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Why Economics Is Not a Science, Take 4,325


One small pleasure in all the Happy New Year hoopla is when you learn that some previous prediction didn’t turn out as was forecasted by the “experts.” Though it may be tough on the ego for them, it still can be considered a sign of hope that sometimes the experts are wrong.

Why? Because experts, especially those working in the fields of economics and politics, base their predictions on what they consider to be the logical extension of some “natural law.” Of course, when expert predictions turn out to be wrong, it doesn’t mean there are no natural laws at work, but it does remind me of something I read in a philosophy book once: “Laws are only descriptions of the way things are, not prescriptions for the way things have to be.” Natural laws don’t work like the laws governments pass—the world can’t be hauled into court for not following them.

Think about it. Laws, especially so-called “economic laws,” are often invoked by those trying to justify why some particular group are entitled to live in the lap of luxury while the “undeserving” live like lapdogs. Or stray dogs. So it’s not only satisfying, but a boost to many progressive movements, to learn of more failed “expert” predictions.

Take for instance the economic rally in Argentina—one that The New York Times reports “defies forecasts.”

The Argentine economy collapsed in 2001. The orthodox economic prediction, based no doubt on the “laws” of the free-market order, was that “unless [Argentina] adopted orthodox economic policies and quickly cut a deal with foreign creditors, hyperinflation would surely follow, the peso would become worthless, investment and foreign reserves would vanish and any prospect of growth would be strangled.”

But three years later, “the economy has grown by 8 percent for two consecutive years, exports have zoomed, the currency is stable, investors are gradually returning and unemployment has eased from record highs.”

And here’s the kicker: All this was done by ignoring the orthodox prescriptions of the International Monetary Fund.

Lest you think I’m exaggerating when I say that the “free-market” economists who run organizations like the IMF and whose ideas dominate public discourse on fiscal policy across the globe believe they’ve divined the economic laws of the universe, check out F.A. Hayek’s book The Fatal Conceit.

In it, the patron saint of free-market orthodoxy makes the case for why the economic system we have here in America is the manifestation of the natural laws of evolution. And, furthermore, any deviation from the laws of the free- market order will result in the end of civilization because the market contains a collective wisdom that can never be matched by individual human reason.

Hayek points out the “errors of socialism,” arguing that the whole idea of socialism is based on the unfounded assumption that “man is able to shape the world around him according to his wishes,” which is the height of conceit because the market knows better.

In fact, Hayek is so repelled by the prospect that anyone attempt to “shape the world around him,” he says we should give up any expectation of happiness because such reasoning is a “self-fulfilling prophecy for those within any system that does not satisfy rationalistic criteria of conscious control.”

The other thing that Hayek frets over is “the persistence of instinctual feelings of altruism and solidarity.” Why? Because it hinders the market process and, god forbid, subjects “those who follow the impersonal rules of the [free market] order to what is now fashionably called ‘bad conscience’; similarly, the acquisition of material success is supposed to be attended with feelings of guilt.”

So you can imagine just how disturbed President Bush, being a defender of the free-market order, must have been at the suggestion that the United States was being stingy in response to the tsunami relief effort.

This all leaves me with two questions. Is the tsunami relief effort yet another example of “the persistence of instinctual feelings of altruism and solidarity”?

I would imagine that even Hayekians would not object to the tsunami relief effort.

Given that, my other question is this: If we answer the call for help when people are the victims of natural disasters, what’s so bad about answering the call when people are the victims of economic storms? After all, the champions of an extreme “free” market want us to assume that the laws of economics are on the same plane as the laws of nature.

I know. Such thinking defies economic orthodoxy, which brings to mind Argentina’s economic recovery.

I resolve this year to take what orthodox, free-market economists proclaim or predict with a grain of salt.

—Sean Gonsalves

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