A few weeks ago I was engaged in an online debate with a gentleman who objected to my advocacy for Universidad Francisco Marroquin in Guatemala. Specifically, he didn’t like their focus on Austrian economics. The issue that the anonymous blogger took umbrage with was his assertion that “they don’t use math.” I’ve heard this complaint before – many times; mostly from the planners (Keynesians, communists, etc.) They are all under the impression that we can “model” our way to prosperity – if only we had all the information and did the math right. That chalkboards full of formulas will, if drawn correctly, make national economies grow: the birds will sing, the tides will recede, the trees will grow bread and milk and honey will flow from the rocks.
For them it’s all about the math.
In a past life – I spent a year dissecting the Bolivarian Alliance of the Americas; a regional socialist economic and political alliance among five radical left-leaning countries in Latin America; led of course by Venezuela and Cuba. I was writing the conclusive book on this topic (conclusive because the Alliance withered away when it ran out of stolen money to redistribute – so nobody will ever write a book about it now, unless it’s an obituary. But who would bother?). Part of my book was a chapter or two on their economic model which they called 21st Century Socialism. Basically, the short description (you can read the whole section in my book if you’re interested) is what I like to call quantum socialism (darn, I should have coined that phrase in my book – I would have made a million dollars. Oh, right – profit is bad. Darnit again.). The “economist” (using that term loosely) who came up with this idea is Heinz Dieterich – a professor at the National University of Mexico (or, for those of us who know, Commie Central). His assertion was that – given the great advances of computational power (provided to a grateful public by the free market – don’t tell Heinz) – we can finally make the labor theory of value work. The supercomputers now have the power in real time to carry out the fractionalization of the man hours necessary to produce everything, spitting out the conclusive, “real” value of an item at any stage of the productive process. Through computers, we can now aggregate enough information that we can finally make communism work.
Our savior, at long last, will be a huge online spreadsheet.
Dieterich advised Hugo Chavez, who was excited about this theory – and, well, we all know how that went. Heinz claims they didn’t do it right (I think I’ve heard that before).
Now, I like to think of myself as an amateur Austrian. Amateur because I really don’t know anything about economics. In my defense, at least I admit that – unlike our elected leaders and their warlock advisors – yes, I’m referring to Krugman – who wear their ignorance with pride as all planners must, lest their doubt reveal the holes in their grand spreadsheets, after which the entire edifice of arrogance would come crashing down, leaving us with no cereal for our morning breakfast. And Austrian, referring to the school of economics that begins with a single philosophy: individual liberty. The free market traditions that underpin all successful economies – ideas we got from Adam Smith and that were perfected by Mises, Hayek, Rothbard, Hazlitt, Ayn Rand (not an economist but our greatest advocate of individual liberty), Friedman (also not an Austrian but definitely a free marketer) – among so many others. Some still alive today, people like Pedro Schwartz (who once took down Krugman – it was epic).
Hayek once said, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Even Thomas Picketty – the guru of redistributionism – said, “Economists tend to think they are much, much smarter than historians, than everybody. And this is a bit too much because at the end of the day, we don’t know very much in economics.” That’s a remarkable admission for somebody who wants to take all your money.
Back to my blogger detractor; I’m an Austrian because I believe in the fundamentals of individual liberty – of man’s instinct for trying to make the right decisions for himself – and that the aggregate of these decisions, if left uncoerced, will lead to a better economic environment not only for him but for others. What Ayn Rand called “rational self-interest” which leads to more generalized prosperity because the economists aren’t then required to “know” everything – instead trusting that the instincts which are part of human nature will lead to greater prosperity for the collective. And isn’t that what the planners say they want too?
For the detractors (there are many) who say that man does not always act in their own self-interest; of course I know this – I’m not naïve (well not entirely). My response to them: the mistakes of one person in a large complex system like our national economy is infinitesimally less damaging than the mistake of one of the planners in charge of an entire segment of national production; and if it goes wrong for the individual, he will starve. The planner will just get reassigned (this is called Moral Hazard – google it). And yes, of course, there’s plenty of room for math. Modeling is important, studying supply and demand and micro and macro-economic principles and all the equations and formulas that we all learn in our economics classes (yes, I took the classes. No, I still have no clue how to do any of the math).
But it all must start with an idea – the right idea; lest in our attempts at planning we inadvertently starve our people, which has happened too often in the past and continues today.