I was directed to a post by Tyler Durden with the title, The Farce That Is Economics: Richard Feynman On The Social Sciences. As it happens I disagree with Feynman about the social sciences, and especially with his criticisms of economics. That it did not occur to him, or perhaps he did not even notice, that it was only since the publication of Adam Smith’s The Wealth of Nations that the world has achieved the kind of prosperity that was not even within the imagination of the most visionary man alive in the eighteenth century. Economists have learned a very great deal, which is why we have become so well off, but have also forgotten almost as much, which is why mainstream economic theory is such a disaster zone. But we still keep our eye on the functioning of markets, which if left to themselves will make us progressively wealthier in spite of everything we might do.
But Tyler goes on with his own list of economists’ sins which I not only agree are disastrous, and genuine, but happen to be dealt with, each and every one, in my Free Market Economics, the second edition which may be found here. This is more or less a list of economic concepts that economists have managed to unlearn over the past half century. Indeed, it is because he can see how wrong these are that he can even put together this list.
- Saving money is a sin and should be penalized; speculation is a virtue and should be encouraged
- The government does not need to run its finances like every other company and individual in the country; what is good for the latter is bad for the former
- Inflation should be kept at 2% forever; that’s the exactly right number, no more, no less; if you start paying less for your food, rent and healthcare, the central bank must intervene
- Those who take personal risks to create prosperity and jobs have obligations; everyone else has rights
- The state can spend its citizen’s money much more intelligently than they can
- Business cycles are bad so we must always stimulate the economy
- When a boom in demand pursuant to a boom in credit inevitably fades away, we should create another boom in credit to revive demand again, and again, and again
- Creating debt at a rate above an economy’s incremental productive capacity generates wealth
- Anyhow, debt does not matter because that liability is someone else’s asset
- Demographics don’t matter either
- You generate so much prosperity in your job over 40+ years that you can comfortably live in your retirement of 20+ years
- Foreign lenders only need to be concerned with regard to banana republics; the others will always pay them back
- The capital markets follow nicely shaped probability bell curves, and so shocks and crashes are extremely rare events; the markets are “efficient”
- The benefits of free trade outweigh the costs of a country losing its manufacturing sector as a result; the fact that domestic companies have to comply with much stricter and costlier regulations than their foreign competitors is of no consequence
- Human behavior is governed by mathematical equations and models, even when oversimplifying assumptions are used
- The next generation will figure out a way to pay for all the massive debts that we are creating today; otherwise the central banks will solve the problem
- The way to create prosperity in a society is to take away resources from the productive sector and distribute them amongst the unproductive sector
- We all admire the free markets; we just can’t let them work
The missing ingredient from economics today, as I often mention, is value added, the central concept surrounding Say’s Law. No economics text ever mentions value added outside a brief discussion of the national accounts, and I actually think very few economists, although familiar with the phrase, have any idea what it means or why it matters. If they did, they could not possibly have endorsed the stimulus, and Keynesian economics in all its forms would now be dead.