Quote of the Day: On the Denial of Economics: Reality is not Optiional

Economics has the same ontological status as physics --- reality is not optional --- but the "laws" of economics are derived following different epistemological procedures. This is really nothing more, or less, than what Aristotle taught about methods of analysis being chosen based on appropriateness. Economics is about human action in the face of scarcity. Human purposes and plans permeate the analysis from start to finish. When economics gets derailed --- and folks it often does due to factors such as philosophical fads and fashions, or political expediency in public policy debates --- usually the culprit is one of 3 things: (1) a denial of agent rationality, (2) a denial of scarcity, and (3) a denial of how the price system works to help us cope with scracity by aiding us in the negotion of the trade-offs we all must face. This denial can come in sophisticated form --- e.g., Keynes --- or it can come in an unsophisticated form --- e.g., man on the street. But make no mistake about it, the denial has the same impact on the "laws" of economics as the denial of the "laws" of physics would by a man about to jump off the top of building would on the inevitable impact. All his denials will not mean much when he hits the pavement.

This is from Professor Peter Boettke at the Coordination Problem Blog defending what real economics is all about.

Quote of the Day: Economic Calculation

Without private ownership in the means of production, there will not be a market in the means of production. Without a market for the means of production, there will not be monetary prices established on the market (which reflect the exchange ratios, or relative trade-offs people are wiling to make). And, without monetary prices, reflecting the relative scarcities of different goods and services, there will be no way for economic decision-makers to engage in rational economic calculation. Rational economic calculation is impossible in a world without private-property rights and the monetary prices that emerge within the competitive market process. By definition, socialism eliminates the basis of the market economy, i.e., private property in the means of production; the system must find some other mechanism to serve the role that economic calculation plays in the market process. Without the ability to engage in rational economic calculation, economic decision-makers will be stumbling and bumbling in the dark. As Mises puts it, without economic calculation, "all production by lengthy and roundabout processes would be so many steps in the dark”

This is from Professor Peter Boettke’s wonderful book review of Professor Ludwig von Mises’ classic Socialism at the Laissez Faire Books

Quote of the Day: Keynesian Nostrum

Keynesianism is not a panacea because Keynesianism has dominated public policy making for half a century and has left us in such a state of public debt. Keynesianism broke the old time fiscal religion of balanced budgets and fiscal responsibility, and changed not only attitudes of economists and policy makers, but also eroded whatever institutional constraints existed on public spending that had existed. Keynesianism cannot work to solve our current problems because Keynesianism is responsible for our current problems. Keynesianism provided an illusion of short term prosperity, but the reality of long term stagnation. Of course, the revealing of the illusion can be put off, as I have pointed out before, if there is the discovery of new opportunities for gains from trade, and/or gains from innovation.

But the governmental habit of spending is still there and the bill has to be paid as some point. Keynesianism is a disease on the body politic because it caters to the natural propensity of politicians to focus on short run, and to concentrate benefits and disperse costs.

That’s from Professor Pete Boettke.

Keynesianism has functioned as the intellectual pillar of the 20th century welfare-warfare based political economy. Yet in applying Keynesian prescriptions to Keynesian generated predicaments would tantamount to “doing things over and over again and expecting different results”. Albert Einstein, who was attributed with the quote, call this insanity. However, modern politicians and their allies seem to know only one option thereby insisting on the same route which brought us to our present conditions.