Economic Middle Ground
It's the Economy, Stupid!
Yes it is, but what does that mean? What is the economy?
Basically it depends on who is viewing it. This is why Middle Ground is so
applicable; economy is a great amorphous mass that permeates our lives,
each often differently. It looks much different down in the bowels of it than it
does when standing above it looking down - or standing away from it
looking across at it - from a distance.
It is jobs, individual and collective; it is budgets, individual and collective;
it is a feeling of security, or not; it is the future; it is hope, fear, frustration and
pure panic - individual and collective. It is comfort; it is expectation; in many
ways it is the center of each of our lives and our lives collectively. And that
is why the political tag line was so simply effective. We might not have
understood what it meant collectively, but each of us knew clearly enough
what it meant for us.
We all understand what economy means to ourselves. It is our job; the
security of it; what it pays now, and the benefits it offers - mainly for health
and retirement. But it is also how our job places us within our sphere of
expectation: what level of comfort and security does it buy for us? What
level of luxury does it afford? And how does it place us with respect to
others? Oh, yes, how we are placed with respect to others is a critical
ingredient for us, and an important criterion when considering whether the
economy - for us - is doing well or poorly. The house, the car, vacations -
all those things that are so important in our lives for which our jobs
ultimately provide, either directly or through investment. Actually there is
more than that; call it infrastructure for want of a more friendly term: power
for heating, air conditioning, automobiles and running the appliances;
roads and highways that allow us to conveniently and comfortably go where
we want to and need to go; communications; sewage removal; running
water; indoor plumbing; shopping convenience; entertainment; fire
protection; law enforcement; and much more of a similar nature. These are
things we take for granted for the most part, but they are important to us and
add depth to our lives.
These last also comprise another level of the economy, any economy,
because someone must envision them, plan them, pay for them, and
maintain them. That someone is also us, but collectively, through our
representative governments and the taxes they assess and spend. The
circularity that entails should be obvious: governments have no money save
what they collect from us, and many of us depend in various ways on how it
is spent, particularly through the projects the governments fund that pay
salaries either directly or through contracts; and that generate more taxes
that go back through the cycle, on and on and on.
That much is fairly simple and generally understood. What is
significantly more complicated is expressed in another cliché: the devil is in
the details, and I do not propose to attempt to describe them. Credit,
investment, risk, velocity, rates and the like describe what happens, but the
composite is far more complex and far less understood - or
understandable in its details, for most of us. Furthermore much of it is built
upon trust, confidence, rumor and propaganda. Sometimes the economy
turns bad because that is our perception, and we - or the financial
communities and government - react correspondingly. The details are
murky, but lead us into the Middle Ground.
First the extremes: theoretical communism and unrestricted capitalism.
In the former the government owns everything, decides everything and
everyone happily does what they are told - or euphemistically that of which
they are capable. In unrestricted capitalism, as was once illogically
suggested, if all were divided equally among us, a very small clever few
would get it all back within - pick a time frame. As with all extremes, neither
is real and we are left with compromise, with which the ideologues struggle
with frustrating empathetic anger. An indisputable fact is that when all
people are compensated more or less equally despite the energy they
invest, those with energy see the futility in expending it. Or more simply
stated, if there is no incentive to work harder, people won't. On the other
hand if people are treated like animals they will work like animals -
essentially when driven and only when driven.
Much as the social scientists hate the term human nature, we are all
different: different skills, different backgrounds, different motivation, different
intelligence, different interests. Among some exist the drive and talent to
create, and it is upon those that we rely to put together the enterprises that
provide those less driven and talented jobs in which to work and survive.
Without the incentive to do so, those that can probably won't. On the other
hand, if unrestricted - human nature being what it is - the talented and
driven, feeling great pride in being so, will tend to take for themselves what
they feel they deserve, shorting the less talented and driven. Fair enough?
History and traditional liberal philosophy suggests otherwise - our modern
success has proven that a balance, rewarding constrained talent and drive,
but at the same time motivating workers through another level of
satisfaction and security, works far better. Ah, but how to achieve that?
That is where representative government steps in and attempts to
achieve balance through compromise. Simple. Nothing is ever simple,
except possibly the ultimate objective: reward for talent, effort and risk
taking; and adequate compensation and security, including proportional
incentive motivation, for everyone else. All very well and good in theory, but
devilishly difficult in practice - for many reasons: ignorance is one; most
people don't understand economics and how markets function. Another is
arrogance; too many have fixed ideas and stick with them, regardless. And
greed is a third; those charged with governing have their own interests in
mind and they often transcend the broader interest. There is yet another
and that is propaganda that is promulgated concerning actions, results,
unintended circumstances, and things the propagandists want you to
believe or don't want you to know, and from that derives the emotionalism
that often roil the economic scene.
One popular pseudo Middle Ground solution is to let government control
everything and decide how balance is to be accomplished, but that doesn't
work either. Why not? Because it guts motivation of the talented and
driven, watering down market potential, while putting often unqualified
government officials in the position of deciding who gets rewarded and how
much, with poor understanding of possible unintended circumstances - as
well as an impossible task of trying to replicate the millions of little
self-interest decisions that are made every day at every level. So what is
wrong with that? Elected or appointed government officials are likely to
lack the competence to do what they think they need to do fairly, with even
moderate efficiently. And free markets do that? They do it far more fairly
and efficiently than government officials who are dependent upon voters to
put them and keep them in office - but only if constrained, placing us once
more back in the Middle Ground. What constraints? Those which provide a
balance of fairness and efficiency, but do not destroy incentive that comes
from people working for their own interests - under rule of law. But people
working in their own interests will strive for results - for themselves - and
left to themselves will almost always tend to go too far. Is the circularity not
obvious? Back to government.
But that is not the most egregious challenge for government officials;
their most egregious challenge is understanding how markets work - while
they are working. Not that they don't try, and don't solicit the advise of
experienced advisors; but the advisors often do not agree on short term
details. Markets are terribly complex, and do not always function in the
same manner because the variables are different - and they change. What
works in one environment at one time may not work in another at another
time. Furthermore the arrogance of elected officials often causes them to
ignore the advice of experienced advisors (not always economists by any
means); and their personal interest often causes them to move in a
direction other than "the common good," whatever that might be, or what
they think it might be. Besides, what is necessary politically is not always
what's best economically, for many reasons.
This is not satisfying, but it's all we have. When we move beyond the
Middle Ground we tend toward either destroying worker incentives and
satisfaction, or strangling market engines. The government motivation is to
lean toward satisfying workers because there are more of them to vote, but
when they do so to excess they tend to strangle the market engines -
primarily investment. When you take from the rich and give to the poor, it is
likely that there will be less and less to take, and that will make the poor
just as unhappy as they were before government started giving to them,
and people ruled by representative government never tolerate giving up
what they feel they have won.
Perhaps you thought I was working toward a proposed solution; if there
was such, far wiser than I would have found it and implemented it long ago,
and that is exactly my point. There is no perfect solution and there never
will be, save an informed Middle Ground that appreciates a need for
balance and compromise, based on proven experience - and flexibility. Will
such a Middle Ground ever develop such that all are satisfied? Never. The
Middle Ground is no fulcrum, no mysterious point of balance; it is a rather
wide swath of ground over which people will forever fight back and forth for
advantage, and in a way it is that back and forth fighting that keeps the fires
of motivation burning, much like in a tug of war - actually, a free market. But
note the absolute requirement for a tug of war: rules, and referees to
ensure they are followed. Our rules are rule of law; our referees are our
elected officials. It's all we have; we need to make it work.
Yes it is, but what does that mean? What is the economy?
Basically it depends on who is viewing it. This is why Middle Ground is so
applicable; economy is a great amorphous mass that permeates our lives,
each often differently. It looks much different down in the bowels of it than it
does when standing above it looking down - or standing away from it
looking across at it - from a distance.
It is jobs, individual and collective; it is budgets, individual and collective;
it is a feeling of security, or not; it is the future; it is hope, fear, frustration and
pure panic - individual and collective. It is comfort; it is expectation; in many
ways it is the center of each of our lives and our lives collectively. And that
is why the political tag line was so simply effective. We might not have
understood what it meant collectively, but each of us knew clearly enough
what it meant for us.
We all understand what economy means to ourselves. It is our job; the
security of it; what it pays now, and the benefits it offers - mainly for health
and retirement. But it is also how our job places us within our sphere of
expectation: what level of comfort and security does it buy for us? What
level of luxury does it afford? And how does it place us with respect to
others? Oh, yes, how we are placed with respect to others is a critical
ingredient for us, and an important criterion when considering whether the
economy - for us - is doing well or poorly. The house, the car, vacations -
all those things that are so important in our lives for which our jobs
ultimately provide, either directly or through investment. Actually there is
more than that; call it infrastructure for want of a more friendly term: power
for heating, air conditioning, automobiles and running the appliances;
roads and highways that allow us to conveniently and comfortably go where
we want to and need to go; communications; sewage removal; running
water; indoor plumbing; shopping convenience; entertainment; fire
protection; law enforcement; and much more of a similar nature. These are
things we take for granted for the most part, but they are important to us and
add depth to our lives.
These last also comprise another level of the economy, any economy,
because someone must envision them, plan them, pay for them, and
maintain them. That someone is also us, but collectively, through our
representative governments and the taxes they assess and spend. The
circularity that entails should be obvious: governments have no money save
what they collect from us, and many of us depend in various ways on how it
is spent, particularly through the projects the governments fund that pay
salaries either directly or through contracts; and that generate more taxes
that go back through the cycle, on and on and on.
That much is fairly simple and generally understood. What is
significantly more complicated is expressed in another cliché: the devil is in
the details, and I do not propose to attempt to describe them. Credit,
investment, risk, velocity, rates and the like describe what happens, but the
composite is far more complex and far less understood - or
understandable in its details, for most of us. Furthermore much of it is built
upon trust, confidence, rumor and propaganda. Sometimes the economy
turns bad because that is our perception, and we - or the financial
communities and government - react correspondingly. The details are
murky, but lead us into the Middle Ground.
First the extremes: theoretical communism and unrestricted capitalism.
In the former the government owns everything, decides everything and
everyone happily does what they are told - or euphemistically that of which
they are capable. In unrestricted capitalism, as was once illogically
suggested, if all were divided equally among us, a very small clever few
would get it all back within - pick a time frame. As with all extremes, neither
is real and we are left with compromise, with which the ideologues struggle
with frustrating empathetic anger. An indisputable fact is that when all
people are compensated more or less equally despite the energy they
invest, those with energy see the futility in expending it. Or more simply
stated, if there is no incentive to work harder, people won't. On the other
hand if people are treated like animals they will work like animals -
essentially when driven and only when driven.
Much as the social scientists hate the term human nature, we are all
different: different skills, different backgrounds, different motivation, different
intelligence, different interests. Among some exist the drive and talent to
create, and it is upon those that we rely to put together the enterprises that
provide those less driven and talented jobs in which to work and survive.
Without the incentive to do so, those that can probably won't. On the other
hand, if unrestricted - human nature being what it is - the talented and
driven, feeling great pride in being so, will tend to take for themselves what
they feel they deserve, shorting the less talented and driven. Fair enough?
History and traditional liberal philosophy suggests otherwise - our modern
success has proven that a balance, rewarding constrained talent and drive,
but at the same time motivating workers through another level of
satisfaction and security, works far better. Ah, but how to achieve that?
That is where representative government steps in and attempts to
achieve balance through compromise. Simple. Nothing is ever simple,
except possibly the ultimate objective: reward for talent, effort and risk
taking; and adequate compensation and security, including proportional
incentive motivation, for everyone else. All very well and good in theory, but
devilishly difficult in practice - for many reasons: ignorance is one; most
people don't understand economics and how markets function. Another is
arrogance; too many have fixed ideas and stick with them, regardless. And
greed is a third; those charged with governing have their own interests in
mind and they often transcend the broader interest. There is yet another
and that is propaganda that is promulgated concerning actions, results,
unintended circumstances, and things the propagandists want you to
believe or don't want you to know, and from that derives the emotionalism
that often roil the economic scene.
One popular pseudo Middle Ground solution is to let government control
everything and decide how balance is to be accomplished, but that doesn't
work either. Why not? Because it guts motivation of the talented and
driven, watering down market potential, while putting often unqualified
government officials in the position of deciding who gets rewarded and how
much, with poor understanding of possible unintended circumstances - as
well as an impossible task of trying to replicate the millions of little
self-interest decisions that are made every day at every level. So what is
wrong with that? Elected or appointed government officials are likely to
lack the competence to do what they think they need to do fairly, with even
moderate efficiently. And free markets do that? They do it far more fairly
and efficiently than government officials who are dependent upon voters to
put them and keep them in office - but only if constrained, placing us once
more back in the Middle Ground. What constraints? Those which provide a
balance of fairness and efficiency, but do not destroy incentive that comes
from people working for their own interests - under rule of law. But people
working in their own interests will strive for results - for themselves - and
left to themselves will almost always tend to go too far. Is the circularity not
obvious? Back to government.
But that is not the most egregious challenge for government officials;
their most egregious challenge is understanding how markets work - while
they are working. Not that they don't try, and don't solicit the advise of
experienced advisors; but the advisors often do not agree on short term
details. Markets are terribly complex, and do not always function in the
same manner because the variables are different - and they change. What
works in one environment at one time may not work in another at another
time. Furthermore the arrogance of elected officials often causes them to
ignore the advice of experienced advisors (not always economists by any
means); and their personal interest often causes them to move in a
direction other than "the common good," whatever that might be, or what
they think it might be. Besides, what is necessary politically is not always
what's best economically, for many reasons.
This is not satisfying, but it's all we have. When we move beyond the
Middle Ground we tend toward either destroying worker incentives and
satisfaction, or strangling market engines. The government motivation is to
lean toward satisfying workers because there are more of them to vote, but
when they do so to excess they tend to strangle the market engines -
primarily investment. When you take from the rich and give to the poor, it is
likely that there will be less and less to take, and that will make the poor
just as unhappy as they were before government started giving to them,
and people ruled by representative government never tolerate giving up
what they feel they have won.
Perhaps you thought I was working toward a proposed solution; if there
was such, far wiser than I would have found it and implemented it long ago,
and that is exactly my point. There is no perfect solution and there never
will be, save an informed Middle Ground that appreciates a need for
balance and compromise, based on proven experience - and flexibility. Will
such a Middle Ground ever develop such that all are satisfied? Never. The
Middle Ground is no fulcrum, no mysterious point of balance; it is a rather
wide swath of ground over which people will forever fight back and forth for
advantage, and in a way it is that back and forth fighting that keeps the fires
of motivation burning, much like in a tug of war - actually, a free market. But
note the absolute requirement for a tug of war: rules, and referees to
ensure they are followed. Our rules are rule of law; our referees are our
elected officials. It's all we have; we need to make it work.
Supply and Demand
It is the mantra of capitalism. But it relies
upon a major element that is also critical for
successful democracy - a middle class. History
is replete with bipolar conflicts - rich versus poor;
successful democracy requires a more balanced
structure - a three legged stool, the third leg of
which is an educated middle class. To give it
color let's call it el sombrero de tres picos - the
three cornered hat. It is that third pico that makes
effective capitalism possible - not the brutal
extreme rawness of immature capitalism, but the
capitalism of modern democray.
The difference is the third corner. The middle
class is the lubricator of effective capitalism;
providing everything between capital and labor:
sales, marketing, distribution, refereeing through
rule of law. No modern democracy, no modern
capitalism can be effective without this third
balancing pico. In fact it is what moves capitalism
well along the spectrum toward Middle Ground.
Supply and demand constitute the framework of
market economy; the function is provided by the
creation of demand and translation of it to supply
through the matching of need and capability.
Modern economies are far too large and complex
to function effectively via the barter system; there
must be the third corner to make the connectivity -
to articulate the demand, even create it where it
doesn't exist, and translate it to supply.
It might be noted that supply and demand
also applies to capital and labor, and the same
law extends through the entire panoply of the pico
of the middle class, though needing the grease of
rule of law to lubricate it.
So why sombrero? It signifies not only
binding the thres picos, but the cover under which
they exist, together.
Isn't that sweet? We know it doesn't work quite
like that - there is struggle; there will always be
struggle, as man continually fights for what he
considers is his due, and rarely will there be
complete agreement upon the proper division of
the spoils or how they should be determined. So
the sombrero, instead of the place for siesta, is
the arena - not of fight to the death, but of struggle
for compromise - on the Middle Ground.
Dramatic as that might sound, it is the only way to
achieve balanced prosperity - and balance is the
key.
It is the mantra of capitalism. But it relies
upon a major element that is also critical for
successful democracy - a middle class. History
is replete with bipolar conflicts - rich versus poor;
successful democracy requires a more balanced
structure - a three legged stool, the third leg of
which is an educated middle class. To give it
color let's call it el sombrero de tres picos - the
three cornered hat. It is that third pico that makes
effective capitalism possible - not the brutal
extreme rawness of immature capitalism, but the
capitalism of modern democray.
The difference is the third corner. The middle
class is the lubricator of effective capitalism;
providing everything between capital and labor:
sales, marketing, distribution, refereeing through
rule of law. No modern democracy, no modern
capitalism can be effective without this third
balancing pico. In fact it is what moves capitalism
well along the spectrum toward Middle Ground.
Supply and demand constitute the framework of
market economy; the function is provided by the
creation of demand and translation of it to supply
through the matching of need and capability.
Modern economies are far too large and complex
to function effectively via the barter system; there
must be the third corner to make the connectivity -
to articulate the demand, even create it where it
doesn't exist, and translate it to supply.
It might be noted that supply and demand
also applies to capital and labor, and the same
law extends through the entire panoply of the pico
of the middle class, though needing the grease of
rule of law to lubricate it.
So why sombrero? It signifies not only
binding the thres picos, but the cover under which
they exist, together.
Isn't that sweet? We know it doesn't work quite
like that - there is struggle; there will always be
struggle, as man continually fights for what he
considers is his due, and rarely will there be
complete agreement upon the proper division of
the spoils or how they should be determined. So
the sombrero, instead of the place for siesta, is
the arena - not of fight to the death, but of struggle
for compromise - on the Middle Ground.
Dramatic as that might sound, it is the only way to
achieve balanced prosperity - and balance is the
key.
The Politics of Greed and Envy
All politics is tied to economics one way or
another, and never will greed or envy be
eliminated: envy is demand; greed is supply. Like
it or not that's the way it works, beyond
subsistence.
But when those elements are exploited
outside the limits of the viable Middle Ground the
struggle is likely to turn nasty. Demanders need
suppliers and suppliers need demanders; neither
functions without the other. Exploitation of greed
destroys demand and exploitation of demand
destroys what can be created through greed.
The political/economic extremes always seem to
be trying to exploit greed or envy for their own
personal benefit. If either ever wins the delicate
house of cards that is our economy fall like - well,
a house of cards.
That is something we must always keep in
mind - always. The only alternative is the Middle
Ground of compromise.
All politics is tied to economics one way or
another, and never will greed or envy be
eliminated: envy is demand; greed is supply. Like
it or not that's the way it works, beyond
subsistence.
But when those elements are exploited
outside the limits of the viable Middle Ground the
struggle is likely to turn nasty. Demanders need
suppliers and suppliers need demanders; neither
functions without the other. Exploitation of greed
destroys demand and exploitation of demand
destroys what can be created through greed.
The political/economic extremes always seem to
be trying to exploit greed or envy for their own
personal benefit. If either ever wins the delicate
house of cards that is our economy fall like - well,
a house of cards.
That is something we must always keep in
mind - always. The only alternative is the Middle
Ground of compromise.
Bubbles, Shortages and Value
What is something worth? What is it's value?
What someone is willing to pay for it: demand for
supply. When demand exceeds supply there will
be shortages and value will rise. When supply
exceeds demand value will fall. That is the
natural law of supply and demand.
The higher the value the greater the envy;
people want what has high value. And the higher
the value the more attractive it is to greed; people
want to provide what has high value.
Unless demand is inelastic, that is people
must have it regardless of cost (food, water?),
value will continue to rise with demand, and so
will supply. Ultimately what will form is what we
call a bubble. There have been all kinds of
demand bubbles: land, stocks, tulip bulbs and
housing come immediately to mind. They all end
the same way: supply finally outpaces demand
and value begins to drop, sometimes dramatically
and precipitously - the demand bubble turns into
a supply bubble. Few bubbles, maybe none, are
transparent; any conscious thinking person can
see demand bubbles growing, and supply
bubbles growing to satisfy them, and know the
demand will disappear, leaving only a bubble of
supply, though not necessarily when.
Ultimately, after the burst, when value has
fallen enough, demand will once more begin to
build, and supply will begin to rebuild. But the
period between bursting and rebuilding can be
extremely painful for those holding the remnants
of the bubble for which value has disappeared.
We all know well, let the buyer beware. But
he won't; greed will not let him, and he will suffer
the pain, over and over again.
For greed there is no Middle Ground, though
politicians will ever strive to find one.
What is something worth? What is it's value?
What someone is willing to pay for it: demand for
supply. When demand exceeds supply there will
be shortages and value will rise. When supply
exceeds demand value will fall. That is the
natural law of supply and demand.
The higher the value the greater the envy;
people want what has high value. And the higher
the value the more attractive it is to greed; people
want to provide what has high value.
Unless demand is inelastic, that is people
must have it regardless of cost (food, water?),
value will continue to rise with demand, and so
will supply. Ultimately what will form is what we
call a bubble. There have been all kinds of
demand bubbles: land, stocks, tulip bulbs and
housing come immediately to mind. They all end
the same way: supply finally outpaces demand
and value begins to drop, sometimes dramatically
and precipitously - the demand bubble turns into
a supply bubble. Few bubbles, maybe none, are
transparent; any conscious thinking person can
see demand bubbles growing, and supply
bubbles growing to satisfy them, and know the
demand will disappear, leaving only a bubble of
supply, though not necessarily when.
Ultimately, after the burst, when value has
fallen enough, demand will once more begin to
build, and supply will begin to rebuild. But the
period between bursting and rebuilding can be
extremely painful for those holding the remnants
of the bubble for which value has disappeared.
We all know well, let the buyer beware. But
he won't; greed will not let him, and he will suffer
the pain, over and over again.
For greed there is no Middle Ground, though
politicians will ever strive to find one.
"Samurai vs Stockholders". The Economist
Magazine, Feb 16-22, 2008:
Takeo Kitabata (Vice-Minister, Ministry of
Economics, Japan): "Shareholders in general do
not have the ability to run a company. They are
fickle and irresponsible. They only take on a
limited responsibility, but they greedily demand
high dividend payments."
"Japanese businessmen and politicians fear that
the activists are short-term investors keen to strip
firms of their cash...companies in Japan are
social institutions with a duty to provide stable
employment and consider the needs of
employees and the community at large, not just
shareholders."
A middle ground issue? Surely it would be in the
United States, but this one is exacerbated by a
cultural difference. Middle Ground is culturally
dependent; it would be nice if Americans could
learn to understand and appreciate that.
But consider further: could this observation not be
applied as well to the American political
environment? Shareholders (voters) in general
do not have the ability to run the government.
They only take limited responsibility, but they
greedily demand high entitlement payments.
My opinion: oh yeah! And populists feed the greed.
Magazine, Feb 16-22, 2008:
Takeo Kitabata (Vice-Minister, Ministry of
Economics, Japan): "Shareholders in general do
not have the ability to run a company. They are
fickle and irresponsible. They only take on a
limited responsibility, but they greedily demand
high dividend payments."
"Japanese businessmen and politicians fear that
the activists are short-term investors keen to strip
firms of their cash...companies in Japan are
social institutions with a duty to provide stable
employment and consider the needs of
employees and the community at large, not just
shareholders."
A middle ground issue? Surely it would be in the
United States, but this one is exacerbated by a
cultural difference. Middle Ground is culturally
dependent; it would be nice if Americans could
learn to understand and appreciate that.
But consider further: could this observation not be
applied as well to the American political
environment? Shareholders (voters) in general
do not have the ability to run the government.
They only take limited responsibility, but they
greedily demand high entitlement payments.
My opinion: oh yeah! And populists feed the greed.
Thomas Sowell, Introduction, Economic Facts
and Fallacies.
"Some things are believed because they are
demonstrably true. But many other things are
believed because they are consistent with a
widely held vision of the world - and this vision is
accepted as a substitute for facts. Subjecting
beliefs to the test of hard facts is especially
important when it comes to economic beliefs
because economic realities are inescapable
limitations on millions on millions of people's
lives, so that policies based on fallacies can be
devastating in their impacts. Conversely, seeing
through those fallacies can open up many
unsuspected opportunities for a better life for
millions of people."
and Fallacies.
"Some things are believed because they are
demonstrably true. But many other things are
believed because they are consistent with a
widely held vision of the world - and this vision is
accepted as a substitute for facts. Subjecting
beliefs to the test of hard facts is especially
important when it comes to economic beliefs
because economic realities are inescapable
limitations on millions on millions of people's
lives, so that policies based on fallacies can be
devastating in their impacts. Conversely, seeing
through those fallacies can open up many
unsuspected opportunities for a better life for
millions of people."
Henry Rosovsky:
"Never underestimate
the difficulty of changing
false beliefs by facts."
"Never underestimate
the difficulty of changing
false beliefs by facts."
Related Essays
Economic Ignorance
Despite its importance, too many citizens - voters - understand little about
economics, and it will be to our peril. The US economy is a $14 trillion
monstrosity, the control of which - that is the day to day decisions on who
should invest what where - is far, far beyond any central planning board,
which is why controlled economies - read socialism - have always, always
failed. But economics is complex, confusing, and not entertaining, ergo
why bother? But worse, there are many serious misconceptions about
free markets and economics politics that if continued could cause us to
undermine the vehicle that has brought us the prosperity we enjoy.
In fact it is popular to say that economists don't know much - because they
can't predict exactly what is going to happen. But they can tell us what
works and what does not. We don't listen to economists; but we listen to
the media and politicians, that by and large do not really understand
economics either - at least not how it works and why. Nor can I, an
economic neophyte actually, hope to try to explain it in one paragraph. But I
can provide a list of pretty good books - easy to read books - that go a long
way in that direction.
Economic Facts and Fallacies by Thomas Sowell
The Myth of the Rational Voter by Bryan Caplan
Freedomnomics by John R. Lott
The Forgotten Continent by Michael Reid
Despite its importance, too many citizens - voters - understand little about
economics, and it will be to our peril. The US economy is a $14 trillion
monstrosity, the control of which - that is the day to day decisions on who
should invest what where - is far, far beyond any central planning board,
which is why controlled economies - read socialism - have always, always
failed. But economics is complex, confusing, and not entertaining, ergo
why bother? But worse, there are many serious misconceptions about
free markets and economics politics that if continued could cause us to
undermine the vehicle that has brought us the prosperity we enjoy.
In fact it is popular to say that economists don't know much - because they
can't predict exactly what is going to happen. But they can tell us what
works and what does not. We don't listen to economists; but we listen to
the media and politicians, that by and large do not really understand
economics either - at least not how it works and why. Nor can I, an
economic neophyte actually, hope to try to explain it in one paragraph. But I
can provide a list of pretty good books - easy to read books - that go a long
way in that direction.
Economic Facts and Fallacies by Thomas Sowell
The Myth of the Rational Voter by Bryan Caplan
Freedomnomics by John R. Lott
The Forgotten Continent by Michael Reid
There surely are many more; these are just some that I
have read recently that impressed me.
The Forgotten Continent is actually not a book about
economics per se, but a discussion of failed economic
policies in Latin America - and some that didn't fail - by
The Economist Magazine's Latin American editor.
The Myth of the Rational Voter is in part a discussion of
an in depth study by "Survey of Americans and
Economists On The Economy on the Economy" 1996. In it
Caplan points out the impact of economic irrationality
biases among voters that influence voting:
Anti-market bias
Anti-foreign bias
Make-work bias
Pessimistic bias (We always think things are worse than
they are).
Understanding these four biases and the experiences in
Latin America, in light of the apparent direction of
American politics over both the long term and currently, is
very thought provoking. What we don't know can definitely l
hurt us.
have read recently that impressed me.
The Forgotten Continent is actually not a book about
economics per se, but a discussion of failed economic
policies in Latin America - and some that didn't fail - by
The Economist Magazine's Latin American editor.
The Myth of the Rational Voter is in part a discussion of
an in depth study by "Survey of Americans and
Economists On The Economy on the Economy" 1996. In it
Caplan points out the impact of economic irrationality
biases among voters that influence voting:
Anti-market bias
Anti-foreign bias
Make-work bias
Pessimistic bias (We always think things are worse than
they are).
Understanding these four biases and the experiences in
Latin America, in light of the apparent direction of
American politics over both the long term and currently, is
very thought provoking. What we don't know can definitely l
hurt us.
"Debates about economics these days generally enjoy a climate of bipartisan
asininity. Democrats want to 'rein in' corporations, while Republicans claim to
be 'pro-business.' The problem is that being 'pro-business is hardly the same
thing as being pro-free market, while 'reining-in' corporations breeds precisely
the climate liberals decry as fascistic.
Jonah Goldberg, Liberal Fascism
asininity. Democrats want to 'rein in' corporations, while Republicans claim to
be 'pro-business.' The problem is that being 'pro-business is hardly the same
thing as being pro-free market, while 'reining-in' corporations breeds precisely
the climate liberals decry as fascistic.
Jonah Goldberg, Liberal Fascism
The Economic Challenge
Reading David Kilcullen's The Accidental Guerrilla I was struck by the
complexity of what he was discussing - conducting counterinsurgency
operations in a foreign country. Extrapolating that; since anything done in a
foreign country, or anywhere, has both political and economic implications;
to national and international economics and markets was not a broad leap.
The Middle Ground extremes are, as has been stated, unrestricted
free markets and planned economies. The main challenge to both is
greed and self-interest - at both ends of the spectrum. Those that can, if
markets are unrestrained, will. But in a planned economy those that can
will too. The capitalists will do for themselves, but so will the planners; it's
human nature.
So "free" markets must have controls. On the other hand the
complexity of markets today are such that no planning board can ever hope
to be able to make all the decisions necessary to keep a modern market
model functioning effectively, even if they were to be saints. But this is
nothing new either; the billions of tiny, self-interested decisions made by
business executives of all sizes (including individuals) are the only way to
keep the model viable. That should be intuitive. So, what is the argument?
There are several components of it: ego is a big one; some individuals
just think they know better what needs to be done. But there is also the
greed/power angle where planners and politicians consciously attempt to
influence the model for their friends and constituents. And, of course, the
details of the model may be beyond the capability of the planners and
politicians to fathom, particularly when inter connectivity comes into play.
Add to this motive. Causing the model to run unrestricted is one extreme;
the other is causing the model to serve means other than smooth
operation, specifically social "re-engineering". Middle Ground accepts that
both extremes are not compatible.
That's where politicians - government - comes in, with responsibility to
provide a healthy social environment (including self motivation but also
so-called safety nets) while keeping the model running efficiently. Good
governance requires a balance that is difficult to achieve, and requires
more understanding of the economic model, and more responsibility to
charter than most politicians possess, But this is the basic challenge of
government, and will never be perfect, or more explicitly, will always be
quite imperfect.
The bottom line, however, is that there is no chance of balance without
understanding of the model. That is a greater problem than honesty and
sincerity, and is more subject to positive influence.
Reading David Kilcullen's The Accidental Guerrilla I was struck by the
complexity of what he was discussing - conducting counterinsurgency
operations in a foreign country. Extrapolating that; since anything done in a
foreign country, or anywhere, has both political and economic implications;
to national and international economics and markets was not a broad leap.
The Middle Ground extremes are, as has been stated, unrestricted
free markets and planned economies. The main challenge to both is
greed and self-interest - at both ends of the spectrum. Those that can, if
markets are unrestrained, will. But in a planned economy those that can
will too. The capitalists will do for themselves, but so will the planners; it's
human nature.
So "free" markets must have controls. On the other hand the
complexity of markets today are such that no planning board can ever hope
to be able to make all the decisions necessary to keep a modern market
model functioning effectively, even if they were to be saints. But this is
nothing new either; the billions of tiny, self-interested decisions made by
business executives of all sizes (including individuals) are the only way to
keep the model viable. That should be intuitive. So, what is the argument?
There are several components of it: ego is a big one; some individuals
just think they know better what needs to be done. But there is also the
greed/power angle where planners and politicians consciously attempt to
influence the model for their friends and constituents. And, of course, the
details of the model may be beyond the capability of the planners and
politicians to fathom, particularly when inter connectivity comes into play.
Add to this motive. Causing the model to run unrestricted is one extreme;
the other is causing the model to serve means other than smooth
operation, specifically social "re-engineering". Middle Ground accepts that
both extremes are not compatible.
That's where politicians - government - comes in, with responsibility to
provide a healthy social environment (including self motivation but also
so-called safety nets) while keeping the model running efficiently. Good
governance requires a balance that is difficult to achieve, and requires
more understanding of the economic model, and more responsibility to
charter than most politicians possess, But this is the basic challenge of
government, and will never be perfect, or more explicitly, will always be
quite imperfect.
The bottom line, however, is that there is no chance of balance without
understanding of the model. That is a greater problem than honesty and
sincerity, and is more subject to positive influence.