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Economics Compacted

By Fred Reed

February 08, 2015 "ICH" - This column contains everything there is to know about economics. Hereafter it will be possible to shut down university deprtments and stop talking about Keynes and the Asutrian School, to the great relief of mankind. In gratitude you can send me your childrens'college funds.

In 1850 people all lived on farms and grew food, which they ate. Eating was really important to them. They liked eating. There was in 1850 tremendous demand for refrigerators and cars, but people didnít know they wanted these things because they hadnít been invented. Anyway, they didnít have any money to buy them with.

Yet the demand was there, crouched to spring. Much demand for almost everything, but little supply.

Then farming automated and people all went to cities to work in factories to make refrigerators and cars, which had been invented. These werenít as important as food, but they were pretty important. People had a little money now, and bought them. You donít need advertising to sell what people actually want.

 There was lots of demand and getting to be pretty good supply.

Soon the factories were spitting out more than anyone could use of everything that anyone could reasonably want. A family needs only so many refrigerators. Here we encounter the first crucial problem of the modern economy: too much supply and not enough demand.

Yet the factories had to make stuff so people would have jobs, and the people had to buy the stuff so they could keep having factories. Economics is thus the study of the squirrel wheel.

To keep people working and buying, the economy began making things that nobody really needed or would think to want, such as nail salons, electronic gadgets, and designer jeans. To get people to buy these things, the supply of demand had to increase. Advertising came about to manufacture demand for things that, without advertising, no one would buy. Consequently society now depends for existence on pop-ups, singing commercials at twenty minutes to the hour on television, billboards, and Google ads. Advertising thus became more important to the economy than anything it advertised.


Labor followed a similar pattern. When factories came, they needed lots of people to make the refrigerators and cars. Most work involved digging holes or lifting heavy objects, so the workers didnít have to be smart or know much.


Then came the rolling disaster that economists donít seem to have anticipated: automation. As factories produced the increasingly trivial goods that supported the economy, they needed fewer and fewer workers to make the trivial goods. This raised two questions: Who was going to buy the $450 running shoes that nobody needed except that advertising told them they did, and how were the workers who didnít have work making them any longer going to get money to buy them? Or to eat?

It became obvious, except to economists, that automation could do just about everything people were paid to do. Just now, someone has invented a burger-maker machine that will presumably replace hundreds of thousands of burger-flippers who arenít needed anywhere else. Self-driving vehicles approach practicality, and will first replace long-haul truckers and then cabbies and delivery truck drivers. Much worse is in the offing. Here is the second crucial problem of modern economics: Where to put unnecessry people?

The Theory of Increasing Uselessness

 A search continues, long quietly underway but now intensified, for ways to keep off the work force people for whom there is no work, or no real work. These are not necessarily lazy, shiftless, or parasitic. They just donít have anything to do.

Child-labor laws and requirements that people finish high school helped diminish the labor force. Then society told the young that they all needed to go to college, when most of them didnít, and since the universities served chiefly as holding pens, the quality of education dropped. Universities did however employ professors and administrators. Here was another example of selling at high price something that no one really needed, namely the appearance of education.

Swollen bureaucracies popped up to provide the appearance of work while the purported workers did little that would not better have been left undone. Military enterprise soaked up more people doing nothing that should be done. Exotic fighter planes that would never do anything to justify their existence but bomb remote goat-herds absorbed thousands of engineers and hundreds of billions of dollars. The engineers could as well have been paid for digging holes and filling them in, but this was judged unduly candid.

Finally even these measures ceased to be enough. College graduates began living with their parents and lining up for jobs a Starbucks because there was no need for them anywhere else. Resort was had to outright charity. Thus food stamps, Section Eight housing, free lunches at school, AFDC, and all the other disbursements of free money. Those receiving the free money no longer had any incentive to work even if the opportunity offered. In the cities generation after generation now lived on charity, largely illiterate and in what is never called custodial care. They are simply unnecessary. There is nothing for them to do. So they donít do anything.


In America this is usually a state of mind rather than an economic condition. The allegedly poor have all their time free, a luxury not available to the indentured drones who pay for this leisure. The poor have enough to eatógobbling Cheetos instead of real food is their choiceóand they have access to libraries and parks and museums. Graduate students at the same economic level used to live a life of books, music, illicit substances, and good conversation. The recipients of charity are not economically poor, but mentally empty.

Cognitive Stratification

Meanwhile an elaborate and highly effective system developed for sucking the very bright young from every cranny in the country and sending them to the remaining good universities: SATs, GREs, National Merit, ACT, and suchlike. Here the top two percent in intelligence partied, married, and made babies, not always in that order, and went into brain-intensive trades like Silicon Valley, i-banking, and medicine. As the middle class sank into the lower-middle, the brain babies increasingly formed a thin layer of dominant if not always morally impressive intellects at the top of society.

Increasingly aware of each other thanks to list-serves and web sites for the very smart, they foregathered internationally with their own kind, eschewing contact with the surrounding sea of slugs. (I will bet you are not reading this on a site where the comments are misspelled.) They prospered. Nobody else did. The battle lines were being drawn. Which brings us to:

The Minimum Wage

Conservatives harbor the curious notion that people will work if they donít have to. This is because to them work, real actual work, is an abstraction with which they have no familiarity. Real work is usually unpleasant or boring. But to economic theorists, work means being a cardiac surgeon, talking head, columnist, or CEO. Thus they say that if we eliminate the minimum wage, black youth (these are always given as examples) will rush to labor for a dollar an hour, learn the trade, rise, and become CEOs. Horatio Alger and all that.

This implies two things: First, that anyone in his right mind would spend eight hours a day flipping burgers for a pittance when he could live on charity in leisure at the same standard, and second, that any employer in his right mind would want to hire semi-literates with bad work habits when, given our current endemic unemployment, he has a choice of much more educated and dependable workers.

In short, if the minimum wage were abolished, the bottom rungs of society would remain unemployed because their labor isnít worth enough for them to live on, or worth anything at all. The bottom rungs creep upward. When almost everybody is unemployed, we will have to institute communism manque: "To each according to his needs and, from each, nothing much. I will then write The Theory of the Leisure Classes: A Study in Urban Chaos."

There you have it, all of economics in a small package. Buy survival gear.



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