Second Short Quiz – Prof. DiLorenzo’s “Dummies Guide to” His Politically Incorrect Guide to Economics

[johnkarls]

.

After 41 years of teaching university economics, Prof. DiLorenzo joined the Mises Institute.

Per mises.org - The Mises Institute is a non-profit organization that exists to promote teaching and research in the Austrian School of economics, individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard.

Posted in our Reference Materials Section is a book review of The Politically Incorrect Guide to Economics – please see viewtopic.php?f=804&t=2512&sid=464ae076 ... 9c3f2258d4.

It was written by David Gordon - Senior Fellow at the Mises Institute and editor of the Mises Review.

At the time of publication (both the book 8/16/2022 and the review 8/31/2022), Prof. DiLorenzo was also a Senior Fellow at the Mises Institute.

He has since become President of the Mises Institute.

It would be hard to believe Prof. DiLorenzo did not approve the book review.

Accordingly, we should view it as Prof. DiLorenzo’s “Dummies Guide to” his Politically Incorrect Guide to Economics.

The Second Short Quiz Questions are interspersed in the book review.


************************************************

***************
Introduction
Chapter 1 – What Is “the Free Market” Anyway?
Chapter 2 – The Worst Idea in the World

*****
Question 1

Since the “Dummies Guide” starts with Chapter 3, does Prof. DiLorenzo believe even we “Dummies” can understand the Intro and Chapters 1 & 2 without help?


***************
Chapter 3 – The Nirvana Fallacy in Economics (Or, How to Attack a Straw-Man Argument)

Like Ludwig von Mises and Murray Rothbard, Tom DiLorenzo is an economist with an extraordinary knowledge of history, and this shows to great advantage in his brilliant new book. In it, he stresses that economists who fail to grasp how the free market works often devise elaborate theories to show “market failures,” but when examined in the light of historical evidence, these theories fall to the ground.

As a prime example of this, Paul Samuelson in his Economics, for decades the most influential university textbook, indicted the market for its failure to conform to the welfare ideal of “perfect competition.” Concerning this, DiLorenzo says:

“That never-to-be-realized-anywhere-on-earth state of perfect competition is one where all products in every industry are identical; they are produced by “many” business firms; everyone charges the same price; everyone has perfect information … and there is free or costless entry into every industry and every exit out of it. Several other equally unrealistic assumptions were added over the years, but these were always the main ones. This pipe dream became the new understanding of what constituted “competition,” at least among academic economists. (pp. 30–31)”

*****
Q-2 – Is it important for economists to have posited numerous “perfect competition” assumptions to explain away why the real-world outcome did not accord with their theories?

Q-3 – Did they have a “catch all” – the famous “ceteris paribus” assumption (“ceteris paribus” is Latin for “all other things being equal”)?

Q-4 – Is the comment about Paul Samuelson’s “Economics” being the most influential university textbook accurate (though the comment above has little to do with his textbook)?

Q-5 – Is Prof. Samuelson commonly called “The Founder of Modern Economics”?

Q-6 – Did he spear-head the M.I.T. Economics Department 1947-1962, launching M.I.T. into the ever-since-recognized position of No. 1 Economics Department in the U.S. if not world? BTW is this why my daughter Hilary Karls graduated from MIT 2005 with a BA in Economics and a BS in Electrical Engineering, the Dept into which Computer Science was stuffed at that time (please forgive a father’s pride!!!)?

Q-7 – Did Prof. Samuelson earn his PhD in Economics in 1941 from Harvard which, at that time, was recognized as the No. 1 Economics Dept. in the U.S.?

Q-8 – Was his field Macroeconomics in general and Fiscal Theory in particular – (please Sec. C of the Suggested Answers to the First Short Quiz at viewtopic.php?f=805&t=2514&sid=464ae076 ... 9c3f2258d4)?

Q-9 – Was his “Economics” the standard textbook for first-year economics at universities when Yours Truly was an undergraduate (1960-1964)?

Q-10 – Was his “Economics” a standard text book from its first edition 1948 until the present day (even though he passed away 12/13/2009)?

Q-11 – Did we Economics students often joke that every year or two, a new edition of “Economics” was published with few, if any, changes but with the famous lines on the cover changed from horizontal to vertical and back to horizontal ad infinitum – so that students were forced to buy the newest version rather than a much-cheaper used edition? Did this show, albeit in a small way, Prof. Samuelson’s acumen as an economist?


***************
Chapter 3 (cont’d)

Supporters of this view used the perfect competition model to demand that large firms be broken up. Couldn’t “monopolists” engage in “predatory pricing” to secure their position against competitors? DiLorenzo finds no historical evidence that such a thing has ever taken place.

“In fact, to this day there is no record of any business achieving a monopoly through predatory pricing! There have nevertheless been hundreds of antitrust lawsuits based on this theory, most of them private lawsuits with one company suing a competitor for lowering its prices. Think about that: in the name of protecting the consumer, antitrust regulation allows businesses to sue to “protect” customers from their competitors’ lower prices. (p. 38)”

*****
Q-12 – Wasn’t the U.S. Supreme Court’s 5/15/1911 break up of the Rockefellers’ Standard Oil Company brought by the U.S. Gov under the Sherman Antitrust Act (i.e., NOT COMPETITORS) because Standard Oil used its size and clout to undercut competitors in a number of ways that were considered "anti-competitive," including underpricing and threats to suppliers and distributors who did business with Standard's competitors?

Q-13 – Did consumers actually benefit from the 1911 break-up of the Standard Oil Company into 34 pieces, 3 of which -- Exxon (Standard Oil of NJ), Mobil (Standard Oil of NY), Chevron (Standard Oil of Cal) -- were members of the legendary “Seven Sisters” and several more were major companies on the Big Board -- such as Standard Oil of Ohio and Amoco (Standard Oil of Ind)?


***************
Chapter 4 – Bees, Keys and Externalities
Chapter 5 – Pollution Is Capitalism – or the Cure?

*****
Q-14 – Since the “Dummies Guide” skips Chapters 4 & 5, does Prof. DiLorenzo believe even we “Dummies” can understand them without help?

Q-15 – BTW re Ch. 5, do you remember the Suggested Answers to the First Short Quiz positing that you do NOT wear a meter around your neck to measure the amount of air you breathed in order to present you with a monthly bill (because air is not in short supply) -- while air does indeed have a cost in terms of EPA Regulations against would-be air polluters?


***************
Chapter 6 – The “Free-Rider” Fallacy

Unfortunately, perfect competition is far from the only case of an alleged “market failure.” Critics charge that “public goods,” goods that are both nonrival and nonexcludable, cannot be adequately supplied in the free market. As an example, a guided-missile defense system protects everyone within a territory, not just customers willing to pay for it; and, given the large numbers of consumers of this good, people could in a free market “free ride,” imagining that others would bear the burden. General awareness of this phenomenon will make everyone reluctant to pay, since even those who want the good would rather not pay for it.

“Away with this flimsy theory!” says DiLorenzo: it too lacks historical support.”

“Another problem with the theory of the “free-rider problem” is that there are examples all around us of private individuals and groups providing myriad types of goods and services that are “nonrival” and “nonexcludable.” Americans are probably the most charitable people in the world…. The very existence of the many privately funded charities proves that the free-rider problem is not nearly as severe a problem as students of economics are led to believe…. Especially at the state and local levels of government, it is hard to think of any service provided by governments that is not also provided by private businesses (or private nonprofit organizations), usually at a fraction of the cost and with higher quality and customer service to boot. (pp. 67–69)”

*****
Q-16 – “Especially at the state and local levels of government…hard to think of any service provided by governments that is not also provided by private businesses???

Q-17 – What about fire departments???

Q-18 – Yes, “Big Wigs” and Pols have their own private-security details BUT WHAT ABOUT police protection for the common people???

Q-19 – Isn’t it nice that state and local governments ARE ABLE to provide fire, police, etc. protection AND TAX THE RECIPIENTS so there are no “free riders”???


***************
Chapter 7 – Un-Natural Monopolies
Chapter 8 – Asymmetric (Backwards) Economics
Chapter 9 – Creating Monopoly with Regulation

*****
Q-20 – Since the “Dummies Guide” skips Chapters 7, 8 & 9, does Prof. DiLorenzo believe even we “Dummies” can understand them without help?


***************
Chapter 10 – The Economics of Government Failure

DiLorenzo finds a general pattern that underlies the failure of all the various attacks on the free market. In the free market, entrepreneurs have an incentive to satisfy consumers, as that is the path to profit. Government bureaucrats have no such incentive; to the contrary, they are free to seek “power and pelf,” as Murray Rothbard used to say. DiLorenzo puts this key insight in this way:

“Profits and losses are the measuring rods of how good a job a business is doing with regard to serving its customers. Growing profits mean that a better and better job is being done in that regard; losses mean the opposite. No one is forced to buy anything from anyone in a free market…. In government bureaucracies, failure is success. The worse the public schools get, the more money they get in next year’s budget. The longer government fails in the War on Poverty, the more money the poverty agencies get. The longer the failed wars that are never won go on, the more enriched is the Pentagon and the military-industrial establishment. And on and on. (pp. 121–23)”

*****
Q-21 – Don’t we want to cheer Prof. DiLirenzo – RIGHT ON!!!

Q-22 – But why did Prof. DiLirenzo think we are “Dummies” who don’t know this???


***************
Chapter 11 – Who Creates Jobs? (And Who Destroys Them?)
Chapter 12 – The Fed Government’s Boom-and-Bust Machine
Chapter 13 – The Root of All Evil

*****
Q-23 – Since the “Dummies Guide” skips Chapters 11,12 & 13, does Prof. DiLorenzo believe even we “Dummies” can understand them without help?

Q-24 – BTW the sub-chapter headings of Ch 13 (The Root of All Evil) is the income tax and its loopholes – but wasn’t America founded as a Christian nation and isn’t progressive income tax (higher income brackets are subject to a higher rate) THE ESSENCE of Christ’s TWO Commandments for “inheriting eternal life” – (A) Love God with all your heart/soul/strength/mind AND (B) LOVE YOUR NEIGHBOR AS YOURSELF (followed immediately by the Story of the Good Samaritan to drive home the point that EVERY human being is your “neighbor” because a Samaritan at that time is the last person on earth a Jew would consider to be a human being, if even that)???

Q-25 – Are all loopholes despicable??? After all, don’t such “loopholes” as benefitting the poor and disabled comprise “Loving Your Neighbor As Yourself”???


***************
Chapter 14 – “Trade Agreements” Are Not Free Trade

If the free market is better than a centrally directed economy, we must in choosing proper policy beware that we have the genuine article, not a counterfeit. As an example, DiLorenzo first aptly brings out the fallacies of protectionism. “Chief among them is the ‘Buy American’ scam designed to make people believe that protectionism will somehow save American jobs. The truth is that protectionism may temporarily preserve some jobs in the protected industry, but always at the expense of destroying other American jobs elsewhere and plundering American consumers with higher prices” (p. 178).

But, he says, international trade agreements like the North American Free Trade Agreement (NAFTA) do not in fact promote free trade but subject it to government control.

“Just because politicians call something a “free trade agreement” doesn’t make it one. They always choose wonderful-sounding names for their legislation, which in reality is usually the work of scores of greedy plunder-seeking lobbyists. This was the case with NAFTA, which was some 2,400 pages of bureaucratic regulation and central planning of the trade between the United States, Canada, and Mexico and the rest of the world. It contained nine hundred pages of tariffs, the opposite of free trade. (pp. 181–82)”

*****
Q-26 – Why does Prof. DiLirenzo think we are “Dummies” re this issue???

Q-27 – Haven’t we studied zillions of times how our Pols exported American jobs 1993-2016 to low-wage countries e.g. China???

Q-28 – And hasn’t our organization protested this many times – most recently with our 10/26/2023 Letter to President Biden entitled “Halting The Exportation of American Jobs and Halting The Sale of American Crown Jewels to Pay For Consumer-Goods Imports” (please see viewtopic.php?f=23&t=2420&sid=d7bf63b48 ... 57f2522a85)???

Q-29 – Did this plaintive plea follow our 10/18/2023 meeting focusing on ““No Trade Is Free: Changing Course, Taking on China, and Helping America's Workers” (Broadside Books 6/27/2023) by Pres. Trump’s U.S. Trade Representative, Robert Lighthizer, whose book described all the new trade agreements (one of which revoked NAFTA) and executive actions Pres. Trump took to bring American jobs back to America???


***************
Chapter 13 Redux – The Root of All Evil – (technically NOT a redux since “The Dummies Guide” skipped it entirely the first time by)

As mentioned above, DiLorenzo has a wide knowledge of history, and this he puts to exemplary use in his discussion of the federal income tax, which, he aptly reminds us, the great Old Right author Frank Chodorov called “the root of all evil.” However much we hate to pay taxes, Chodorov’s phrase may seem exaggerated, but, DiLorenzo reminds us, he had a point.

“Americans were literally turned into slaves of the state, said Chodorov, for what the government was now saying to its citizens was: “Your earnings are not exclusively your own. We have a claim on them, and our claim precedes yours. We will allow you to keep some of it, because we recognize your need, but not your right … The amount of your earnings that you may retain for yourself is determined by the needs of the government, and you have nothing to say about it.” In other words, the income tax was the biggest attack on the principle of private property in American history. (p. 163)”

Relying on the great book of Felix Morley, Freedom and Federalism, which he calls “the best book ever written about American federalism” (p. 165), DiLorenzo says that the federal income tax bypassed the authority of the states over their citizens. Further, “it essentially turned most state governments into puppets of the ‘federal’ government once the federal government had enough funds with which to bribe or threaten the states to bend to its will by either granting or withholding ‘aid to the states’” (p. 165).

*****
Q-30 – Although unlike DiLorennzo, we didn’t skip Ch 13 the first time by, did we note in Q-24 and Q-25 that DiLorenzo’s attitude VIOLATES THE SECOND OF CHRIST’S TWO COMMANDMENTS FOR “INHERITING ETERNAL LIFE” (viz., to “love your neighbor as yourself”)???

Q-31 – Does DiLorenzo’s attitude comprise evidence of how far America has strayed from its founding as a Christian nation???


***************
Chapter 15 – Socialism (Or How to Destroy an Economy, Impoverish People, and Deprive Them of Their Freedoms)

Epilogue


Tom DiLorenzo’s masterful book brings out in unsurpassed fashion that the free market rests on mutually beneficial exchange. He quotes Adam Smith: “Whoever offers to another a bargain of any kind proposes to do this: Give me that which I want, and you shall have that which you want, is the meaning of every such offer; and it is this manner that we obtain from one another the far greater part of those good offices which we stand in need of” (p. 5). (Smith, by the way, here alludes to the Latin do ut des, “I give that you may give,” important in the Roman religion and civil law.). The book is, as David Stockman says, a worthy successor to Henry Hazlitt’s Economics in One Lesson.

*****
Q-32 – Do you think this Valediction is commentary on Ch 15 & The Epilogue?

Q-33 – Do believe this “self congratulations” is warranted?