Beyond Wealth

Why Your Kids Are Ignorant About Economics

May 7, 2018

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Why Your Kids Are Ignorant About Economics

Readers wasted no time sounding off last week about a 2016 Harvard Institute of Politics poll that found the majority of 18- to 29-year-olds in this country are opposed to capitalism.

Some blamed the nation’s underwhelming public education system.

But sometimes it’s basic common sense that’s in short supply.

Take Paul Krugman, for example.

Krugman is a distinguished professor of economics at the Graduate Center of the City University of New York, a former professor of economics at MIT and Princeton University, and a columnist for The New York Times.

No one would call him uneducated.

Yet his biweekly columns are filled with bizarre misstatements of fact, unhinged political commentary and socialist propaganda.

He reminds me of a university professor I once had who went to great lengths to explain how the West’s free market system wasn’t better than the Soviets’ five-year central plan… it was “just different.”

(True, the guy was a bit fuzzy on why Russian store shelves were empty, men and women stood in bread lines, and citizens risked their lives to escape.)

I’m not suggesting Krugman is a Marxist. He’s not.

Rather, he’s an arrogant know-it-all who – despite having never met a payroll – regularly lambasts business people and the government policies that make their jobs easier.

He spilled oceans of ink on the recent tax cuts – the ones that took our corporate rates from the world’s highest to among the world’s more competitive – calling them a “nothingburger” that rewards the rich at the expense of the working class, a perennial Krugman theme.

His views are tough to square with the recent uptick in wages, the new employee bonuses issued by hundreds of corporations and a jobless rate that just hit the lowest level in 18 years.

Many of these corporations are using the tax cuts to invest in new technologies, build more factories and distribution centers, and open new stores.

(All of these operations – you may have noticed – require workers.)

Bloomberg issued a report last week that said, “Among the 130 companies in the S&P 500 that have reported results in this earnings season, capital spending increased by 39%, the fastest rate in seven years.”

Krugman – a master of selective omission – failed to mention this in Friday’s column.

Instead he chose to pillory Apple (Nasdaq: AAPL), a company that – thanks to the recent tax cut – is bringing back the entire $252 billion in profits it held overseas.

(The tech giant immediately gave employees below the senior level of “Director” bonuses worth $2,500.)

Krugman wasn’t impressed.

Having argued that this would never happen, he was now angry that it had.

“What difference does that make?” he fumed, before answering, “It makes no difference at all.”

He’s upset because Apple is using part of the money to buy back shares and boost its dividend.

That’s hardly a terrible thing for the millions of working-class Americans who own Apple – directly or through mutual funds – in their 401(k)s, IRAs or other qualified retirement plans.

It never occurs to Krugman that businesses are not public works projects but profit-seeking enterprises whose primary purpose is to reward risk-taking shareholders, many of whom – again – are ordinary men and women.

He went on…

It doesn’t really matter whether you think [Apple] deserves its role as a quasi-monopolist; what matters is that given its position, it can and does charge what the market will bear, pretty much regardless of costs.

I would be disappointed if my 14-year-old turned in a school paper with a sentence that naive.

Apple, a quasi-monopoly?

Monopolies have exclusive control of a market. Yet when I stopped in my local electronics store last week, I noticed that rather than upgrading my iPhone, I could have instead chosen the Samsung Galaxy, Google Pixel 2 XL, Sony Xperia, Huawei Mate 10 Pro or some other.

I chose to upgrade my iPhone.

Not because Apple is a “quasi-monopoly,” but because I feel – like hundreds of millions of other satisfied customers – that the company makes the best phones (and computers) for the money.

In Krugman’s world, market dominance – achieved by customers making free and informed decisions – is a bad thing.

As for Apple charging “what the market will bear,” he seems blissfully unaware that this is what every company in the world does.

Or, at least, the profitable ones.

And “pretty much regardless of costs”? The statement is so fatuous that no businessman or businesswoman worth their salt would dignify it with a reply.

How on earth did this man win a Nobel Prize in economics?

(You’d have to ask the committee members – the same ones who awarded the Nobel Peace Prize to Yasser Arafat.)

In short, don’t be too hard on millennials for not understanding that our free market system is the world’s greatest anti-poverty program and creator of prosperity.

There are plenty of folks with fancy degrees who are just as ignorant.

And they don’t have any excuse.

Good investing,

Alex

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