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© 2007 Daniel J. McLaughlin
Tested By Time
George Akerlof is a Nobel laureate in economics. He has a Phd and is a professor at the University of California at Berkley. He is obviously a very smart man. As a former president of the American Economic Association, he has had a significant long term influence on the profession of economics. He is quoted by the New York Times as saying “I am trying to effect a return to sensible economics. And what is sensible economics? It is very pragmatic. You think about problems in the world and you ask: can government do something about that?”
He is resting on the assumption that actions taken by government have implications for society, a fact which is all too true. His belief is that people in government can and will do the right thing, and that the right thing is known and can be agreed upon.
The bulk of modern economics has to do with the use of government policy to manipulate markets so they behave in ways that are best for you and me. And who are the ones who know what is best for you and me better than we do? Of course it is Akerlof and his elite set of intellectual brethren.
Dr. Akerlof and many other very smart and influential professionals want to bring attention to the “failings” of laissez-faire economics, which is the belief that markets and societies perform best when free from government intervention. They believe that government is the answer to all of the problems of society. That sentiment is not unique to Dr. Akerlof. It has been around for a very long time and is held by thousands of modern economists, particularly those attached to the government.
There are two major errors in their analysis. One is the obviously false and disastrous belief that politicians and bureaucrats always do what is right and what is best for the people. The other is the failure to recognize that the markets they criticize are not and have not been truly free for a long time. The problems that he observes now arise directly from the fact that our government regularly intervenes in all markets, both in overt and in subtle and insidious ways. For most Americans, their lives are impinged upon by government every single day in some way, either directly or indirectly.
Frederic Bastiat, a French economic writer of the mid 1800’s, wrote about Dr. Akerlof around 150 years ago. He didn’t call him by name, but rather described his actions and the results they gave. In his words, “Between a good and a bad economist this constitutes the whole difference - the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favorable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, - at the risk of a small present evil.”
The problem with politics, and economists that support political means, is that the present and the seen is all that is important to them. The unseen and future negative effects can be dealt with by someone else. The sorry fact is that we are, today, dealing with the negative effects of irresponsible politicians and economists from yesterday and last year and decades ago. The most serious problems which haunt our society now are a legacy of programs instigated by bad economists and politicians long ago.
American central planners cannot possibly know what is good for 300 million Americans, any more than the Soviet central planners could know what was good for all of their citizens. All of those people come from different backgrounds, live in different geographic areas, and have different beliefs, needs and goals. The very act of politicians imposing their will on everyone takes away each individual’s liberty and right to choose what is good for himself or herself. To the extent that they have been successful, they have chipped away at freedom of choice, the very foundation of this nation and the cause of its rapid rise from less developed country to beacon of the world.
The “sensible” economics that Akerlof wishes to return to has been tested by time, and has repeatedly failed the test miserably.
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Daniel Mclaughlin
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