Politicians Don't Grow The Economy

An article from the Wall Street Journal provides evidence which separates facts from fiction.

The popular myth, being that espoused by the mainstream, particularly advocated by politicians, the media, leftwing academics, or self-righteous welfare interest groups or even the Pope, is that governments “manages” the economy.

From Wall Street Journal, (all bold highlights mine)

``We witnessed that rarest of things last week—a politician's public humility. When France, along with Germany, reported an unexpected uptick in economic growth for the second quarter, French Finance Minister Christine Lagarde called the return to growth "very surprising." Imagine that—a major global economy stops shrinking, without the benefit of trillion-dollar stimulus packages or major reforms, and a politician doesn't rush to claim credit for the achievement.

``Politicians don't "grow" an economy like a vegetable garden, and the reasons behind economic growth in the global economy are at least as mysterious to our political class, if not more so, than they are to the rest of us. Ms. Lagarde, who spent decades in the private sector, is perhaps better placed than many politicians to appreciate this fact. A single quarter of 0.3% growth hardly means it's off to the races for France or Germany, and the euro zone's economy as a whole still shrank in the quarter, by 0.1% of GDP.

``But at a time when politicians around the world are desperate for any sign of a turnaround, it's refreshing to hear the minister responsible for France's economy speak the truth about growth. It is the product of literally millions of decisions made by millions of people about what to produce, buy and sell. Politicians can influence all that decision making, especially by increasing or decreasing the incentives to produce, work and innovate. But they can't control today's multi-trillion-dollar economies, no matter how much they'd like to take credit for doing so when things start looking better.

``France did pass a modest stimulus package earlier in the year, and it has joined the cash-for-clunkers craze that has swept the Western world. But France and Germany were among the countries in Europe that resisted Treasury Secretary Tim Geithner's imprecations to join the U.S. on the megastimulus bus, and on present evidence this fiscal restraint does not appear to be hurting their chances for recovery.”

Here's my take...

The fundamental reason why governments CANNOT manage an economy is because economies are vastly too diverse and too complex- from which are driven by the continuous changes in the human mind adapting to the rapidly evolving conditions or circumstances- to be accurately predicted or modeled which are the requisites of control or management.

Mario Rizzo on predictions, (emphasis added) ``This is because there are many radically unpredictable (in the lay sense) elements in human decisionmaking.

``One important argument in this regard was made by Sir Karl Popper in The Poverty of Historicism (also endorsed by economists George Shackle and Ludwig Lachmann). Adapting the argument for our current purposes:

``1. The course of economic events is strongly influenced by changes in the contents of the human mind that is, the future course of knowledge. This includes what we would call knowledge of the external world and of ourselves.

``2. We cannot predict, by rational or scientific methods, the future course of knowledge (in the sense of reasonable conjectures that we will have in the future or even in the sense of our moods – animal spirits).

``3. This is because if we could predict future knowledge it would not be future, but present. No one believes that we know now everything we will know in the future.

``4. Therefore, we cannot predict the future course of economic events.”

Hence, economic progress will always emanate from the entrepreneurs, because entrepreneurs operate on local [specialized and detailed] knowledge and values that allows for the coordination of the fulfillment of the needs and wants of a society through the marketplace.

As Ludwig von Mises wrote ``The vehicle of economic progress is the accumulation of additional capital goods by means of saving and improvement in technological methods of production the execution of which is almost always conditioned by the availability of new capital. The agents of progress are the promoting entrepreneurs, intent upon profiting by means of adjusting the conduct of affairs to the best possible satisfaction of the consumers. In the performance of their projects for the realization of progress they are bound to share the benefits derived from progress with the workers and also with a part of the capitalists and landowners and to increase the portion allotted to these people step by step until their own share melts away entirely."

Swine Flu: Mostly A Media Fuss

I was supposed to write something about the seeming fear mongering by media on the swine flu, but the Associated Press beat me to the punch.

Here is an excerpt (all emphasis mine)...

``The so-far mild swine flu outbreak has many people saying all the talk about a devastating global epidemic was just fear-mongering hype. But that's not how public health officials see it, calling complacency the thing that keeps them up at night.

``The World Health Organization added a scary-sounding warning Thursday, predicting up to 2 billion people could catch the new flu if the outbreak turns into a global epidemic.

``Many blame such alarms and the breathless media coverage for creating an overreaction that disrupted many people's lives.

``Schools shut down, idling even healthy kids and forcing parents to stay home from work; colleges scaled back or even canceled graduation ceremonies; a big Cinco de Mayo celebration in Chicago was canned; face masks and hand sanitizers sold out — all because of an outbreak that seems no worse than a mild flu season.

``"I don't know anyone who has it. I haven't met anyone who knows anyone who contracted it," said Carl Shepherd, a suburban Chicago video producer and father of two. "It's really frightening more people than it should have. It's like crying wolf."

``Two weeks after news broke about the new flu strain, there have been 46 deaths — 44 in Mexico and two in the United States. More than 2,300 are sick in 26 countries, including about 900 U.S. cases. Those are much lower numbers than were feared at the start based on early reports of an aggressive and deadly flu in Mexico.

``Miranda Smith, whose graduation ceremony at Cisco Junior College in central Texas was canceled to avoid spreading the flu, blames the media.

``"It's been totally overblown," she said Thursday.

Well speaking of "overblown" and "breathless media coverage" Pew Research shows of how the epidemic scare has eclipsed all other topics.
According to Pew Research, ``Yet all those stories were overwhelmed by the frantic coverage of a new flu virus that in a matter of days had made its way around the globe and was threatening to become the first influenza pandemic in four decades. From April 27-May 3, the swine flu, or H1N1 as it officially became known, accounted for nearly one-third of the newshole (31%) studied, according to the Pew Research Center's Project for Excellence in Journalism."

It is understandable for media to revolve around sensationalist news simply because its fundamental incentive is to generate more audiences. And when fear or panic is in the air, the public gropes for information to which media obliges.

But for governments, aside from the "social service" function, the unstated incentives may vary from expanding government control, desire to increased access to funding, or cronyism as discussed in Swine Flu: The Black Swan That Wasn’t and Swine Flu: The Politics of Fear and Control.


Yet according to Gallup, Americans appear nearly evenly split between those who say that media coverage of the swine flu had been exaggerated and those who say media coverage was just right.

But I don't think this will last.

The subdued impact from the swine flu infestation has reduced fear as shown by the Gallup survey above. Note that at the peak only 25% of those surveyed said they were personally worried by the Flu which means 75% were not. Now only 17% are concerned, which implies 83% aren't.

This suggests that, despite the intensive media coverage, the American public hasn't been cowed into panic. This further implies that media has indeed overhyped its coverage of the swine flu.

This declining trend of swine flu scare has likewise been apparent in Google's search trends. Thus eventually I expect more converts to the exaggerated camp for as long as the spread of the disease do not worsen.

Lastly, congratulations to world boxing legend Manny Pacquiao not only for a stunning triumph in his latest quest for glory but also for defying authorities who had been trying to curtail his civil liberty from a vastly inflated health scare.

Swine Flu: The Politics of Fear and Control

The swine flu "hysteria" continues to hug the headlines where the latest Bloomberg report says,

``Swine flu, also known as H1N1, has been confirmed by laboratory tests in 1,516 patients in 22 countries, according to the WHO. Mexico has reported 942 cases, including 29 deaths, while the U.S. has 403 cases and two deaths, officials in those countries said. Canada has 165 cases."

Hysteria because fear foisted upon by media, politicians and experts has spurred irrational reactions. For instance, we read with incredulity that some of Tokyo's hospitals have reportedly refused or turned away patients exhibiting flu-like symptoms.

According to the Japan Times, ``An increasing number of patients running a fever have been rejected by Tokyo hospitals that fear they may have swine flu even though the risk of their being infected is minimal, the metropolitan government said Tuesday.

``The number of cases in which hospitals refused medical examinations for such patients totaled 92 from Saturday morning to Tuesday noon, a survey by the metropolitan government found.

``"We want hospitals to respond calmly even if they fear that patients infected with the new flu may appear or that other patients will get infected," a Tokyo official said." Those inflicted by Flu have effectively become castes.

And yet we have experts compounding these sentiments by associating flu epidemics to economic depression.

Take for instance this op-ed from Wall Street Journal by Robert Barro and Jose Ursua (emphasis added),

``Our ongoing study of economic disasters for 36 countries since 1870 suggests that this concern is well founded. In this sample, we have isolated 158 depressions -- defined as declines in a country's real per capita gross domestic product (GDP) by at least 10%. The most prominent features of these depressions are wars and financial crises. But the fourth-worst global macroeconomic event since 1870 seems to be the Great Influenza Epidemic of 1918-20. This "health shock" accounts for 13 of the depression events. In contrast, World War II is associated with 25, World War I with 23, and the Great Depression of the early 1930s with 21.

``The Great Influenza Epidemic (aka the Spanish Flu) began in spring 1918, went through three or four waves, and lasted into 1920. The spread of the disease was propelled by international travel, much of which involved troop movements in 1918 because of World War I. Estimates of world-wide flu deaths cover a wide range but are typically around 50 million.

``We have, thus far, compiled estimates of excess deaths from the flu in 1918-20 for 32 of our 36 countries. The median excess mortality rate was 0.7 per 1,000 people, with a range from 0.1 for Argentina to 4.4 for India and South Africa. (The mean rate was 1.1 per 1,000.) Spain, forever associated with the flu, had a mortality rate of 1.2 per thousand, well above the median. The United States, at 0.65, was close to the median (there were 675,000 American deaths). When applied to today's U.S. population, this rate would translate into two million fatalities....

``The troughs in macroeconomic activity that we associate with the Great Influenza Epidemic were typically in 1920 or 1921. Not all of our 36 countries showed economic declines in this period. But on average the fall in real per capita GDP from the previous peak in 1918 (or sometimes 1919 or 1920) was 6.6%. (For the 24 countries with data, the average decrease in real consumer spending per person was similar to that for real per capita GDP.) Notable declines in GDP among the 13 depression cases were Canada and South Africa at 24% and Italy at 22%. For the U.S. from 1918 to 1921, the falls in per capita GDP and consumer spending by 12% and 14%, respectively, meant that this contraction was second in size since 1870 only to the Great Depression."

The problem with looking at history is that it may be seen from a one dimensional lens.

This isn't 1918. Today's economic climate is far different from the Great Depression.

While travel and troop movements may have been accounted for as the aggravating circumstances for the spread of the disease, this hasn't been sufficient.

On the other hand, Prof. William Anderson asserts that government policies then exacerbated the pandemic. He writes (all bold highlights mine),

``Most people don’t remember 1918 as the year the flu pandemic began; they remember it as the year that World War I ended. This was the "War to End All Wars," or so it was called, when a more appropriate title might have been the "War to Permanently Expand the State." More than 10 million soldiers died on the battlefields of Europe and millions of civilians died deaths of starvation or were killed in the crossfire.

``Since war is a tool of the state, we safely and honestly can say that the calamities of World War I were state-created. Unfortunately, people did not just die from bullets, artillery shells, bombs, and even starvation. Across the globe, the war resulted in vast swaths of malnourishment as crops were diverted from civilian populations to the huge armies strung across Europe. At the same time, once-productive croplands in Europe were reduced to moonscapes as the armies obliterated the land.

``But governments were not satisfied with the sheer amount of physical and human destruction. Indeed, the government made things worse through lies, and nowhere was that more apparent that the lies told by state agents in order to "prevent panic" from the onrushing flu epidemic. As Wikipedia points out:

"The Great Influenza was the source of much fear in citizens around the world. Further inflaming that fear was the fact that governments and health officials were downplaying the influenza. While the panic from World War I was dwindling, governments attempted to keep morale up by spreading lies and dismissing the influenza. On September 11, 1918, Washington officials reported that the Spanish Influenza had arrived in the city. The following day, roughly thirteen million men across the country lined up to register for the war draft, providing the influenza with an efficient way to spread. However, the influenza had little impact upon institutions and organizations. While medical scientists did rapidly attempt to discover a cure or vaccine, there were virtually no changes in the government or corporations. Additionally, the political and military events were fairly unaffected due to the impartiality of the disease, which affected both sides alike".

``Exacerbating the crisis in this country was the crowding of American troops onto ships following the war’s end, which was guaranteed to spread the sickness and help it spread when the soldiers reached the USA. On the home front, huge war bond rallies in large cities brought people into very close proximity with each other, allowing the flu to spread rapidly. On one end, the government helped to create the conditions that spread the flu; on the other hand, agents representing the state lied about those conditions.

``By the war’s end, Germany was near starvation (and many people did starve to death during the British blockade that lasted well into 1919), and about a half-million civilians succumbed to the sickness in that country. It is estimated that 16 million people in India died of the pandemic.

``Yet, when it raises the prospect of a repeat of this very horror, governments engage in more lies. We forget that life expectancy in the United States was in the mid-50s for white males and less than 50 for black men. In countries elsewhere, and especially in Asia and Africa, life expectancy was much shorter. Medical care at that time was primitive compared to what we have today, even in poor countries, and it was not uncommon in that era for people to be exposed to epidemics that pretty much have disappeared today.

``Even with those odds, the mortality rate during the 1918–1920 pandemic was estimated at between 2.5 and 5 percent. We can be assured today that not only would fewer people become sick, but even fewer people would die. In other words, even at its worst, the current outbreak of Swine Flu, while bad, is not going to turn into a pandemic no matter what CNN and the CDC try to tell us."

In short, the swine flu seems to be more about the politics of government control than of the health hazard itself.

Professor Anderson concludes, ``I doubt seriously that any plan by government can or will lessen the impact of this current "epidemic," if we can call it that. However, I also have no doubt that if emergency plans are kicked into place, it will be much easier for the government to call for further states of emergency, with the threshold becoming lower and lower. That we should fear much more than the Swine Flu."