of the job losses in agriculture? They would have been farmers are now college professors and computer gurus.
So instead of counting jobs, we should make every job count. We will occasionally hit a soft spot when we have a mismatch of supply and demand in the labor market. But that is temporary. Don’t become a Luddite and destroy the machinery, or become a protectionist and try to grow bananas in Now York City.