The sins of economics

I was directed to a post at Zero Hedge with the title, The Farce That Is Economics: Richard Feynman On The Social Sciences. As it happens I disagree with Feynman about the social sciences, and especially with his criticisms of economics. That it did not occur to him, or perhaps he did not even notice, that it was only since the publication of Adam Smith’s The Wealth of Nations that the world has achieved the kind of prosperity that was not even within the imagination of the most visionary man alive in the eighteenth century. Economists have learned a very great deal, which is why we have become so well off, but have also forgotten almost as much, which is why mainstream economic theory is such a disaster zone. But we still keep our eye on the functioning of markets, which will make us progressively wealthier in spite of everything we might do.

But Tyler goes on with his own list of economists’ sins which I not only agree are disastrous, and genuine, but happen to be dealt with, each and every one, in my Free Market Economics, the second edition which may be found here. This is more or less a list of economic concepts that economists have managed to unlearn over the past half century. Indeed, it is because he can see how wrong these are that he can even put together this list.

  • Saving money is a sin and should be penalized; speculation is a virtue and should be encouraged
  • The government does not need to run its finances like every other company and individual in the country; what is good for the latter is bad for the former
  • Inflation should be kept at 2% forever; that’s the exactly right number, no more, no less; if you start paying less for your food, rent and healthcare, the central bank must intervene
  • Those who take personal risks to create prosperity and jobs have obligations; everyone else has rights
  • The state can spend its citizen’s money much more intelligently than they can
  • Business cycles are bad so we must always stimulate the economy
  • When a boom in demand pursuant to a boom in credit inevitably fades away, we should create another boom in credit to revive demand again, and again, and again
  • Creating debt at a rate above an economy’s incremental productive capacity generates wealth
  • Anyhow, debt does not matter because that liability is someone else’s asset
  • Demographics don’t matter either
  • You generate so much prosperity in your job over 40+ years that you can comfortably live in your retirement of 20+ years
  • Foreign lenders only need to be concerned with regard to banana republics; the others will always pay them back
  • The capital markets follow nicely shaped probability bell curves, and so shocks and crashes are extremely rare events; the markets are “efficient”
  • The benefits of free trade outweigh the costs of a country losing its manufacturing sector as a result; the fact that domestic companies have to comply with much stricter and costlier regulations than their foreign competitors is of no consequence
  • Human behavior is governed by mathematical equations and models, even when oversimplifying assumptions are used
  • The next generation will figure out a way to pay for all the massive debts that we are creating today; otherwise the central banks will solve the problem
  • The way to create prosperity in a society is to take away resources from the productive sector and distribute them amongst the unproductive sector
  • We all admire the free markets; we just can’t let them work

The missing ingredient from economics today, as I often mention, is value added, the central concept surrounding Say’s Law. No economics text ever mentions value added outside a brief discussion of the national accounts, and I actually think comparatively few economists, although familiar with the phrase, have any practical idea what it means or why it matters. If they did, they could not possibly have endorsed the stimulus, and Keynesian economics in all its forms would now be dead.

[My thanks to . for the reference]

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15 Responses to The sins of economics

  1. I Am the Walras, Equilibrate and Price Take

    Well said.

  2. Ubique

    Steve, could you please run Treasury?

  3. Blogstrop

    Is saving money a bigger sin than reading to your children?

  4. Tel

    That it did not occur to him, or perhaps he did not even notice, that it was only since the publication of Adam Smith’s The Wealth of Nations that the world has achieved the kind of prosperity that was not even within the imagination of the most visionary man alive in the eighteenth century.

    I dunno, it’s probably more important that Isaac Newton invented gravity… I mean, without gravity you could slip easily, lose your footing and fly off into space. Sorry, but Newton is much more important in the scheme of human progress.

  5. JohnA

    That it did not occur to him, or perhaps he did not even notice, that it was only since the publication of Adam Smith’s The Wealth of Nations that the world has achieved the kind of prosperity that was not even within the imagination of the most visionary man alive in the eighteenth century.

    I hope you plan to flesh out this rather one-dimensional critique…?

  6. Fred Lenin

    Brilliant description of Marxist Dogma, you forgot to add “the government owns all money ,because they print it.”

  7. Pyrmonter

    The benefits of free trade outweigh the costs of a country losing its manufacturing sector as a result; the fact that domestic companies have to comply with much stricter and costlier regulations than their foreign competitors is of no consequence

    For heaven’s sake. Manufacturer’s Koolaid: is this Kates, or has Ai Group hacked his wordpress account.

  8. close

    I user to read zero hedge, until I realized its a cesspool of conspiracy nuts and 9/11 truthers. While there is occasionally a decent critique of Keynesian policy, it is usually from a rabid survivalist end-of-days perspective.

  9. Ray

    “… it was only since the publication of Adam Smith’s The Wealth of Nations that the world has achieved the kind of prosperity that was not even within the imagination of the most visionary man alive in the eighteenth century.”
    I trust we are not ascribing the growth experienced during the Industrial Revolution to Adam Smith. It was not until after the repeal of the Corn Laws and Navigation Acts in 1846 and 1849 respectively, more than seventy years after The Wealth of Nations was first published, that the teachings of Smith and Ricardo, began to dominate policy matters. Until then, the Mercantilists ran public policy, very much the antithesis of everything Smith taught us.

  10. .

    Actually Feynman had a greater point, perhaps pointed towards peak oilers, communists, global warmies etc:

    “If we suppress all discussion, all criticism, proclaiming ‘This is the answer, my friends; man is saved!’ we will doom humanity for a long time to the chains of authority, confined to the limits of our present imagination. It has been done so many times before.

    “It is our responsibility as scientists, knowing the great progress which comes from a satisfactory philosophy of ignorance, the great progress which is the fruit of freedom of thought, to proclaim the value of this freedom; to teach how doubt is not to be feared but welcomed and discussed; and to demand this freedom as our duty to all coming generations.”

  11. incoherent rambler

    Great minds in the history of mandkind – Feynmann, Einstein, Bohr, Planck, Newton, Maxwell, Faraday, Schroedinger, Heisenberg, Lagrange, Archimedes, Copernicus, Rutherford.

    Am I supposed to add Kates to the list?

  12. rich

    It was not until after the repeal of the Corn Laws and Navigation Acts in 1846 and 1849 respectively, more than seventy years after The Wealth of Nations was first published, that the teachings of Smith and Ricardo, began to dominate policy matters. Until then, the Mercantilists ran public policy, very much the antithesis of everything Smith taught us.

    A seed takes time to grow to a tree that bares fruit, and in that time it needs its protectors and proselytisers

  13. Fred Lenin

    Proselytisers ? Do they support Poofter Marriage? Or making prostitution a non crime ?

  14. rich

    Proselytisers ? Do they support Poofter Marriage? Or making prostitution a non crime ?

    Ideas don’t sell themselves.

    My Kung Fu teacher used to say to me, “you may bake the best bread in the world, but if you don’t have a cart to bring it to market, then it may as well not be.”
    Not only that , proselytisers need to counter bad ideas with good ones in the marketplace of knowledge. The vehicle for that change is culture and, in our blur of mathematics and statistics, we often forget this.

  15. Pusnip

    Tyler’s list, endorse by Steve, is for the most part a bunch of straw economic men. Economists do not think those things. Steve, you’re fighting an enemy that doesn’t exist. Smith’s invisible hand had a point; your invisible arms don’t.

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