Saturday, December 18, 2010

In Defense of Economists

It’s that time of the year, Christmastime. This is the time of year when people say that the spirit of Christmas should center on giving and not on receiving. Two of the top Classic Christmas cartoons are “A Charlie Brown Christmas” and “How the Grinch Stole Christmas.” They both have the same moral. Materialism is bad. They say that we should stop focusing on the stuff and look to the deeper, true meaning of Christmas.

It is at this point that economists get scorned. Many, too many, think that economics (and by default economists) is all about (and only about) stuff, and consuming stuff in particular. Economists have pointed out that many firms don’t break even until the first day after Thanksgiving. It is the day when many firms climb out of the red and into the black, hence “Black Friday.” The implication is that if we didn’t have Christmas and all the buying of (needless?) stuff that goes along with it, then many of our businesses would never see an annual profit. Furthermore, Keynesian economists have defined the size of the economy, GDP, in a way that emphasizes consumption. The formula for GDP is consumption spending + investment spending + government spending + spending on net exports. Of these factors, consumer spending is the largest and if that dips, then so does our measurement of GDP. Therefore, too many people conclude that we should spend, spend, spend, and economists are accused of being the chief cheerleaders for this. While there are some economists that in fact cheer on consumption for consumption’s sake, Austrian economists do not.

To an Austrian economist, economics is a value-free (or value-neutral) science. The Austrian economist should not care if the economy is rapidly expanding, slowly growing or even contracting. His job is to study the economy and try to figure out how it works. If someone asks the Austrian economist, “Will this policy enhance or diminish future growth,” the answer is not the economist injecting his own values into the debate. This is what Mises and Kirzner mean by economics being a “Wertfreiheit” or value-neutral science. As an individual, the economist can step out of his role as a value-neutral scientist and suggest goals such as economic growth or unemployment reduction. However as an economist, as a scientist, it really should not matter if a person or a society consumes at a high rate or saves at a high rate. So it is rather silly to assume that all economists are cheerleaders for materialism and ever expanding rates of consumption.

To an Austrian economist, economic growth does not mean that there has to be more stuff. Austrian economics has long taught that value is subjective and cannot be compared between individuals. Thus, an economy may be better off if it takes fewer resources and less time to make the same amount of stuff. This is certainly true for individuals. We call that free time, or leisure hours. If you got the same pay for working fewer hours, would you consider yourself better off? Now imagine that for the entire economy. We are clearly better off, but not consuming more stuff.

That being said, as an Austrian economist and as a thinking individual, I prefer higher rates of future economic growth. Although to an Austrian economist, expanding future economic growth does NOT mean expanding our rates of consumption today. In fact, it means exactly the opposite. For the economy to grow in the future, it will need capital. In order for capital to be freed up for more roundabout production methods, more resources must be invested instead of consumed. In other words, that means there must be an increase in savings, not consumption.

These new methods of production are more complex and more roundabout, but are used because they either cut down on the amount of resources needed, cut down on the amount of work hours needed, or both. This process frees us up to do more or allows us enjoy leisure time. It is a major benefit of growing economy. It allows us to take time off and enjoy the Christmas holiday. Without a market economy, our holiday might not be as cheery or bright.

So have yourself a very merry Christmas, and think about the benefits that a market economy provides. I know I will.

Thursday, December 16, 2010

Cwik Interview on Mises.Org

In yet another shamless promotion of myself, my interview by the Mises Institute has been posted to their web site.  I think they have done a nice job.

They started with some easy questions, but then there were some that I had to do some thinking about. 

The link is here

I hope you enjoy it.

Friday, December 3, 2010

The Terrible Red Line

I live in a town next to Raleigh: Garner, North Carolina.  For several decades the highway has looped around Raleigh and not unlike other growing cities, another loop has been planned for.  This outer loop has been planned for the past 20 years.  As a result, land has been set aside and businesses have planned for future traffic over these past decades.

It was much to everyone's surprise that at the beginning of September several other routes were added to the map for consideration.  These additional routes are known as the Red, Blue and Purple Lines.  Within a period of six weeks, the transit authorities met with communities and an overwhelming number of citizens stated that the original Orange Line was the one everybody preferred.  At the end of the initial six-week period, the Blue and Purple Lines were removed from the map.

The Red Line, the route that literally passes through my neighborhood, the route that will be about six or seven houses away from my house, was not removed as an alternate to the original Orange Route.


There is a mussel that lives in a river on the south side of the nearby lake.  It is on the endangered species list.  There is no sign of it on the streams and creeks on the north side of the lake.  (Nevermind that the mussel is found all along the eastern seaboard of the U.S.; where North Carolina is just the southern most edge of its habitat.)  As a result, thousands of homes could be destroyed so that the mussel isn't disturbed.

There are many things that an economist could use here for comment: the value of unowned mussels, the competing interests of dividing a town, the destruction of many, many homes and businesses, the diminution of private property rights and the ascension of "community/environmental" standards, the economics of urban planning, etc.

Instead of recapping any of those subjects, I want to describe last night's meeting. 

Last night there was a meeting with the Mayor, the engineering firm and my neighborhood.  (This was just one of a series of such meetings.)  What struck me was the absolute helplessness that my neighbors and I felt.  We were up against raw, naked power and there was nothing that we could do but talk, be upset and grow angry.

The people who have the ultimate authority in the decision were nowhere around.  We could only question the engineering firm that has no power or authority whatsoever.  The ultimate decision will be made be a small group of people, who I will never know.  The decision will be made without my knowledge.  The location will be unknown to me.  I am merely a pawn, and an inconvenient one at that.

This is the fate that happens whenever we place our faith and our fate into the hands of the government.  The bureaucrats have their rules and regulations and, to them, I am no longer a citizen or an individual.  I am merely something to be dealt with.

Such a dehumanizing system is not "bad" or "evil."  It is simply the nature of bureaucracy.  Mises wrote one of the best books on this subject, simply titled Bureaucracy.  It is found here.  I highly recommend chapter 2, "Bureaucratic Management."

The relationships between individuals is distinctly different between the market system and a system of bureaucracy.  In a market system of private property, I must treat the person with whom I wish to trade with respect, as an equal.  If I do not, there will be no trade. 

In a system of bureaucracy, there is no such relationship.  It is not a relationship between equals.  A bureaucratic relationship is one of power and powerlessness.  As we move toward National Health Care, as we move toward a increasing regulation over our finances, as we move toward the centralization of power in the hands of fewer and fewer people, we move away from a nation of equals.  We move toward a nation comprised of those who have power and those who do not.

I hope that we can recover our lost Liberty.  It was not too long ago that private property was at the top of the list of protected rights.  Now with the Kelo case, and other eminent domain cases giving power to governments, our Liberty is in increasing jeopardy.  

Finally, I am reminded of the Bugs Bunny cartoon, "No Parking Hare."  It is about building a freeway through Bugs Bunny's home.  After a series of fights, the road is moved because, as Bugs says, 'The sanctity of the American home must be preserved!'"