No more junk economics
Stephan Helgesen
After watching and listening to economists and politicians ride the media merry-go-round, espousing their economic recovery plans and sounding like freshman economics teachers or Madison Avenue ad executives, I couldn’t stand it anymore. I turned off the television set and thought about what’s wrong with all their arguments, whether it’s stimulus-based deficit spending, 9-9-9, or 20-20 in 2020. Then it came to me: What’s wrong is that the economic theory we practice today is not science, though we insist it be presented as such.
It’s more like art – not the paint-by-numbers variety, but a traditional school of art like realism that depends on a few constants: a stable, unchanging motif; suspension of conscious analytical judgment (allowing only the eye and not the mind to judge the depiction of reality); and the use of dependable tools like the right brushes and paint or, as in the case of the marketplace, interest rates, taxes, incentives, investments, etc.
There are many economic theories offered by economists and by the candidates for president, but for me they all seem to be based on predictability. The only problem is that real life is constantly changing, and human beings are always surprising us. Too often, economists and politicians look at a financial or economic situation and plot their strategies without factoring in enough “wild cards” or margin of error for cultural differences, changing mores, etc.
If an economic strategy doesn’t factor them in, we might as well as have someone like “Jimmy the Greek” Snyder as our treasury secretary – a man whose lifetime success rate was dramatically better than that of most economists.
Using an outdated prism
There are those (like the Occupy Wall Street protestors) who say our current economy was built on “junk economics” and that capitalism is an onerous, one-sided, unfair system and ought to be replaced (though they don’t say with what). Still others say that capitalism is dying or on life-support.
Staying with the art analogy, our current economy more closely resembles the abstract expressionism of Jackson Pollack than realism. We cannot analyze it correctly because we’re using an outdated prism that only offers limited explanations based on outmoded assumptions.
Unlike Jackson Pollack, who knew what he was trying to achieve, our politicians and candidates aren’t completely sure (though they say it’s “job creation” as if full employment would entirely solve our economic problems). Surprisingly, their plans reflect a profound lack of understanding of the angry, confused, disheartened and distrustful America of 2011.
Instead, the economic plans of the president and the candidates resemble the two major political parties’ ideologies: For the Republicans, shrink government and empower the private sector and individual; and for the Democrats, grow government and empower the masses through government intervention and control.
What we must demand
Americans are not economists, but they’re not stupid, either. They want reform as contrasted with change, and the first place they’re willing to go is the economy. The administration and the candidates must understand that and present an economic view of America that listens to both halves of America and incorporates elements from each philosophical camp. After all, we’re just people who want to work, play, save, spend, love, and live within an economic system that doesn’t go out of its way to injure or disadvantage anyone.
To ensure that, we must be wary of junk economics or any theory whose success depends on unchanging conditions, whether those theories come from the White House, the Houses of Congress or the candidates’ houses. We inherited capitalism and democracy, and with any inheritance, our attachment to it grows in direct proportion to our belief in its ability to enrich us.
With that in mind, we must not only demand that the economic recovery plans presented to us in the coming months are based on sound economics, but also be told in no uncertain terms how they can help us keep America’s promises to all of its people.
Stephan Helgesen is a retired foreign-service officer who lived and worked in 24 countries. He was a small-business owner on three separate occasions. He is now the honorary consul for Germany in New Mexico and owner of Second Opinion Marketing, an Albuquerque export consultancy. He can be reached at helgesen@2ndopinionmarketing.com.
I was thinking about a great economic plan…it goes something like this….
Do not spend more than you have.
Do not borrow more than you are worth.
End of plan.
Certainly understanding economics is important. What is critically important is to understand the consequences of each kind of economics. There is “statist economics” which brings central control of the economy. The result is destruction of wealth. Keynesianism is only one means of accomplishing that. Another is regulation and still another is outright nationalization. The result of this is micro-management of business, the welfare state and socialism.
The alternative is “capitalist economics” which is basically laissez faire — government keeps “hands off.” In this case the economic rules require protecting property and enforcing contracts and not much more. Here, the wealth of a country grows and all benefit. That some may benefit more is irrelevant and is a necessary element of capitalism. So what if some have more? All have more than with the alternative system.
What we have today is a mixed case — some nearly pure capitalism and some heavily regulated business and outright socialism. (Time seems to bring more regulation–certainly due to mistaken economic beliefs.) Apple Computer and other computer and Internet related businesses operate mostly free of government regulations and do extremely well. And we all benefit enormously. Electric generation, auto manufacturing and public education are examples of old enterprises with various levels of government control or outright ownership. Pure socialism has been tried and leads to death and destruction. Even in the late stage of the more friendly USSR, production could not keep up with depreciation and it all collapsed.
The mainstream media has promoted statism for so long that most people don’t know there is another kind of economics. But there is. Chile has an all private retirement system. Canada had no great depression. Even Russia today has a low flat tax. Today Greece is the bad alternative due to an excessively large government and low or negative productivity.
I don’t expect many who read this to agree. But truth is not a matter of majority belief or vote — it’s a matter of correspondence with reality. In the end truth will out. The only question is, will there still be a USA worth having then? (See Road to Serfdom by F. A. Hayek, Socialism by Ludwig Von Mises and Capitalism by George Reisman)
Mr. Helgesen states the obvious, i.e., to have public policy decisions based on “sound economics” that will benefit everyone. Unfortunately, with the self-serving vitriole that consumes Washington today, solutions will never be agreed upon. And now, we have the secret “Super Committee” forcing a square block into a round hole on our fiscal problems. Insanity!
Talking heads and others charge the OWS movement doesn’t have a focus or direction – perhaps not. What they do have, however, is a fed up mentality about the economic and ethical decline of the country, and Americans are tuning in.
With Congress’ approval rating at an all time low of 9%, they are simply not doing what they are supposed to, and are failing the American people. If you don’t do your job, you get fired, and that’s what needs to happen. Signing pledges instead of listening and surrending one’s ability to make a choice isn’t going to cut it.
Wedum59 hit a couple of nails on the head regarding politicians, and I agree with his comment on limiting campaign donations. (And I would add term limits to that.)
Unfortunately, the average politician knows less about economics and has less time for serious study of economics than the average American. All they really know is how to get re-elected, which involves (1) letting themselves be pushed in the direction that is supported by the most voters or (2) the the people or organizations that have donated the most to their campaign war chest. That’s why I feel that we need a constitutional amendment that limits donors to campaigns and PACs to US citizens that are registered to vote, and that further allows Congress to set limits on the amount of donations.
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