Wednesday, May 18, 2005

The Economy Works, in Spite of Zany Economists

This post is from the archives of the pre-blog version of Liberty Corner. I wrote it in 1998. I still like it.

Even though Stephen Jay Gould once accused social scientists of "physics envy," he did not deter economists' efforts to practice the dismal science as if it were really a science. Thus, for example, a Robert Shiller of Yale University arms himself with data about the past performance of the stock market and warns us that the Dow will lunge from 8,000 (make that 9,000 . . . 10,000 . . . 11,000) to 6,000 or less. The problem with such analytical exercises is that they tell us what has happened but not what will happen. Statistics predict the past with uncanny accuracy.

Not that Professor Shiller is entirely wrong about the future performance of the stock market. He is almost certainly right, in principle, because the only known monotonic trends in the universe are its expansion and its aging -- and a lot of physicists aren't sure about the permanence of those trends. No, Professor Shiller will probably be right, some day, because -- as the old saying goes -- a stopped watch is right twice a day.[*]

John Maynard Keynes (created Lord Keynes for his services to economic thought and to some members of the Bloomsbury Set) averred that a government could spend an economy out of a depression. In spite of Keynes, the United States and Great Britain remained mired in the Great Depression for most of the 1930s. Some have argued that Keynes was vindicated by post-World War II prosperity, which they attribute to the the binge of consumer spending spawned by the massive infusion of government spending in wartime. That argument overlooks the inconvenient possibility that the Great Depresssion, like earlier depressions, would have ended without the benefit of government largesse. The argument also overlooks the fact that, unlike the United States, Great Britain did not plunge into prosperity at the end of World War II.

One could argue that Germany and Japan proved Keynes right because unemployment in those countries vanished in the face of their massive arms buildups. Yes, and one could say that the members of a chain gang are well off because they have "jobs."

Enough of old feuds. Let us return to the present scene.

Today's "green economists" advance the notion that free markets are all right in their place -- but not when it comes to protecting the environment. Conjuring dire results for humankind if markets continue to cater to the crass demands of consumers, those economists would commandeer the economy in the name of future generations yet unborn. (Sound the trumpets! Wave the flag!) If one reasonably assumes that such economists know that there are market-based ways to solve the problems caused by pollution, what is one to make of their anti-market rhetoric? Answer: Just like any consumer of "political pork," they're perfectly willing to have the government aggrandize their own (psychic) income at the expense of the general welfare. That is, they simply don't like economic growth and don't care who is hurt by their anti-growth propoganda.

Consider, finally, the antediluvian agitators for antitrust actions against successful companies. The scions of Roosevelt the First seem to be stuck in a zero-sum view of the economic universe, in which "winners" must perforce be balanced by "losers." Or perhaps they, like their green brethren, suffer a form of success envy.

Whatever the case, the antitrusters forget (or wish not to remember) that (1) successful companies become successful by satisfying consumers, (2) consumers wouldn't buy the damned stuff if they didn't think it was worth the price, and (3) "immense" profits invite competition (direct and indirect), which benefits consumers. On the third point, if the USPS -- a government monopoly that claims to own my mailbox -- can't stave off competition from alternative delivery services and e-mail, what's to keep a new Bill Gates from building a better mouse (pun) trap? Only the fear of being pursued by the almighty federal government. Thanks a lot, feds.

All of which underscores another old saying: A sucker is born every minute -- and then he moves to Washington.
* In fact, I agreed with Prof. Shiller and had already moved the bulk of my investments from the stock market to fixed-income securities. Better too soon than too late; when the market crashes, it crashes fast.