Monday, 13 October 2014

Why people don't like economics

Fascinating and demoralising reading the comments following the announcement of the 'Nobel' winner in Economics, Jean Tirole.  (I put Nobel in speech marks as some point out that it's not really a Nobel prize, except that's what everyone calls it, hey ho.).

Several commentators disparage economics and assume it's akin to astrology or voodoo. Interesting - I wonder what level they studied the subject to?

Can you imagine declaring mathematics or physics  'alchemy' or 'wizardry' and assuming that everything mathematicians do is somehow intellectually spurious? I'm sure we'd all look upon the commentator as some poor ignoramus merging out of the dark ages with mud and nettles in his hair.

The logic of economics is incredibly solid - whether it is based on deductive reasoning or empirical evidence. It begins with simple statements such as 'humans wish to better their lives' and then proceeds through how exchange and the division and specialisation of labour, augmented by monetary media enables more people do improve their lives.

However, the subject has been hijacked by political thinkers who prefer to ditch the great principles in favour of political (or banking) interests. According to these thinkers - people aren't to be trusted, government intervention in the people's lives is great and necessary, banking needs to be run on a fractional reserve basis which then requires a great big central bank to print money when the banks and the indebted governments get into debt. Debt is normal, savings are evil, inflation is fantastic (because it shifts wealth from the working people to the banking and governing elites), wars produce wealth and regulations create a happy people.

In such an Orwellian world of double-speak, it's not surprising that economics gets a bad rap.

But it's not economics as such that is at fault - it is BAD ECONOMICS. Just as you can have faulty reasoning in physics, maths, etc., it's quite possible to have economists infer falsely, ignore data (and history), and who prefer to use a kind of alchemy (read any Fed Reserve announcements) to suggest that they know what they're doing.

Proper economics explains quite reasonably why such authorities or academics (a) do not know what they're talking about (b) have no grip on the economy as they pretend and (c) are committing long rejected fallacies.

Another reason why some people may not like economics is the same psychological reason that they may not like gravity. It holds them back. Instead, we should embrace the principles of gravity to help us move forward and likewise the principles of sound economics (none of that statist and central bank rubbish) can empower and enrich all of us.

For instance: if you want your country to grow richer it requires the rule of law, transparent government, low taxes, sound money, and a free enterprise culture. That in turn usually creates the conditions for enhanced productivity via capital investment. Governments can help the process of wealth accumulation by getting out of the way. We've known this for two centuries - but many so-called economists (i.e., those with a political agenda) prefer to ignore the principles and history.

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