With tax season just behind us, this is the time of year when many Americans have naturally had their attention focused on pocketbook issues. And with the recent news that the economy added almost 200,000 jobs in March, showing a strong recovery from an unexpectedly weak February, there are positive signs that the American economic engine will continue humming along.
But beyond the day-to-day news, there are storm clouds on the economic horizon. A troubling lack of basic economic literacy in our politics threatens the long-term health and growth of the world’s most dynamic economy. A free market is a complex system that involves hundreds of millions of individuals making a multitude of economic decisions. Centralized control is impossible, but the United States does have a toolbox full of regulatory, tax, and tariff levers that can influence the economy and the allocation of resources. Unfortunately, politicians on both sides of the aisle propose using these tools in ways that don’t make economic sense.
Take, for instance, President Trump’s fixation with the extent to which American consumers choose to purchase goods made at least in part outside our borders. Economists since the time of Adam Smith have demonstrated the benefits of comparative advantage — a concept that demonstrates how protectionist policies are counterproductive and reduce overall prosperity. The president likes to tout increases in federal government revenue that resulted from tariffs he has championed. But the tariff revenue generated in 2018 represents less than 1% of overall federal revenue for the year, and comes at great cost to American consumers.
A recent study showed that U.S. consumers bore the brunt of the economic hit, to the tune of $6.9 billion in 2018. A more sensible economic policy would scrap the tariffs altogether and allow American consumers and businesses to trade freely with people in other countries.
But unwise economic thinking isn’t limited to one party. Nearly three-quarters of economists responding to a recent survey said the concept of a $15 federal minimum wage is a bad idea, primarily because it would result in job losses for low-skill workers and stunted economic growth for small businesses. Yet, Democrats have essentially adopted minimum wage hikes as a party line position, and a bill to double the current $7.25 minimum wage by 2024 has the support of nearly every House Democrat.
Rep. Alexandria Ocasio-Cortez, D-N.Y., has taken her party by storm by outlining specific components of the Green New Deal. This series of proposals, which critics say would cost $93 trillion, represents a massive new federal mandate on businesses. Long-standing economic principles state that whenever the government implements burdensome new regulation, it slows down private sector efficiency and innovation, while simultaneously creating new costs to be passed along to the consumer. However, many of the leading 2020 presidential contenders have embraced the proposal.
Clearly, politicians are not going to raise the bar and start promoting sound economic thinking unless voters demand it. That’s why educational programs such as The Fund for American Studies are working to improve economic literacy among high school and college-aged students, with the goal of fostering a more informed electorate. Young leaders who learn about markets and incentives have a greater understanding of the benefits of a free market economy. They’re also better equipped to assess policy proposals coming forth from their elected officials, whether it be Trump or Ocasio-Cortez.
Going into another key election year, let’s hope that our leaders begin to understand this key fact: Our free-market economy is directly responsible for the level of prosperity that Americans rich and poor enjoy today. Americans earning $35,000 or more per year are part of the global “One Percent,” and that’s thanks to our free enterprise system. Our children and grandchildren deserve the same opportunity to enjoy that prosperity in the decades to come.
Roger Ream is the president of The Fund for American Studies (TFAS), which promotes the principles of limited government, free-market economics and honorable leadership.
