In a world increasingly framed by economic debates, the phrase “the laws of economics” has become ever more prevalent. As the U.S. Senate prepares to unveil a new immigration bill, much of the discussion centers on the economics of illegal immigration and the incentives for employers to hire undocumented workers. Said a recent Barron’s article: “Immigration policy is a game governed by classic economic rules, especially by Say’s Law, which says supply creates its own demand … Whether the new applicants are seeking stoop-labor jobs in California’s Central Valley or high-tech jobs in Silicon Valley, the laws of economics dictate the outcome: more immigration.”
How about the war on drugs? Said one recent analysis: “We’re losing the war on drugs because it’s a war that defies the laws of economics. We might as well be fighting a war on gravity.”
And how about what history can tell us about our current policies? Said one recent review of Amity Shlaes’ biography of Calvin Coolidge, which makes the case for Coolidge as an exemplar of responsible economic policy: “Our current political leadership ‑ and we who elect them ‑ are spending the country into ruin. The laws of man can be bent and broken; the laws of economics can not.”
This is just a smattering of examples over the past few weeks. Increasingly, our debates about – and our solutions to – pressing issues such as immigration, budgets and debt are framed in the context of all-powerful economic laws that dictate what is and is not possible. There’s just one slight problem: There are no laws of economics.
For sure, many economists and large parts of society believe there are. The high levels of anxiety about deficits and government debt, not just in the United States but throughout the euro zone and much of the world, stem from the belief that if central banks create too much money, it will inevitably lead to inflation. Why? Because the “laws of economics” say the supply of money will cause inflation if overall output stays the same. In the developed world, clearly, there has been an increase in money supply via the Federal Reserve, the Japanese Central Bank and to a lesser extent the European Central Bank, yet growth is minimal everywhere. While there is no statistically discernible inflation as of yet, the “laws” strongly indicate that there soon will be.