Economics Is Not a Science, Take 4,325
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
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
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.