President Joe Biden delivers remarks on the economy from the White House in Washington, D.C., July 19, 2021. (Jonathan Ernst/Reuters) Incentives do matter, and to suggest otherwise is to betray basic principles of economics.
In the 1980s, the inventive rock band Devo put forward the theory that mankind was experiencing de-evolution — that by destroying the planet, we were on a path to take the earth back to its roots. The subsequent decades were certainly less cataclysmic than the group had expected, but the idea that things could be unlearned and progress could be reversed will always be with us. That idea is especially relevant now as one considers the de-evolution of economic thinking among many on the left. One might even say that a significant fraction of the Democratic Party no longer practices economics when formulating policy, but instead commits itself to de-economics. Frankly, it’s the only explanation for the ridiculous arguments that abound today.
Economics is, after all, founded on the principle that models of firms and workers can be very useful for understanding how the world works. These models begin with the idea that resources are constrained and incentives matter. If something you like costs less than you’d value it at, you buy more of it. How much incentives matter is, of course, an empirical question, and economists have spent the last half century using more and more sophisticated computer techniques to quantify how firms and consumers respond to them.
In almost every first-year economics class across the country, it’s common to begin the semester with the principles of supply and demand. If you have lots of supply, then, because incentives matter, you can still clear the market because people will buy more of the product when the price drops. If you have lots of demand, then suppliers can clear the market by lifting the price until demand declines to equal the amount supplied. That covers just about everything essential — except, perhaps, for one last foundational idea.
Consider the following: If you want to have a better standard of living five years
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