Monday, April 06, 2009

Why Government Should Avoid Purpose in the Economy

This is perhaps the single most important essay on the nature of the economy and on economics I have ever read. It explains why government needs to stay out of the economy and why it definitely should not try to set up any sort of goals for industries (as though the practical reason that in doing so, the companies in question get run into the ground -- like GM and Chrysler -- weren't enough).

And if you want to know what actually happened to cause this current depression we're entering, you must read this article. Among the insights, they point out how the government masked the upcoming problem with the way they miscalculated inflation.

Both articles together should give the reader pause when it comes to what our government is doing at the present time.

Also, Harvey Mansfield argues that economists should be more careful with their predictions -- since economic predictions don't work, especially when it comes to big things like the situation we're in now. In the end Mansfield is only parroting what Hayek warned about as far back as the 1930's. Of course, if people had listened to Hayek, we wouldn't need Mansfield to parrot him now. Of course, this also relates to the first article.

The bottom line: accurate calculation, planning, and prediction are impossible, meaning good intentions cannot be matched with good outcomes in any sort of rational way. Chaos theory shows us that we have to have every single element exactly right to get the models to match reality. Bios theory shows us that creativity is even less predictable than is chaos. And Wolfram shows us that if you let a system run, you will find out sooner how it will turn out than if you try to model it mathematically. Isn't it time we applied these insights to political economy (also known as "macroeconomics"?)

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