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Personal Statement #15 Part II: Lies, Damned Lies... and Economics
January 20, 2009
When I was a little boy, tagging along with Dad, I would overhear discussions of the men in my farming community. World War II was still fresh on their minds. And even though I was only 9 years-old, I remember a certain point about economics that was a favorite at the time.
It went something like this:
I heard this kind of economic "insight" many times. And it does have a certain logic to it... it actually did work out well for those countries... so, what is the economic lesson for us in all of this?
But, wait a minute! Why should we let the Germans and Japanese have all the fun? That's no fair! I mean, hey, we still have our bombers, all gassed-up and ready to go. We should just send them all out and bomb half the factories in America... wait, bomb them all, we need all new factories... no, no, wait... why not bomb all the houses, too... we could use some updating there, as well... Sigh... this is what the ancient Greeks called sophistry... sounds slightly logical... but what's wrong with this picture? Before I discuss this, allow me to comment on this day.
An Auspicious Day A new President was sworn into office today - an important day for America... really, for all humankind... the racial "glass ceiling" has been severely fractured, in a way previously unknown. And the whole world is cheering, and rightly so. I can't help but think of my days as a second-grade teacher in an inner-city school. Most of the kids were black, and quite disadvantaged. And I quickly learned that they did not grow up in "Mayberry," or in "June Cleaver's" household ... as many of these kids did not even know both of their biological parents... and many were being raised by grandmothers. And I remember thinking about how badly these kids needed positive black role models... beyond the sports stars... they needed to see more black doctors and lawyers and teachers and engineers... so today is a very happy day for me, too. But, beyond this, I am not happy today. I have stated that the economic ideas and philosophies of the new President will not be good for America... and I will explain what I mean.
Economics... the battle for your mind There is so much power and control over people at stake here... The prize is so juicy... so tantalizing and substantial... so much money in play... that those of untoward motivation cannot help themselves but to attempt to so obfuscate and befuddle these issues... an attempt to convince you that clear understanding of economic principle is as likely for you to negotiate as that of rocket science; that only the smartest people in the room, only these elites, only those with an ivy-league degree, could possibly understand. And from this broken premise naturally flows the position that these High Priests of Money... alone... are qualified to manage and run the economy... that they are doing you a big favor by supervising the economy... and that if it weren't for them, we wouldn't have an economy at all. Isn't that about the size of it?
I have just introduced some very large topics... ones that cannot be fully explored here. But my purpose in this short article is to get you thinking... to set you on the right path... to explain why you, as a freedom-loving person, need to understand these things... and I'd like to show you how to get the understanding that you need. Is that a deal? ok, let's go.
The Incessant Presentation of Untruths I look at the economics news, pronouncements from government... I rarely hear anything that is true. "Bold And Swift Action Needed To Save Economy" - not true. Or, this from Presidential candidates: "As President, I will grow the economy"; or, "I will create jobs" - not true. Or, this one: "The economic problems of today happen every 50 or 100 years" - not (of necessity) true. And recently, the "$800 Billion Stimulus Needed To Revive Economy" - not true. But, most wonderfully, Nancy Pelosi: "Birth control will help the economy" - do I really need to comment here? I will attempt to offer a general understanding of these positions... but, to do that, I must introduce:
Henry Hazlitt In the 1940s, Henry Hazlitt, a New York Times reporter, wrote an amazing little book, Economics In One Lesson. This work is one bristling with insight and revelation; he eviscerates common economic propaganda, lays bare its soft underbelly, and "cleans" it, as my mother once did those famous chickens. A great teacher knows how to use easy-to-understand analogies to make a point. In his simple but elegant example of the broken window, Hazlitt will help you answer the question about "bombing our own factories." Here's Hazlitt:
The Lesson of the Broken Window Let us begin with the simplest illustration possible: let us ... choose a broken pane of glass. A young hoodlum, say, heaves a brick through the window of a baker's shop. The shopkeeper runs out furious, but the boy is gone. A crowd gathers ... several [in the crowd] are almost certain to remind the others, or the baker, that, after all, the misfortune has its bright side. It will make business for some glass maker... How much does a new plate glass window cost? A hundred dollars? ... After all, if windows were never broken, what would happen to the glass business? Then, of course, the thing is endless. The glass makere will have $100 more to spend with other merchants, and these in turn will have $100 more to spend with still other merchants... The smashed window will go on providing money and employment in ever-widening circles.
Now let us take another look. The crowd is at least right in its first conclusion. This little act of vandalism will, in the first instance, mean more business for some glass maker. He will be no more unhappy to learn of the incident than an undertaker to learn of a death. But the shopkeeper will be out $100 that he was planning to spend for a new suit. Because he has had to replace a window, he will have to go without the suit...
Or ... instead of having a window and a suit, he must be content with a window and no suit. If we think of him as part of a community, the community has lost a new suit that might otherwise have come into being, and is just that much poorer.
No new "employment" has been added. The people in the crowd were thinking only of two parties to the transaction, the baker and the glass maker. They had forgotten the potential third party involved, the tailor.
The Single Most Important Lesson in Economics! Here is how Hazlitt summarized all of economics in a few words:
We have so many vested interests today, each pleading the case for a particular group, it is hard to get the straight story regarding what would be good for the country in general. Their arguments, on the surface, seem to offer benefit - like the current Big Three auto bailout - but it is a benefit for one group, at the expense of other groups! And let me also say, there would be no bailout here, at all, if a large political constituency were not involved - the labor unions... and that's what this bailout is really about... it is about vote-buying, a sop to the unions, under the guise of public benefit and "protecting the economy." But let's allow Hazlitt to say more here:
Economics is haunted by more fallacies than any other study known to man. This is no accident.
While every group has certain economic interests identical with those of all groups, every group has also, as we shall see, interests antagonistic to those of all other groups.
The group that would benefit by such policies ... will argue for them plausibly and persistently. It will hire the best buyable minds to devote their whole time to presenting its case. And it will finally either convince the general public that its case is sound, or so befuddle it that clear thinking on the subject becomes next to impossible.
In addition to these endless pleadings of self-interest, there is a second main factor that spawns new economic fallacies every day.
The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist ... on one particular group; the good economist ... on all groups...
Doesn't every little boy know that if he eats enough candy he will get sick? ... do not the idler and spendthrift know, even in the midst of their glorious fling, that they are heading for a future of debt and poverty? Yet when we enter the field of public economics, these elementary truths are ignored. There are men today regarded as brilliant economists, who deprecate savings and recommend squandering on a national scale... The long-run consequences may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg... From this aspect, therefore, the whole of economics can be reduced to a single lesson ... to a single sentence:
Only Two Economists This past year I listened to 75 hours of taped lectures on the lives and work of the notable economists of history... I don't really recommend this exercise to anyone, as there were a lot of bad ideas, and, most of it, I could hardly bear to listen to. But, as I thought about all of these things, it became clear to me, essentially, that there have been only two major players here, with the rest as students of these masters... Adam Smith and Karl Marx!
Smith warns against the politicians who "pretend to watch over the economy" by protecting us from the "expense" of the common man... all the while they are, "without any exception, the greatest spendthrifts in the society"! Smith saw the individual as the real force of the economy. Unless the individual makes, creates, builds or produces something... there is no wealth... there is no economy! And if the rule of law will but protect private property interests, then individuals will have the confidence to invest their own resources, their capital, to create new wealth.
Marx viewed the individual as a victim of the rich; powerless to further his own interests, without the aid of an elite ruling class; presumably, with himself at the head. He saw capitalism as an untidy affair, with no one in charge; much better, he thought, to have the smartest people plan and manage a national economy. "From each according to his ability, to each according to his needs," was a favorite sentiment of Marx; as such, he thought private property to be unnecessary and counter-productive; a threat to his communal way of life.
Please... do not use the M-word "Let's not and say we did," is a old line... and well describes the deceitfulness of much economic talk today. As we look at the above brief overview of these two famous economists of history, which one better describes the state of economic philosophy today? It's disturbingly clear, isn't it? Politicians will use the verbiage of Adam Smith's free markets and capitalism... but their deceitful practices and policies, more and more, devolve toward that of Marx. They would hate to be called economic Marxists, but that's what they are... Many of them today would call themselves Keynesians, a more polite-sounding and slightly watered-down version of Marx... but that's little solace to us. "If men were angels," as James Madison once said; and if we were all of the spirit to be ready to work with Elizabeth Fry (see Part I), Marx's dictum of "From each according to his ability, to each according to his needs," would begin to make sense. But most men are not yet good as angels. And Adam Smith is correct when he insists that self-interest, in our imperfect world, is the best way of encouraging investment and productivity.
What's Wrong With This Picture? Allow me to very briefly explain the error of today's common economic fallacies:
"As President, I will grow the economy" ... "I will create jobs" A President cannot grow the economy; he cannot create jobs, in any meaningful sense; he can only reshuffle them... and like Hazlitt's suit that we'll never see, we won't see the jobs lost in the reshuffling! Only individuals can grow the economy; only individuals can create jobs, when they invent or produce something that others want to buy. A President can create the illusion of creating jobs, as FDR did, but only at the expense of other sectors of the economy, as a job "created" by government, is a job destroyed, or never brought to birth, elsewhere; but this "targeted investment," Orwellian-speak by demagogues, is a means to control others, and buy votes - moreover, I speak of the illusion of creating jobs because capital is limited, and if it is used by government, it will not be available for deployment by private industry. Government, of course, can always print money, but such action simply becomes a de facto tax, which is inflationary, debasing the existing currency... robbing the purchasing power, especially, of the most needy, those on fixed incomes.
As Dick Morris, in the last few days, warned:
"Bold And Swift Action Needed To Save Economy" Actually, getting the hell out of the way, and allowing individuals to do what they do, is bold and swift enough. Marxists always speak in terms of collectivism, of needing to take more and more power to themselves; they see themselves as saviors; that they must manage all of us - granted, if a bank is failing, there may be a need for temporary assistance; unfortunately, the failure, itself, of our financial institutions is the direct result of governmental interference in the marketplace. How is that? When government attempts to guarantee banks or individuals against loss, there is no real incentive for those investing such capital to carefully analyze risk - why should they, when they'll be bailed out if they fail. This nanny-ism approach by government induces investors to ignore risk and to "swing for the fences" in their deployment of capital; if they win, they'll look like heroes; if not... oh, well, they'll be bailed out by government anyway.
"The economic problems of today happen every 50 or 100 years" This kind of statement might be appropriate for things of a cyclical nature, such as sunspot activity... but is wholly inappropriate for capitalism. When Marxist-economists use such language, they are really saying, "Capitalism is deeply flawed. And it will collapse every several years... without us, the smartest people in the room, to prop it up... so, where would you be? you need us to run the economy."
"$800 Billion Stimulus To Revive Economy" Most of us get credit card offers in the mail every week. And we could very quickly "stimulate" our personal economies with new credit lines of many thousands of dollars ... but we must remember what Hazlitt said... some things look good in the short term... but will cause ruin before long. It is the grossest distortion of reality to suggest that borrowing money, by the trillions, will accrue to our long term good as a country. And only those with private agendas of personal power would talk this way... because ... much of that money will find its way to special interest groups that support a particular politician!
And isn't it altogether incredible that the current crisis was caused by cheap money; by interest rates that were too low, thereby encouraging speculation with borrowed money... and now... the solution offered by these economist-demagogues is... more cheap money! ... more fiat-money! ... by the trillions now!
Further Reading If you were to invest just a little time, and read the works of just a few great writers, you could learn all of the basics of economics. It is not a mysterious science, but one that makes intuitive sense... right now, you have fears about this subject, but only because unscrupulous ones, over many years, have tried to keep you in the dark about how this works... they operate best in darkness... because if you really found out what they are doing... they might have to leave town, in the middle of the night, fairly quickly. You will want to read these books:
Henry Hazlitt, Economics In One Lesson. The excerpts above show you that he is a great teacher and writer. You will enjoy this. Milton Friedman, Free To Choose. I'm providing a link to a transcript of his tv documentary. That alone is wonderful. But you must read his book. Very readable, written for someone without a background in economics. Especially, read his explanation of how and why The Great Depression happened. Marxists will tell you, as they always do, that capitalism failed; the truth is much different. Leonard Read, I, Pencil. A short and very clever little essay. It explores the idea that no one individual knows how to make a pencil; that is, there is no single organizing entity directing this... only the marketplace can do this! And with this discussion, we can see the impossibility of any top-down command-style planning commission successfully managing an entire national economy. The Soviet Union suffered internal meltdown because it could not compete with our decentralized economic system... and yet our Marxist-economists ever attempt to take us toward these failed modalities... because the concomitant power and control is too juicy to ignore. A Russian ambassador recently joked about this sad and ironic phenomenon: "We do capitalism better than you do communism!" Yeah, that's about it. The Money Masters. Only for serious seekers of understanding... not because the material on these two DVDs is difficult... actually, it's quite entertaining; in fact, one is in cartoon format. But you will learn things most disturbing here... about the systemic corruption and fraud built into our financial system... it's much different than you think! ... a giant malevolent parasite sucking on and draining our economic life... a system going back hundreds of years, foisted upon us, through bribery of traitorous Congressmen! and manipulation of a weak puppet-President! ... not pleasant stuff to learn about... but you will finally understand... and never be the same again... are you brave enough to look behind the curtain?
Why You Should Be Interested In Economics
This scene with Lennie breaks my heart. He wanted a little place where he and George could live. Have some rabbits. That patch of alfalfa. A cow and chickens. But, notice something else about this home. This hideaway sanctum would also be that place where "ever'body gonna be nice." We learn from this, by implication, that Lennie has endured torment from malevolent others. The Supreme Court has granted explicitly what the Bill of Rights offers only between the lines... a right to privacy. Such entitlement subsumes Jefferson's "pursuit of happiness," the American gospel that was originally preached to every person who would love liberty. But, while this heritage is wonderful, Jefferson spoke of no guaranteed equality of outcome; he did not advocate issuing a checkbook to each new US citizen, in order to actualize, or enflesh, the abstractions of "the pursuit of happiness" and a right to privacy. This is where economics comes in. Many of you - designedly, at the behest of those who "buy and sell you" - have been programmed to tune-out when discussion turns to the intricacies of the national economy. The problem here is that the national economy, as many of us are reminded, more and more, has a way of affecting our personal economies. Dr. Adler speaks of the facets of that great idea, freedom:
(1) there is moral freedom, the freedom to will as one ought. We can grow in this kind of freedom, even in poverty... we can choose a right attitude for ourselves, even in suffering; (2) there is the freedom of choice; that which we possess by virtue of being human; an innate attribute... again, we need not have money to exercise this freedom; But there is another freedom that requires resources. (3) the freedom to act as one pleases... one may wish to dine at the Ritz, but, lacking the enabling means, that of money, one's will is likely to be thwarted here.
I am stating the obvious when I assert that it takes money to live in a house, as opposed to under a bridge; to drive a car, attend college, enjoy the use of a computer... and a thousand other things. But, though my statement is an obvious one, most of us allow, with either resignation, or without much serious thought, a self-professed financial High Priesthood to regulate our large national economy... which process quickly devolves into a private and local bread-and-butter economy!
The Founding Fathers were very concerned about maintaining individual property rights. This was no flight of hedonistic materialism. Because, as Lennie and George discovered, it does one no earthly good to be granted an abstract right to privacy... without feeling the dirt in your hands, and under your feet, of your own little space, where you don't have to worry as much about dark-spirited others, who might not be "nice to you." And this is why Marx himself hated property rights so much... a great threat to his grand collective society... and this is why our own Marxist-economists and Marxist-politicians will attempt to weaken property rights, whenever they can. And they will try to take your money, for the "greater good," of course... and then they will big-heartedly give a portion back to you, only a portion, a form of vote-buying, an attempt to control you, "to buy and sell you." And as Jesus said, "They will call themselves benefactors."
They so hate it... hate it so much... when you become too damn independent and secure... when you've shut the door in their faces... the door of your own place... too hard to get to now... too hard to seduce you... with promises of security... when you already have it. Do not deceive yourself... if they could get away with it... they would turn America into just another of the world's "banana republics," inhabited only by the very rich and the very poor... it's so much easier to keep the masses in check when they are struggling to survive...
The Most Important Point Hazlitt speaks of the "good economist" and "bad economist." The "good economist" - beginning with Adam Smith; then, his students, Von Mises, Hayek, Friedman - is a strong advocate of the sanctity and dignity of each human being; that, without creativity and inventiveness, without industry and perseverance, nothing would ever be produced; no jobs would ever be created... and no economy would ever come to birth... it all begins with the individual. The "bad economist" will try to convince you, usually in subtle ways, that you are no good; that you are not able, not up to the task, that you are incompetent... and that without his guidance, without his superior insight, you will be lost. I hope you will begin to see the difference. Do not lose sight of who you are! Remember that every good thing begins with you! It is you, individually, and millions like you, who are the true engine of the American economic miracle! Don't let them convince you otherwise.
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