I’ve been recently doing a deep dive into the Austrian School with one of my classes. We’ve talked in-depth about one of the central problems of Keynesian theories: The notion that economics is a hard science -like chemistry or physics- where you can always predict the outcome based on certain hard and fast rules, formulas, and calculations. That is, so long as you produce the right input of data and/or policies.
The central problem with this idea is that economics is, at its core, a study of the choices individuals make when it comes to the production, distribution, and consumption of goods. The word economy is literally derived from the Greek word “oikos” which means household, and the the Greek word “nomos”, which means law or custom. Economics starts, therefore, with the ordering of household customs.
Consequently, central planning is doomed to failure as it is impossible to accurately weigh all the variables necessary to ensure the most flourishing outcome for an entire population. The bigger the population, the more impossible such a feat becomes. If anyone of us jumps off the Empire State building, the results will be the same no matter who we are. Gravity is a fact of hard science. The same cannot be said of depositing $100,000 into the bank accounts of as few as 25 people, let alone 300 million! The results will vary quite widely.
All of this is a lead up to a very old episode of the Phil Donahue Show from 1979 or 1980, featuring the Nobel Prize-winning economist, Milton Friedman. I had my students watch this today, as we rapidly approach the end of the school year. The coherent and articulate expression of the principles we have been taught was actually quite fascinating to them, and they enjoyed immensely to my relief, as I was slightly concerned that a 1980 television talk show, with its dull lighting, and people actually listening to one another, might bore them. It didn’t! I’m posting that interview here because I think it’s worth sharing.
Reading in Between the Life... 
I believe it was von Mises that noted “man acts”, and that throws a monkey wrench into all of those econometric calculations. That’s why the rosy predictions from the Obama and Biden (and Trump, really) economic incentive/boost programs weren’t even close.
Good to see you’re having fun with economics. My big objection to the libertarian schools is that they seem to downplay the reality of public goods and people out there who really do want to hurt us. They’re right that government is a dangerous servant to deploy against the dangers of government, of course, but I don’t know how much better we can do.
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Friedman would argue (and I 100% agree) that when the dust settles, government intervention ends up helping the multinationals who don’t mind hurting us, and makes it easier for them to do so. He clearly articulates that in his ideal world there are larger numbers of smaller companies, but that government actually subsidizes the opposite of that.
My personal take is that he right. If the “people who want to hurt us” IS the government (see 2020), I would argue that we certainly COULD do much better. Adam Smith’s invisible hand is always at work.
If you and I are both building widgets, and my cheaper widgets are crap, but yours are excellently made, the market will bear that out, even if I make a bit more money at the start by charging .50 less per widget. It won;t be long before the consumers figure out that your widget is MORE than worth the extra .50
The problem is that every time something goes wrong or someone squeals loudly, we invite the government to “do something!” and the long term consequences almost always reveal the prescription was 10 times more deadly than the disease.
I think if you listen carefully also, you will hear that Friedman isn’t against governmental action. He says so on more than one occasion. The question is HOW they act. And most often, they act in way that are irrational when applied to economic realities.
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Bravo for getting students interested in economics! I was a college progressive who began noticing how often intervention created worse problems, and subsequently moved more into the libertarian camp economically. It helped that libertarian analysis often helped me understand issues that effected things I was concerned about as a progressive – like the effect of inflation on working people’s ability to live.
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@ smellincoffee:
Thanks for weighing in. In my youth, I too was fairly progressive (LOL). What I learned is that when I stopped allowing emotional appeals and sentimental demagoguery to cloud out common sense and the clear, unmistakable lessons of history (not to mention the cold hard facts!), most of what progressivism offers is far afield of anything even remotely approaching a helpful solution.
I hope my students are able to appreciate that we can help the less fortunate without necessarily dragging everyone down in the process.
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