 Hey everybody and welcome to episode 19 of Patterson in Pursuit. I am your host, Steve Patterson, and today we're talking about one of my favorite topics, economics. My wife and I just got back from a great trip to Canada, but this interview is coming to you from the great state of Virginia. I'm talking today with Professor Donald Boudreau, who is a professor of economics at George Mason University, and he's the former president of the Foundation for Economic Education, which is an organization I used to work at a few years ago. In the economics world, there's kind of a sad reality that it seems like more and more professional economists and economic commentators are mistaken about the very basic concepts in economics. And if you've been following my work for a little while, you know I am all about the basics. If you get the basics wrong, it really doesn't matter how advanced your analysis is, you're going to be foundationally mistaken. Which is why I'm excited to talk with Dr. Boudreau because he also focuses on the basics. Dr. Boudreau is one of the clearest writers and thinkers on economic topics. And if you follow his work, you'll notice that he engages with the mainstream political and economic commentators that influence the general public, and he's excellent in correcting their errors. He's written a book called Globalization and has a blog with fellow economist Russ Roberts entitled Café Hayek. If you guys haven't checked it out, go to CaféHayek.com. It's a fantastic website. There was a lot of very clear economic writing from Dr. Boudreau. In this interview, we talk about several things, but probably most importantly, the three basic starting concepts in economics. There are many basic concepts, but he has chosen three which I think are very foundational. And if you don't understand them, there is no possible way to understand how the world works, in my opinion. So if you're interested in what we're talking about, check out the show notes page today. It's steve-patterson.com slash 19. And I'll have a link to some more economics resources if you guys are interested in mastering the basics. Enjoy. So first of all, thank you very much for sitting down and speaking with me, Professor Boudreau. My pleasure. I'm a big fan of your work because you focus a lot on the basics, basic foundational concepts in economics, which it seems like a lot of people, both in academia and in like the media and the general public, they seem to overlook the basics. Can you explain just a little bit maybe the importance of understanding the foundational concepts in economics and perhaps just what those basic concepts are, like you have comparative advantage, you have to understand that concept and so on? Yeah, I'm not going to off the top of my head pretend to give a full and complete list of all the basics. I might miss some, but basically, the basics of economics are, we live in a world of scarcity, which means that if you want more of something, you or someone else has to give up something else to get that greater amount. There are unintended consequences to nearly all acts. They can be beneficial unintended consequences or ill unintended consequences and supply and demand. I mean, these are, we could go into more detail about other basics that are I think maybe a little bit less basic. But scarcity, supply and demand and unintended consequences, these are pretty foundational. A lot of what I regard to be the mistakes in public policy and errors in public policy discussion stem from errors no more complex than a failure to recognize these basics, failure to understand that we live in a world of scarcity. You can't create prosperity out of nothing, a failure to understand that there are consequences beyond those that are initially seen. This is Bastiat's what is seen and what is not seen, and a failure to understand the basic principles of supply and demand as those principles are taught in any decent economics course. Unfortunately, I fear that supply and demand is taught less and less decently in basic economics courses today. I make this rather sourd assessment from some correspondents that I have with some of my fellow economists, the younger economists, not all by any means, but increasingly large numbers of them seem not to understand supply and demand and some of them actually seem to disdain the notion that supply and demand is an important concept. Focusing on the basics is vital not only to help people better understand economics, but it's vital to help people clarify their understanding of the way the economy works and of the likely consequences of various public policy proposals. Let's talk about some specifics of the basics applied to the public policy proposal. Let's take something that always comes up, the minimum wage. Can you explain how understanding supply and demand, understanding scarcity and unintended consequences, those basics, can you explain how you would analyze something like the minimum wage? There's no better real world example than the minimum wage for showing the importance of these three notions. I should say these three notions are all intertwined with each other, they're not hermetically sealed off from each other, connected. So the supply and demand is the understanding that when the price of some good or service changes, the quantities that buyers of that good or service want to buy change. The quantities that suppliers of that good or service will just sell change, and they change in the opposite direction. If the price of something goes up, then buyers want to buy less of it, and suppliers are willing to supply more of it. Seems pretty commonsensical. This is a foundational principle of economics, but you don't need to be a PhD economist. You don't even need to have had a principles of economics course to understand this reality. Supermarket managers understand this reality. When they can't sell all of the paper towels that they thought they could sell, they put them on sale, because they understand that if you lower the price, that's a really reliable way of getting people to buy more of them. And so when the price of unskilled labor rises, and the minimum wage applies only to unskilled workers, only about 4% of US workers today make the federal minimum wage or less because they're low skilled workers, so they don't get paid very much, when the price of unskilled labor is artificially raised by legislation, that means buyers of unskilled labor, employers, want to buy less of it, they want to hire fewer hours of it, but the willingness of people to work at those higher wages goes up. Well, when the quantity supply goes up, and when the quantity demanded of that thing goes down, you get a surplus of that labor. A surplus of labor is called unemployment. That's the unintended consequence. Well, presumably it's unintended. The people, I think most of the supporters today probably are well intentioned in the sense that they think that the minimum wage will in fact raise the incomes of low skilled workers either at no cost to anyone or at the exclusive cost of employers. So here's what we get to the concept of scarcity. Employers do not have, contrary to what Bernie Sanders' supporters may suppose, do not have an unlimited quantity of wealth in which they can dig into to pay higher wages. So employers, especially because they are in fact self-interested, we might even say greedy as enemies of capitalism like to call them, precisely because they are like that. When the price that they have to pay for labor rises, they understand that that means greater cost for them, so they undertake efforts to economize further on labor. They say, well, how can I continue to have these tasks performed in a way that's less costly than it would be if I just pay the higher wages and not react at all so they can substitute into machinery, fire workers. They can alter the kinds of workers they hire. Relatedly, most of the industries in which low-skilled workers work, they use disproportionately high amounts of low-skilled workers, these are industries that are very competitive, the restaurant industry, the maid service industry, the lawn care industry, the manual labor, all these industries use manual labor. These are highly competitive industries. We can debate, well, should they be more competitive? I'm all in favor of reducing occupational licensing and reducing further barriers to business startups. I'm not saying the world is perfect, but I think it's just completely implausible to suppose that the industries that use unskilled workers are by and large monopolized, that these employers are making consistently year after year unusually large profits. They're not, restaurants come and go and they go out of business, maid services come and go, lawn care services come and go, it's fairly easy to enter these industries. So these firms in these industries, whether they be parts of big corporations or whether they be mom and pop operations, they're operating on pretty thin profit margins. So they cannot afford to simply raise the prices as some minimum wage advocate will say, well, I'll just raise their prices and then pass along the cost to consumers. They can't afford to do that because they're operating within profit margins and when they're operating within profit margins, they understand that when the cost of labor goes up, the best way to minimize the effect of that higher cost is to reduce the amounts of workers they use. Let me say finally, even if all the prices, even some bizarre scenario, which is barely imaginable, occurs where the prices of all those goods produced in industries that use disproportionately large amounts of low-skilled workers, minimum wage workers, even if those prices all rose completely by enough to compensate employers for the higher cost, well, that means the prices of these goods and services are going up. That means consumers are going to buy less of them. And so even if employers don't change the way they supply outputs, they'll be supplying fewer of those outputs to the market. And so those employers will need fewer workers per unit of output, excuse me, fewer workers because they're producing less output. So just reflecting on the principles of economics, I don't see that there is any way that you can conclude that raising the minimum wage doesn't reduce the job prospects of some low-skilled workers. Now, I say reduce the job prospects because formally or more clearly what the proposition is is not strictly that it will eliminate jobs. I think that's the practical consequence. But it reduces the number of people who are working. It could just, their hours might be reduced. So you get the same number of people working, but each is working fewer hours. Either way, they have less income. And there's no reason to suppose that these people feel better off sacrificing those hours if that sacrifice means less income. This is an example of a trade-off that is implied by the concept of scarcity. The employers can also change the nature of each job. They can demand that workers work harder. And employers can be more strict in their intolerance of employees doing personal things on the job, like texting, making personal phone calls, they can be more strict in demanding that employees show up on time for work and not leave early for work. So there are any number of specific, different, specific kinds of adjustments employers can make to a higher minimum wage. But they all are attempts to economize further on labor because labor becomes artificially costly for them. I don't see how an understanding of basic economics allows you to escape that conclusion. There's one exception, and that is the claim that the labor market is monopsonized. Well, that's just a ridiculous claim. That requires that there be one buyer, at least in any one market, of low-skilled workers, just one. And you can show on a blackboard that there's only one buyer of low-skilled workers, that might lead to a minimum wage not reducing employment. Even then, the theory is not quite as clear as some people think. But apart from that one unrealistic exception, reflection of basic economics says, no, minimum wage is going to hurt some low-skilled workers. OK, so let's take this framework and apply it to something like rent control. So let's say, number one, we're talking about the fundamentals is the concept of scarcity and rent control that not everybody can have a place to live wherever they want. There is a finite amount of apartments in different locations. That's just kind of a brute fact that we have to deal with. So people have to make trade-offs. Two, supply and demand is people pending on the price of these properties are going to change their decisions, both the people who want to be in an apartment. The renters are going to make their decisions based on the price. If the price goes up, that will be dissuaded. The price goes down, they will be enticed. And the counter is the people who are renting out their apartments have the reverse. The higher they can get, the more they're willing to rent, the lower the price, the less the rent. So that kind of falls into the third one, which is unintended consequences. So correct me if I'm wrong, that if you were to have something like rent control that said, for the sake of poorer people in society, rents can't be above a certain point. What the unintended consequence of that is that you're going to have a shortage of available properties. Can you kind of explain specifically why that's the case? Give me the economics of that. So let me change the example just a little bit and I'll get back to rent control. The reason economics appeal to me so deeply. I remember the day I became an economist. It was January 17, 1977. I was a freshman in college. I wasn't interested in anything. I had no academic. All I cared about was football and girls and beer. And I sat in economics class and my late teacher, Michel François, drew supply to man curves on the board. And I was barely paying attention. And she said, look what happens when government puts price controls on, pushes the price below market clearing. Well, you get a shortage. When the price falls, buyers want to buy more than sellers who are willing to sell. And I realized suddenly why, I grew up in the 1970s, why I spent so much time waiting in gasoline lines. And all the other explanations that I'd heard, they kind of made sense to someone who was in economics. Well, Exxon is keeping its tankers out in the Gulf of Mexico to drive up the price. If you're 15 years old, okay, well, this is a popular one. We're just running out of oil. I mean, we've been using it now for a hundred years and it's up, running out, right? And that seemed plausible if you don't know any economics. And when I saw supply and demand, I thought, I don't think I articulated it to myself at that moment in these words, but I thought, this explanation makes far more sense than any other explanation. I was amazed at the power of these four little lines on a chalkboard, back then it was a chalkboard, to explain reality. And so with rent control, it's the same issue. If the rents fall, if the rents are artificially pushed down by the state below market clearing, the willingness of people to rent rises, right? As we economists say, the quantity demanded of rental units goes up. The willingness of landlords and potential landlords to rent goes down. You get a lower return on your rental units. So you create a housing, you create a shortage of rental housing and that's manifested in long waiting lines. Now, unlike with gasoline, people don't literally stand in line to wait. That's physically impossible to do, you die. So the waiting lines are in the form of you get your name on a list and you hope that this list opens up at some point. And so rent control is much studied like minimum wage. New York, especially New York City, San Francisco also. These are two places in the United States that have rent control and where rent control is seriously enforced. So a lot of jurisdictions that have rent control but it's really kind of a dead letter or it's not enforced that much or the rent controls are so high, they're not effective, they don't take effect. But we know a lot from looking at the experience of New York and San Francisco and that record is pretty darn clear that the predictions of basic economics play out there. There's a shortage of rental housing in New York. We know that in the 1960s, when the New York City Rent Control Board, a lot of this depends upon the actual details of how they implement, which is an interesting story in and of itself. But in the 1960s, when the New York City Rent Control Board was especially radical in really being stripped and denying requested rental increases to landlords, that was corresponding with a spike in building abandonments, a spike in condo conversions in New York. Rent controls control only the price of rental properties, not of owner-occupied properties. It's been a while since I've done it, but when I was at fee in the late 90s and very early, I was there from 1997 to 2001. And I would often, at least once a week, usually more take the Metro North train down from Irvington to Grand Central Station and then back up again. And that train path, when the train comes through the Bronx and then enters Manhattan, you can look out of the windows, you can look over at the Bronx and you can look over it up or the northeastern part of Manhattan. And you see these abandoned buildings or these buildings with squatters living in them. They've been like this for years. I don't know if they're still like that. I think they still are, but I can't speak with absolute certainty because I've been a long time since I've taken that train ride. But I saw it a lot. Just 15, 18 years ago. And you have to wonder, well, what are these abandoned, why in New York City, which has to be one of the most, probably the most prime 22 square miles Manhattan, a real estate in the world? Why does it, and right across this little river in the Bronx, why are these horrible buildings? And the best answer is rent control. Rent control made it impossible for the owners to maintain the building so they abandoned them. And these buildings were in a part of town where condo conversions were impractical. People weren't gonna buy condos in that part of town. So the owners walked away from them. In some cases, in some cases, there's, it may have been documented, but there's certainly a valid suspicion that a lot of these buildings were victims of arsonists hired by the owners. Is that rent control actually prompted the owners to torch their own buildings for to get the insurance money, right? And so here you have a policy that makes a modern city like New York, parts of it look like Dresden after a firebombing. And if there were no rent control, I have no doubt. I mean, there were other problems in New York. I mean, the problems go well beyond rent control. It's not just rent control, but certainly without rent control, it would be a lot more profitable and attractive to some landlords to create low-cost rental units there. And without, but now with the fear hanging over them due to the New York City Rent Control Board that they won't be able to adjust the rents in order to cover their costs, they don't create as many rental units as is necessary. You know, that reminds me, there's a story that Bert Folsom tells that when the railroads were being connected from East Coast to the West Coast, Bert's great, yeah. Yeah, that it got so absurd in the way that the government was financing this that one of the parties started blowing up, taking dynamite sticks dynamite and blowing up the railroad because of those unintended consequences. So we have people who are incentivized to burn down their own property as a function. That's incredible. So how do you respond to somebody that says, well, yes, you have these basic arguments, but they're elementary. When you get the more education you get, the more you realize that you've oversimplified and really the intelligentsia knows as seems to be evidenced by the amount of people that support government intervention in intelligentsia and academia that really we do need these kind of policies because they're more complex than you may not be. Well, look, obviously the world is more complex than any theory, even graduate level theory makes out to be the whole point of theory is to simplify parts of realities you can focus on. And I am in no way, I in no way think it is a mistake or lament the fact that there are higher level courses in economics. I myself do some higher level stuff. But yes, the world's more complex than basic economic theory shows it out to be, but if that theory is valid, then it still has explanatory power. To say it's basic doesn't mean it's incorrect. It still is the starting point for our analysis. And more often than not, that starting point takes, you can get from that starting point to an adequately full assessment of a policy without much more complexity. The problems with policy today, it's not that the problems do not stem from the fact that politicians and bureaucrats are taking basic economics too seriously. And therefore we economists have to say, oh no, no, look, the world's a lot more complex. The problem is the policy makers are ignoring the important features of reality that are highlighted by basic economics. And when you ignore those basic features of reality, all the curly cues and nuances and advances that you make on basic economic theory are irrelevant because these policies are ignoring basic facts. And so yes, this is a dodge that a lot of people use. Oh well, you free market people, you're focusing only on the simple textbook stuff, textbook models. And the proper response is yes, that's because most of the errors that are being made in public policy are errors that stem from policy makers ignorance of the basic truths taught by these models. Now you say this is ignorance on the part of the policy makers. And I think that- I'm a public choice guy, it's not just ignorance, a lot of it is. I think that would be a relatively uncontroversial statement to say that public policy makers maybe aren't the most educated about economics and maybe don't face the incentives to care really about economics. It's more of the latter, yeah. Why is it the case that so many economists seem to be mistaken about basic economics is that they genuinely don't grasp these basics or is it that they've reached, as I've heard some people have told me, you know, in graduate school, you reach an ability to grasp higher levels of abstraction. And that's why they seem to be mistaken on the basics. I don't know that there's one simple answer. I'll throw out some hypotheses that I have. One is related to what you just said. By the time you master PhD-level economics, particularly the way it's taught today with very high-level mathematics, you're proud of that. And that's what you think of as economics. And so there's perhaps a kind of psychological aversion to just using simple supply and demand and simple word-based arguments when you can use these higher-level math stuff, which does, I think, blind, because it's so complex, relatively complex, complex compared to basic theory, not complex compared to the world. The real world is always much more complex than the most complex economic theory you can name. So there's reluctance to rely upon basic economics. And so I think for a lot of these economists, they have to prove, either to themselves, their friends, their colleagues, their students, they're somehow smarter than ordinary people. And one of the lovely things that I, one of the things I love about economics is that it's just consistently applied common sense. I can take someone who, an adult, or even a high school student who's never had an economics course. And I fancy that I can explain to that person in just a few minutes some really important economic concepts. Without ever talking about math, or ever using any jargon. But that seems to be, I think, to a lot of economists, professional economists, oh, that can't be real science. I mean, if you can explain it in 10 minutes to a high school junior, that can't be real science. So you're doing something else other than economics. So you're simplifying it too much. I don't think it is simplifying it too much, in most cases. Another hypothesis is the screening hypothesis. So because math, well, because economics now has become so formalized, both mathematical and mathematically and statistically, the two are different, although they're related. There's a selection bias. It selects for people who can master mathematical logic and statistical techniques. And those are not, mastering those techniques, however impressive it is. And I do not, I admire people who can master those. It is a genuinely impressive form of intelligence. But that is not the same thing as mastering economics. And you can call the variables in your model that you list P, you can call them prices, you can call the Q's quantities, you can call the W's wages, you can call the Y's incomes. That doesn't mean you're doing economics. You're doing math using these things. It doesn't necessarily mean you're doing economics. And so there's a selection bias that people who now excel at the higher levels of economics are selected in, not because they have displayed any facility with basic economic reasoning and the ability to grasp basic economic concepts is because they're just good mathematicians with good statisticians. Is this also the case? Are we talking about high levels of economists that really don't grasp the basic concepts? Or is this? Increasingly, I'm sorry to report. I see high level, I see what strike me as more and more high level economists who seem not to understand basic economics. Now, I do believe that the typical economist, you go to the American Economic Association meeting, you just grab a random economist from the crowd. If you do that enough times, that person will have a better, slightly better understanding of what I regard as good economics and basic economics than the typical person on the street. Certainly, then the typical, then it's revealed by the typical politicians' claims. But it's not good enough. I think the typical economist is becoming less good as an economist. What I see happening, particularly over, I'm not sure when it started, it's not so much the mathematician of economics, but I think a kind of naive positivism is returning to economics. Can you explain a little bit more? Yes, the level of statistical analysis has risen so greatly. The statistical tools that are available now are really impressive that allow economists to crunch data. And I meet a lot of particularly young economists now. I think economists, 40 years old and younger, who they think what economics is, is crunching data on, crunching data that most people regard as economically related. And so, they don't bother thinking about the theories that hold these data together. In their view, what economics is just looking at the data sort of in an a-theoretical way. This is why so many economists, young economists will say, you know, there's a lot of evidence that raising the minimum wage doesn't cause unemployment because when we crunch the data, it's hard to find statistically significant effects of higher unemployment when the wage rate rises. Well, that may be, but the real world is complex. There are all these things, all kinds of things going on. And they say, well, of course, we control for all of those things. And the sound, the good economists understand that you can't control for all of those things. There's so many unseen variables that you just can't control for all of those things. And there are, by the way, to return to minimum wage for a minute, there are many, many other empirical studies, also high level, that do find the predicted negative employment effects. But in my view, I mean, conduct all these studies. That's fine, do it. I'm happy to do it. I'm happy to look at all those studies. Yes, look at the real world with data. It's important, do it, do it all. But to conclude that because a handful, and it's all it is, really a relatively small handful of studies, can't find statistically significant evidence that raising the minimum wage increases the rate of unemployment or increases the rate of unemployment among teenagers or unskilled workers, that that somehow suggests that the law of demand, this idea that as the price of something rises, we buy less of it, doesn't apply to labor or to low school workers. I think it's foolish. But I believe that a lot of economists now have that view. If you can't see it in the data, it doesn't exist. Well, they would respond, well, you're just being unscientific. Well, they do respond that I'm being unscientific. Yeah, and not just me, by the way, people who take my position. And I say, my response is, no, you're being unscientific, right? You're being unscientific. Part of science, science is not just, it's not just looking at data. The naive person thinks it's just looking at data. Part of science, science is complex play. It involves human judgment. It involves always broader knowledge of the subject matter about which you're studying. It involves understanding of history, understanding of the philosophy of science, basic theory in your discipline, of mathematics. And so this judgment gets better when you have this larger and wider collection of knowledge and wisdom. And so if you think it's just, not you personally, but if someone, or these people, and they say, oh, you're being unscientific by saying that the minimum wage causes unemployment because we have some data that show that it doesn't. Well, then the cheap response is, well, I have some data that show that it does. So who's being unscientific? We have to figure out some way to decide which of these two different conclusions from the data are correct. The way a lot of these economists conduct the discussion is they just want to sophisticate up their econometric techniques. And my argument is, to get back to something I started to say a moment ago, part of being a good scientist, a scientist with a small s, not lab coded, but a good, in a way that economists are, in fact, I believe, scientists. Part of being a good scientist is understanding, being able to identify certain laws of economic behavior and understand when and how they apply. And to also make inferences from what you learn. If we're all agreed that if the price of paper towels goes up, people want to buy fewer paper towels. That if penalties for a financial fraud go up, people are less likely to commit financial fraud. As taxes go up, people are less likely to engage in the taxed activity. As the price of haircuts go up, people are less likely to get haircuts. If we understand all this, well, it's scientific to say, okay, we've identified a law here. That law should also apply to low skilled workers. And if you say it doesn't, you need to give me a really good reason for why it doesn't apply. So let me challenge you on that. Is, you say we've identified these laws. Is that identification something that you arrive at through an analysis of data, or is this just pure theorizing? So is there any, this is two questions, I suppose. Is there any data that would convince you otherwise? And two, is there any lack of data that would convince you otherwise? Well, you're asking a lot of questions there. And they're good questions. And in a way, I'm going to punt because I don't want to dive down the black hole of methodology. Because I know from a lot of experience that you dive down that hole, you never come out. And this is, I'm sure your listeners don't want to. I've already talked to a few people about it. So we don't have to go into great detail. I mean, you know, so you had, you know, Ludwig von Mises had an extreme view that all economic knowledge of the laws is a priori. We can deduce them just through reasoning. Although even Mises wasn't so naive as to say, we don't learn anything from observing the real world. That's an unjust characterization of his view. I'm not quite the a prioris that Mises was. But so I think we understand the laws of economics through what we know from our human experience. From observing the, in a theoretically constrained way, like using supply demand analysis, for example, observing the world using that, and we ask ourselves, does this analysis help us better understand the world over here? Oh, yes it does. How about over here? Yes it does. Well, that says that this analysis has a lot of explanatory power. And the more explanatory power it has, then when you use it to understand different parts of reality, then there becomes an increasingly strong reason to believe that it continues to have that explanatory power when you apply it to this other part of reality, particularly if there's no obvious reason why it shouldn't. So when you ask, is there any data that would convince me otherwise? This is what I meant when I said it depends on the question. Obviously, yes. I mean, if study after study after study show that raising the minimum wage, no matter how high, or forget about the minimum wage, in some, you know, in some meaningful amount, and study over the effects over the long periods, and done really, really well by the best econometricians and economists, and they never find any unemployment effects. Then at some point I would have to say there's something about the market for low skilled workers that makes the law of demand there non-operative. What is that something? Is it monopsony power of employers? Is it some unseen change in the nature of the job? By the way, if that were the case, and the theory would still hold a loop just right now. Yeah, yeah. But even then, I wouldn't use that, I wouldn't generalize from that to, okay, well the law of demand must not be a general enough principle that we can use it to theorize about the real world. But practically speaking, in the case of the minimum wage, again, the majority of studies still find a negative employment effect. And so if you're going to use purely statistical or data-based empirical arguments to suggest that a foundational principle of a science doesn't apply, you need overwhelming evidence. You don't need just a few studies. And that evidence has to be almost unanimous to convince me. Startling propositions require startling amounts of evidence to back them up. I was talking to my friend George Selgen yesterday on another topic. We were talking on the phone. And we were joking. And George said, well, you know, someone might claim that water runs uphill. And if someone had a study that said water runs uphill, no one would start thinking, well, maybe the law of gravity doesn't apply to water. And I remember thinking, when my son, who's now 18, almost 19, when my son was a young boy, I remember going to some of these water parks. And I actually did see water running uphill at one of them. But I didn't look at that and say, oh, my gosh. Maybe gravity doesn't apply to water. Maybe gravity doesn't apply to water at this water park. So doing good economics, it's not satisfying to a lot of people. Because there's no formula for it. But being a good economist ultimately is a matter of judgment and wisdom. And I just know it when I see it. And I think other good economists know it when they see it. And I know bad economics when I see it. I can't prove it. If I think this Professor X's economics is lousy, there's no formula, I can say, to prove it. I just give arguments to other people and let other people judge whether or not they think my arguments are better than Professor X's arguments. But there's no escape. Science is a human endeavor. I'm very much influenced by Deodor McCloskey, particularly in this matter. Science is a human endeavor. And human beings, we have certain ways of thinking that are just part of being human. We don't have access to capital T truth. It's just given to us whole and pure without any intervention of our own distortions of thought and prejudices and biases. And we just don't have it. And so we have to do our best to use our judgment and our wisdom. And I believe that supply and demand analysis, basic economics, is a huge benefit. It's a huge, usually valuable tool for improving our wisdom and our judgment and usually a valuable tool for someone with good wisdom and judgment to make statements about reality to help themselves and to help others better understand reality. I like high-existing between making specific predictions and making pattern predictions. I don't think it's the case in social sciences that we can make many specific predictions. It's just about the real world. We can make if-then predictions. I predict that if the minimum wage goes up, then there will be fewer job opportunities or worse job opportunities for low-skill workers. That's different than saying if the minimum wage rises, there will be tomorrow or will be next year fewer jobs. A lot of other things can happen that overwhelm that particular effect. That doesn't mean that the science, that doesn't mean that the basic economics is wrong. That doesn't mean other things happen. I believe that unfortunately an increasingly large number of economists, particularly young economists, have poor judgment. They just have poor judgment about what matters. They have poor judgment about what data mean. They naively don't ask, well, where did these data come from? Why do we classify things in this way rather than that way? Why should we believe that a study that doesn't statistically conclude that higher wages cause unemployment? Why should we let that study or a handful of similar studies lead us to believe that the law of demand doesn't apply to the market for low-skilled workers? It's just poor judgment. But it's poor judgment that gets to mask itself in a sort of dime-store costume of science. Well, and that's kind of the last thing I wanted to ask you about, because this phenomena of perhaps young students or increasingly popular, not only economists, but popular intellectuals, from my perspective, outside of academia, seem to lack this common sense. They seem to lack this sensible judgment, and especially in the soft sciences when you're not just talking about economics, but or like in the humanities, good heavens. I wonder if you have a kind of explanation for that, because I think we're starting to see a group of people of which I am part that are really interested in ideas and very turned off by academia, largely because people seem a bit too full of themselves and not actually interested in the accuracy, critical conceptual accuracy of their ideas. Oh, so much of it goes on in academia, particularly in the social sciences and the humanities. It's just pure peacockery. That's exactly the word. Or peahenery, and I want to be sexist. There's a lot to show off in economics, I know, with the jargon economists use, the way their papers are structured, and I can speak for economics mostly, obviously that's my discipline. A lot of the math that occurs, it appears in top level journals, or any journal for that matter in economics, a lot of it is just window dressing. It's designed to say, look what I can do. So you got to take me seriously because I've done all those fancy math. And then you read the paper and it often makes a point if it's valid at all, or relevant at all, it's a point that could've been made with either no or much less math. Do you think that this would be a presumptuous conclusion? It's something that I believe, but I wonder what you think about it. That it is entirely not only plausible, but realistic to think that somebody with access to the internet in a matter of a month, if they know where to research and they're good skeptical people that can listen to both sides of the argument, can come to more sound and accurate conclusions about economics than even people who are pursuing their PhDs. Certainly possible, they have to know where to look. The risk is they can also come to some bizarre conclusions. But I think the internet here actually makes things better because the risk of coming to a bad conclusion in economics is sort of natural. I think if you don't, again, economics isn't hard, it isn't difficult. But if you don't learn supply and demand unintended consequences, that scarcity is unavoidable. It's not an artifact of reality that we can get rid of. A lot of people just don't naturally become bad economists. They just don't have the, they're not triggered to think, to ask the basic simple questions that economists ask. And once you trigger to think, to ask those questions, then you really, I think it's hard to imagine not asking those questions. So, okay, you're gonna raise that wage. Where's it gonna come from? Where's the pay gonna come from? And once you start down that road, well, then it's natural. Oh yeah, we gotta figure out where the pay's gonna come from. Well, it's gonna come from higher prices. Well, one with a high price is discouraged consumption. Yeah, well, won't then the less production mean the demand for fewer workers? Oh, I hadn't thought of that. So, while it's easy to, I think, quickly become a competent at thinking like a good economist, it's not natural. The internet probably increases the chances of it becoming natural. So, while the internet also expands the opportunity to stumble upon a lot of real nonsense, I think because the natural state of the human mind is economically nonsensical anyway. The bad things in the internet don't really have that much of an effect. They just have to reinforce what people naturally think. But by allowing people to find explanations, videos, short blog posts or op-eds or chapters of textbooks, enhances the ability to people who are in economics. I don't have any evidence that that's happening. I'd like to think it is. I can say that the public discussion today about public policy seems to me a lot worse than it was when I first got into economics. Really? Yeah. I mean, there's some exceptions. I mean, the big, and I think this is important, the big exception is price controls. When I got into economics price controls was still accepted in the United States. Today, except for minimum wage and rent control in some cities, price controls are pretty much off the board and that's a good thing. But, and maybe it's a selection bias, maybe it's just my memory failing. But the overall understanding today that's evinced by public discussions that I see seems to be just worse but economics. Remember, the New York Times famously in 1987, that's not long ago, at least not to me, argued for zero minimum wage. I basically argued for eliminating minimum wage. The New York Times. Now the New York Times is calling for more than doubling the national minimum wage. Trade, while ordinary men and people in the street have always been protectionists mostly. Elites were almost all in favor of free trade back in the 80s and we see almost daily that seems to be going away. Yeah, you had a handful of people who were bemoaning globalization and bemoaning the rise of Japan. But, you know, even Paul Krugman now is giving aid and comfort to protectionists. So, last thing on this, in my own experience and given that I, as we were talking about before, I had a job at FI where I got to go around and talk to a lot of students and professors who were specifically interested in what you might call sound economics. They're familiar with the works of Ludwig von Mises and Frederick Hayek where if you read those, you kind of, you grasp the economic way of thinking. You grasp this idea, like you mentioned, Bastiat, of the scene and the unseen. That is central and once you get it, you can't not get it. You can't not get it, yeah. So, this is perhaps a more challenging question. Would you say that if somebody sincerely grasps those basic concepts, the scene and the unseen, for example, that they are going to have a clearer footing to understand the world around them in an economic way than, I can't possibly say the majority of professional economists, but it sure seems like the conversation in the general public quotes economists, they have all this evidence of all these economists that believe these things that get the basics wrong. I think that if an intelligent person who's never had an economics class reads, Bastiat's essay, what is seen and what is unseen, reads his petition of the candle makers, reads Leonard Reed's eye pencil, maybe reads Milton Friedman's Free to Choose or Capitalism and Freedom, maybe reads an essay or two about Julian Simon, you know, a handful of small things, but reads just a handful of things that are accessible to an intelligent person without ever having taken an economics course. Then that intelligent person, if he or she has any kind of wisdom at all and any kind of good judgment at all, I believe will know what I regard as sound economics, will know more sound economics than is, than seems to be known by a large number of, I'm not saying a majority, but a large number, distressingly large number of professional economists. Relatedly, that same person, the same lay person, a non-economist who reads these things, will by doing so have enough understanding of economics to assess public policy proposals and to participate intelligently in public policy debates about economic matters that make that person as expert in these matters as even the best, as all but the very best economists. Because again, the public policy proposal, the public policy debates, these issues do not involve nuances in economic theory. These all turn on misunderstandings of very, very basic facts. The typical public policy debate is between someone who thinks that scarcity doesn't exist or forgets the scarcity exists and someone who insists that it does exist. The typical public policy debate on trade is between someone who simply doesn't know the definition of a trade deficit and someone who does. And so not knowing the definition of a trade deficit, you can imagine being whatever you want, sounds bad, so therefore it must be bad. And so what public policy debate needs much more of is an understanding of basic economics. Economists should be leading the way in that. I don't see them doing so. I don't see them doing so as much as I'd like them to do so. I say them because I'm almost speaking about them as if they're a different field than me. I increasingly feel that way. Well, on that note, I wanna thank you for sitting down talking with me. This has been great. My pleasure. All right, so that was my interview with Professor Donald Boudreau of George Mason University. I hope you guys enjoyed it. Check out the show notes page this week, stevedashpatterson.com slash 19, and I'll have some more resources for you guys to learn about basic economics if that's something that you're interested in. And make sure to tune in next week where I'm doing a interview breakdown of my conversation with a Stanford professor about democracy. I have lots and lots to say on that topic and I think you guys are gonna enjoy it. All right, have a great week.