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Econopower: How a New Generation of Economists Is Transforming the World

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The late Milton Friedman was considered by many to be the libertarian ambassador to the American establishment. His sprightly laissez-faire perspective was, over the decades, a constant reminder to regnant Keynesian intellectuals of the manifold holes in the ship's hull of their paradigm. With an ever-gracious persona and unfailing logic, Friedman carried the flag of freedom brilliantly to those of this world who think. Now that he is gone, there needs to be someone to take his place.

Mark Skousen may just be that man. His works over the past two decades have been both prolific and profound. Like Friedman, he is an economist who can actually write in a prose style that is engaging. With his latest book, EconoPower, Skousen gives us a splendid analysis of why the intellectual progeny of Adam Smith is retaking the battlefield from the Keynesians.

EconoPower is all about how economists of the modern day are no longer satisfied with remaining in ivory towers to scribble out theories about the mysterious thing called Economy. Such a focus on "highly abstract mathematical modeling," says Skousen, is what is called the "Ricardian vice, named after the nineteenth-century economist David Ricardo who developed unreal and oversimplified models without testing them against factual evidence." This has taken economics "down the wrong road."

Today a whole new wave of Smithian progeny is going out into the real world -- the messy, problematic world that we all have to confront every day -- and showing how the science of economics can be applied to the ever-present problems of history to solve dilemmas often thought to be intractable. And they are doing so with dramatic results.

In the first chapter, Skousen presents seven basic economic principles that must be understood and adhered to if humans are to advance their societies. Depending on how closely intellectuals "adhere to or violate" these principles, they will bring good or evil to the world. These principles are a canon of wisdom for civilization, and every professor, politician and pundit exercising authority in this world should be required to learn them thoroughly.

They are: 1. Accountability. 2. Economizing and cost-benefit analysis. 3. Saving and investment. 4. Incentives. 5. Competition and choice. 6. Entrepreneurship and innovation. 7. Welfare.

With great clarity, Skousen demonstrates briefly how each of these concepts must be applied in order to maintain freedom and justice. Because we have not been paying attention to these crucial guides of right economic thinking for many decades now, we are gradually destroying the very essence of America and the Smithian concept of "natural liberty."

Skousen goes on to tell us about a pantheon of remarkable intellectuals and entrepreneurs such as Jose Pinera, John Mackey, Gary Becker, Robert Shiller, Charles Koch, Henry Spearman, etc. who are blazing new trails in the social sciences by using the field of Economics.

This book is packed with an incredible array of practical analyses of a whole range of problems that our authorities are tearing their hair out over. Through scintillating sketches of his pantheon of heroes, Skousen shows us how to beat the market, save Social Security and Medicare, improve the quality of education, combat global warming, and aid the poor. While Keynesians are building onerous bureaucracies to weigh us down, Skousen's heroes are fashioning clever solutions to lift us up. Nothing like the man of the mind combined with the man of action. These characters are the John Galts and Hank Reardens of real life -- saviors, savants, and liberators of the human spirit.

Yet despite a gratifying return among many intellectuals to the Seven Principles of economic wisdom, the battle for freedom and sanity in life is by no means assured. Today's world is still filled with peril, as all periods of history are when men in authority subscribe to ideological fallacies. And unfortunately such fallacious authorities saturate society today. At the end of the book, Skousen gives fair warning to us all about the lessons of the Great Depression of the 30s, and how such an event's recurrence is not probable, but also not impossible either.

"As long as the global financial system is built on a volatile, destabilizing inflationary policy coupled with a fragile fractional reserve banking system," says Skousen, "the possibility of financial chaos and a subsequent economic cataclysm should not be discounted....[T]he most recent financial panic is surely not the last, and one should never underestimate the ability of the global marketplace to react in unpredictable ways."

What is needed so desperately in this tumultuous era of history is a re-acceptance of the Seven Principles of economic wisdom outlined in the first chapter of EconoPower. Our political and intellectual leaders throughout the world should run to the bookstore and devour these principles, and then sit comfortably back for an evening or two of delightful reading as to how real men are implementing them in the real world.

According to economist Mark Skousen, there is no way we should be bailing out the banks, automakers, or whoever. Things work better if you let things fail, and then let competition take over for a better future. Government intervention should be kept at a minimum and free the supply-side of things to do its thing - - so that the money will trickle all the way down to you and me. In a nutshell, Skousen is a proponent of something called Say's Law which postulates that supply produces demand, with the keys being productivity and investment in the economy through savings. In short, don't let anything get between the buyer and the seller because "The market is wise and the state is stupid". The Keynesian economic system has been so prevalent since FDR's time but according to Skousen, it may have actually extended the affects of the Depression until after WWII, when the controls were finally lifted. On a closer-to-home level, Skousen recommends HSA's (Health Savings Accounts) to encourage competition for rendering of medical services and incentives for the individual not to overuse his account. Traffic gridlock could be solved by charging drivers according to time-of-day and traffic load according to key lanes. The voucher system for schooling our youngsters could be implemented to create competition among education providers and, at least theoretically, give kids a better education. He does recommend the Modern Portfolio Theory for personal investing - - diversify and hold, though he is skeptical of the Efficient Market Theory - - you can't beat the market because everyone has the same information at the same time.

Interesting book and good food for thought!

The uninitiated reader will probably never realize that the intellectual roots of this interesting volume lie deep in the past, with the great thinkers of the Austrian school of economics, led by Ludwig von Mises and Friedrich von Hayek. The Austrians picked up the tattered banner of classical liberal economic thought (laissez-faire) in the first half of the twentieth century, and held it high while others were turning to Marxism, Keynesianism, Institutionalism, and other "statist" ideologies that recognized a need for state intervention in the economy to correct "market failures" and provide the tools that turn formal democracy into a substantive instrument with which the common folk can construct their society of the future.

Why does Skousen not make it clear that this "new generation" is really old wine (Austrian school economics) in new bottles (Skousen and a few modern economic policy experts who heed the ancient Austrian doctrine)? I think probably the reason is that the Austrians were extremely elitist and arrogant, having little appreciation for the ignorant masses who actually vote leaders into and out of office in a democratic society. Hayek himself, a brilliant thinker and Nobel prize winner, once said, when asked what he thought of the brutal Chilean dictator Pinochet, that he preferred a "liberal dictator" to a "democratic government lacking liberalism" (of course, "liberalism" here means classical free market ideology, not the modern American liberalism, which is more akin to social democracy, which the Austrians despised).

Because of their rigid purism in defense of free markets and a minimal state, their policy views have been largely ignored in the modern world. There is no nation that even remotely conforms to the Austrian idea of laissez-faire. Nor will there ever be one, in my opinion, because (a) the Austrians were incorrect in their belief that a laissez-faire economic could be dynamically stable, and (b) no electorate in a democratic society would ever vote for such a system, and in a despotic society, there is little chance the dictator would be of Hayek's cherished "liberal" sort, any more than would the fox in the hen house set out to establish chicken paradise.

This does not mean, however, that the Austrians have nothing to contribute to contemporary policy debates. They certainly do, and Skousen does a fine job in this book in modernizing, democratizing, and softening Austrian positions so that they make economic sense and might serve the needs of the common folk. Skousen's strategy is to start with the well-known policy suggestions of the behavioral economists (e.g., change the default position on voluntary savings plans from "not contribute" to "contribute"), as well as the solid stock market advice of previous generations of economists (e.g., treat the stock market as a random walk, diversify your portfolio, and the like). Then he moves into one of the most attractive successes of the free-market ideologues, the Chilean system of private retirement savings plans. This system was the brainchild of the Chicago school economists whom Pinochet asked to come reorganize the economy after he overthrew a democratically elected socialist government in Chile. Now, the Chicago school certainly bears the brand of laissez-faire, but they were (and are) dedicated to empirically testing theories and finding alternatives that are viable and widely popular (democracy was restored to Chile many years ago, but they have not given up their private retirement plans). As Skousen notes, the Chilean system has been copied in many countries, and parts of it are reflected in the US 401(k) retirement plans.

It is critical to understand why the Chilean system works: it is not purely private, but an intimate entanglement of state regulation and private initiative. For instance, workers are required to contribute at least 10% of their salaries to the retirement fund, although they may contribute up to 20% if they so desire. Second, workers may choose from about two dozen government approved private retirement funds, but these funds are highly regulated so that they have virtually zero possibility of bankruptcy. Finally, there is a minimum guaranteed pension provided by the government, should a worker's private savings be wiped out by market forces.

The relevance of the Chilean and 401(k) plans to the recent debate about privatizing the Social Security system is obvious. American liberals generally dislike markets and don't believe people can make choices in their own interest, and hence favor the current system of social security. Some free-market crazies believe that people should not be forced to save at all. If someone ends up in poverty after a lifetime of work, that's his or her problem. The alternative presented in EconoPower is powerful and nuanced, providing a cogent alternative to the ideologues of right and left. Most of the proposals in this book are similarly transformed Austrian ideas, presented to the public as desirable alternatives for the non-well-to-do, and without the slightest trace of laissez-faire ideology. Old wine in new bottles, but attractive wine.

I imagine the biggest problem for Mr. Skousen is that his book was written just before supply-side economics drove our economy into a severe recession. Awkward that, but what he wrote about the poor is what I find so offensive.

He writes, "In many ways, the poor have advanced the most and are now capable of living in decent housing, owning an automobile, and enjoying many of the pleasures previously afforded by the wealthy. Cheap airline services allow them to travel extensively. Television gives them the chance to see sports events and musical shows previously limited to the rich and the middle class. Compared to yesteryear, every house today is a castle, every man is a king. As Gregory Clark concludes, "The envious have inherited the earth."10


This section and others that deal with the poor (E.g.,"...Habitat for Humanity builds homes for the responsible poor...") betray so complete an ignorance of who the poor are and how they live and how they are increasing year by year in this era of Austrian and University of Chicago economics.

The poor I see in my medical practice do not travel extensively on airplanes. They do not travel in cars, sometimes, because they cannot afford to buy them or fix them. They take the bus if their community is sufficiently enlightened to have a bus service. Or, they walk. I see them walking day or night sometimes with their children in our cold, wet northern climate.

For many of the poor, every day is an emergency: Where will I stay?, How can I afford to buy my insulin? What can I get for my child and me to eat; something at the food shelf or the soup kitchen, both very busy places in our town? Will I be safe when my husband comes home intoxicated or just angry? (I heard a story second-hand recently of a woman telling her social service counselor that her husband cut off her cat's head in front of her. Stop and imagine that scene; all the blood pouring out of that animal's severed neck. How likely is it that family will sit down and plan a flight to Disney World for the holidays? Lastly, if the poor contrive, somehow, to deal with the emergencies of that day, what about the next?

That Mr. Skousen could write such things betrays an ignorance and isolation so profound that I feel it's a waste of time to read his book.

Apparently economists are becoming more, not less important. Politicians use them to justify what they already decided to do and that can make economics undeservedly suspect. Skousen offers a treatise that informs of much of the latest developments and breakthroughs in the field. Economics is one of the broadest fields in academia, reflected by these new studies and economists themselves.

It seems that every few weeks an economist has proven or developed something of major import. Skousen uses this knowledge to deal with many subjects, including gold, a contemporary view of the major schools of thought in economics, methods of investing such as "non-correlated," the fact that a great economic depression is a possibility in the U.S., and how economists now are solving problems in many areas of life.

Skousen offers information about how economists predict the effect various politicians and their policies will affect a person. This was the only dismal part of the book in my estimation. The rest was upbeat, showing how economists can help improve the quality of life.

Mark Skousen has emerged as one of the clearest writers on all matters economic today, the next Milton Friedman, and his latest contribution to the literature is a brilliant primer on the power of economics to change the world through free minds, free trade, and market capitalism. Each chapter is short and to the point, providing readers with the essence of what they need to know to wrap their minds around a particular problem. I found most useful his chapter on what components go into a society that leads to prosperity. Surprisingly, and to Skousen's credit, it is not simply removing government altogether and allowing capitalists to do whatever they like, but instead markets must operate within a society based on the rule of law. Trust between strangers is always tentative, so measures must be in place to insure secure and safe trade transactions, The rest of Econopower is equally honest in its appraisal of the data, and Skousen is no ideologue. Read this book to arm yourself with the essential facts.

This book needs to be read by every American citizen. If you value freedom and want a better future where you control your life and property, read this book and share its wisdom with everyone you know.

Beware of any politician who does not understand the law of supply and demand. If they want to give you something for nothing, run as fast as you can to the door.

I read EconoPower the first time with excitement and the second time looking for the multitude of ways to use it in my economics classes. EconoPower is a gold mine of revelations about how the market works in daily life.
The book opens with Mark Skousen's greatest strength, showing how to save and invest rationally. As author of the Forecasts & Strategies financial newsletter, Skousen gives a remarkably upbeat and positive analysis of the current financial crisis by visiting the methods of the successful financial wizards of recent decades. And he leaves us with the poignant reminder that taking care of our money is a useful foundation, but money isn't specifically among the "four elements of happiness."
Skousen doesn't leave readers with the hopelessness that one feels from following the news. Instead, he offers encouragement by spelling out the tools for wise economic analysis. He then turns his eye toward government policy and, in the same positive manner, shows the Chilean path out of America's own looming Social Security crisis.
Part Three takes on a variety of tough domestic issues and shines a light on market solutions to traffic congestion, health care, crime, education, and sports. His chapters offer an extensive survey of economic research into the application of market principles in each of these areas. The style of each chapter is fully engaging, with a multitude of lively examples and straightforward explanation.
The topics of greatest challenge to an economist in the classroom are the globalization issues that pull the heartstrings of the youth: the environment, population, poverty, and jobs. Rather than treating us to the gloom and doom scenarios that so frequently scare younger generations into despair, Skousen shows us how market forces give us solutions to these problems. I was most encouraged to find the vivid resurgence of the ideas of the great development economists: P.T. Bauer and Julian Simon.
The incentive of market competition is frequently discussed, but rarely is it applied to the effects on religion, an especially sensitive subject in recent years. Skousen opens a whole new vista for people to see the benefits of diversity, rather than the too common derision and hatred of diversity. "Incentives, competition, quality, and choice apply not only to the material world, but to the spiritual realm as well."
As the nation plunges into the throes of recession and the general election, Skousen treats us to the role of economic analysis in forecasting. This is important, but more so is his summary of the Chicago and Vienna schools of thought that explain the origins of economic cycles, thus lighting the path out of endless cycles.
So much attention has been focused on the Freakonomics book in popularizing economic analysis, yet the attention of the media has too often been shaped by a bias against free markets. At last, we have a superb popular treatise that is extremely good at explaining the practical good that emerges through freedom of the individual. Skousen will surely re-energize Americans in the manner that Henri Lepage did for the freedom movement in France with Demain le Capitalisme.

Mark Skousen is the BEST writer among sound economists. He makes complex ideas understandable and clear. He frequently uses the voice of other economists to make his points. This book is a treat. A variety of short and sweet bon bons of economic policy solutions that work! Each chapter is a quick fun read. Thumbs up!
by Joseph Kenneth Brady-Amoon jkb74@columbia.edu

A good read and informative about how economics is part of everything and how it affects the solutions to problems.