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Overcoming Economic Ignorance
Overcoming Economic Ignorance
Dr. Walter E. Williams
John M. Olin Distinguished Professor of Economics at George Mason University
On
May 6, 2006, the Foundation for Economic Education had the honor of
presenting the 2006 Adam Smith Award for Excellence in Free-Market
Education to two great champions of the free society: Dr. Walter E.
Williams and President Václav Klaus of the Czech Republic. The
following are the unabridged addresses by Dr. Williams and President
Klaus delivered at the Adam Smith Award Ceremony at FEE’s
headquarters in Irvington-on-Hudson, New York.
It is
with great pleasure that I accept the Foundation for Economic
Education’s Adam Smith Award. Adding to that pleasure is to accept
the award in the company of such a distinguished guest as President
Václav Klaus of the Czech Republic. I want to thank the Foundation
for Economic Education’s Board of Trustees and President Richard
Ebeling. I also want to thank all of you, some of whom traveled long
distances to participate in tonight’s affair.
In
making the case for freedom we face three broad classes of people in
this world: first, those who are just plain evil; second, those who
do evil things because of economic illiteracy; and, third, good
people who are economically illiterate. There is little that
organizations like FEE can do to fight the truly evil. It is dealing
with the latter two that constitutes FEE’s mission, and which has
motivated the Foundation’s efforts for sixty years. I am sure that
FEE’s founder, Leonard E. Read, would be proud of the yeoman’s job
it has done.
Unfortunately, economic illiteracy is intuitive. Take advocacy for
increases in the minimum-wage law as an example. What decent person
wouldn’t want higher wages for low-skilled workers? If one has the
view that an employer needs a certain number of workers in order to
perform a given task, then the effect of a mandated higher wage is
higher pay for low-skilled workers.
That’s
the type of thing we hear reported in the news: “Starting January
1st all minimum-wage workers will see their wages rise from $5.15 an
hour to $6.75.” Those who hold this view think that the only effect
from the mandated higher wages is an increase in the worker’s
take-home pay at the expense of the businessman’s profits.
On the
other hand, if you understand that an employer doesn’t simply need a
fixed number of workers to perform a given task, you might still be
sincerely concerned for the welfare of low-skilled workers but be
against increases in the minimum-wage law. Such a person would
realize that when the price of a resource rises, employers will seek
substitutes. He might substitute capital for labor, he might
automate. He might reorganize his productive technique so as to
economize on labor costs. He might move his operation to a nation
where wages are lower. The workers who lose their jobs will be worse
off. Of course, those workers who keep their jobs will be better
off, but at the expense of their now unemployed co-worker.
Some of
the responses to the recent sharp rise in gasoline prices show just
how intuitive economic illiteracy can be. I’ve heard people offer
what they see as “proof” of price gouging by gasoline companies.
They explain that they can understand how a supply shock such as
Hurricane Katrina or Middle East political instability can cause oil
prices to rise. But then they ask: What about all that oil sitting
in tanks or in transit, which was purchased before the hurricane or
the political disruption? Why does its price rise? That’s what they
see as proof of price gouging by the oil companies.
What
these people don’t realize is that historical prices—what you paid
for something yesterday—do not necessarily determine its selling
price today. For example, back in 1973, I paid $58,000 for my lovely
home in the Valley Forge area of Philadelphia. You can call me a
price gouger all you want but I’ll be damned if I’ll sell it for
$58,000 in 2006. I’m going to sell it for today’s replacement cost
just as the oil companies price their product at today’s replacement
cost.
I am
optimistic about the future because I believe that it is ignorance
that explains much of what we see. I am optimistic because ignorance
is curable. If there is one dereliction of duty by economists, it’s
their failure to make relatively simple economic principles
available and understandable to the ordinary person. In that regard,
the work done by the Foundation for Economic Education is just what
the doctor ordered.
I thank
all of you for your support of America’s first free-market
foundation, the Foundation for Economic Education, and for joining
us in the celebration of FEE’s 60th Anniversary.
 Dr.
Walter E. Williams is one of America’s foremost advocates of
liberty. His uncompromising stand for the free society and his
unique combination of intellectual depth and razor-sharp wit have
brought him unmatched success in popularizing the ideas of liberty
and influencing hundreds of thousands of people in the United States
and around the world.
Dr.
Williams’ syndicated column and his frequent appearances on radio
and television are always breaths of fresh air in defense of the
free society. He is the author of six books, including The State
Against Blacks and More Liberty Means Less Government. We are proud
that Dr. Williams is a columnist for our flagship publication, The
Freeman: Ideas on Liberty. A native of Philadelphia, Dr. Williams
earned his Ph.D. in economics at UCLA. He is the John M. Olin
Distinguished Professor of Economics at George Mason University. He
has always been one of the most sought-after teachers and raised a
whole generation of freemarket economists.
Nobody in the United States deserves to receive the Adam Smith Award
for Excellence in Free-Market Education on FEE’s 60th Anniversary
more than Dr. Walter E. Williams.
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