Monday, February 06, 2006

If I had a nickel for every time... 

...I read economic illiteracy in the newspaper, I'd ... well, I'd be a much richer man.

Robert Murphy rips to shreds yet another article which mistakes price controls for shortages, and the plight of being an economist generally. On the latter first,
It's not easy being an economist. To get your degree nowadays, you have to first become a (second rate) mathematician. Then you start teaching and half of your students require artificial stimulants during the lecture on price elasticity. Even at social gatherings, the burden follows you: The moment your occupation becomes known, someone inevitably asks for a stock tip, even if your specialty is 19th-century capital theory.
All of this is true. One of the nice things about the NARN show is that nobody asks me for stock tips, maybe because the station has Jerry Wade running opposite us on Pat2. I can tell you it's a relief -- I don't know more than most people about investing.

But I do know a price control when I see one, and so does Murphy.
...this isn't some controversial point in theoretical economics. The failure of price controls has been documented (literally) for a period of thousands of years. For an anecdotal bit of evidence, my colleague (who worked at a gas station in the 1970s) said that the gas lines disappeared within one week of the abandonment of price controls. And when I asked what took so long, he said that the owner didn't immediately raise prices because of feared public backlash.
Nobody likes rising prices, and there's always a desire for someone to blame for them. But we're all to blame. Prices represent the coordination of thousands or millions of individual bids and offers, processing disparate bits of information from far-flung places. That's the beauty of what markets do, as Hayek taught us 60 years ago. Reporters in general are woefully ignorant of this basic insight.

One needn't be a "right-wing zealot" to recognize the connection between gas lines and price controls. I don't even expect a news story to take a stand one way or the other. But it would be nice if this story had contained a quotation from an economist. Can you imagine if the news coverage of, say, an accident at a nuclear power plant only interviewed concerned residents, and didn't even allude to the opinions of physicists or other relevant scientists?

I understand that (bad) economists are largely to blame for the public perception that their discipline isn't really objective and is ultimately a
matter of politics. Nonetheless the public perception is wrong. There are objective laws in economics, including the law that says price ceilings cause shortages. One can't interpret the world very well without a knowledge of such basic principles, and one certainly shouldn't write a story concerning gas lines while suffering from such ignorance.