Economics far from an exact science

October 3, 2010


“Economics offers much to teach us,” proclaimed a letter to this paper, written in response to an editorial arguing that a new Lowe’s outlet would contribute tax revenue and jobs to the Lawrence economy. “Economics shows this to be incorrect,” wrote the letter writer. Someone interested in a discussion might have said that the pro-Lowe’s editorial was “debatable.” But apparently, in the writer’s view, the lessons of economics are chiseled in stone, beyond debate. You could almost hear a gong of finality, accompanied by a Mosaic voice stating, “Enough said.”

The argument of the letter was that there are a finite number of people earning a fixed amount of income in Lawrence. A new Lowe’s would create no more jobs, income or tax revenue. It would merely siphon off sales from other stores. The implication was that economic growth depends solely on population growth and that retail space ought to be rationed according to a formula that balances customers and stores. That idea has been used to unleash the bogeyman of “blight” and is popular locally as a case against development.

That sounds plausible if you accept the premise that economies are static and that a market like Lawrence’s is an impenetrable, self-sustaining bubble. But economics teaches other, contrary lessons. Economic growth sometimes exceeds population growth due to advances in technology, productivity and trade. Our standard of living has grown dramatically beyond population growth in recent times.

Moreover, Lawrence’s economy is affected by neighboring towns. Lawrence may be losing sales to other communities by virtue of the limited shopping choices it offers. And competition between stores such as Home Depot and Lowe’s can serve consumers by lowering prices and improving service. According to one argument, competition can actually improve the fortunes of competitors, a proposition that will be tested locally on the east side of Lawrence, where new Orscheln and Tractor Supply stores are going head to head.

The willingness of Lowe’s to open a new store here suggests that it must make enough economic sense to make it worth the risk. At any rate, why should existing stores be protected from competition? That’s a program for encouraging lazy merchants, high prices and substandard service. Payless Cashways, once the leader in the home improvement business, failed for a number of reasons, but mainly because it couldn’t compete with Home Depot and Lowe’s. Should it have been protected and subsidized by consumers? Who knows if Home Depot and Lowe’s will be around in 20 years? The secrets to success and prosperity are murky.

If economics consisted of clear, immutable laws, we might not be mired in a deep recession. Booms and busts would be easy to avoid. And all economists would be rich. But economics is a game of hunches rather than absolute truths. Economic models are flawed and economists disagree about almost everything.

Some say the current recession was caused by Wall Street “greed” and predatory lending. Others blame loose monetary policy and irresponsible borrowing. One side favors government spending to revive a stagnant economy. The other argues for tax cuts and investment incentives and argues that government spending merely transfers wealth from more from more productive uses. The answers to these disputes are of vital importance, but they refuse to present themselves as certainties.

Harry Truman sought a “one-handed economist” who’d give him straight answers and complained about economists who said, “On the one hand, on the other hand.” But the two-handed economists were expressing the infernal complexities, contradictions and ambiguities of the “dismal science.” If economists were candid, their most common declaration would be, “We don’t know for sure.”

— George Gurley, a resident of rural Baldwin City, writes a regular column for the Journal-World.


Scott Drummond 7 years, 7 months ago

And the right wingers think BP Oil, the insurance companies and the geniuses on Wall Street know what's best for us.

I tend to think our elected representatives may be better at reflecting our wishes.

just_another_bozo_on_this_bus 7 years, 7 months ago

One thing we know for sure-- George is no economist, just a shill for the only ones guaranteed to profit from a Lowe's store-- the developers who want to plant one on the land they own.

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