… is from page 441 of my late Nobel-laureate colleague Jim Buchanan’s June 20th, 2010, lecture in Richmond, VA, “Chicago School Thinking: Old and New,” as the draft of this talk is published, for the first time, in The Soul of Classical Political Economy: James M. Buchanan from the Archives (2020) (edited by Peter J. Boettke and Alain Marciano); in part of this talk Buchanan recalls his graduate-student days at the University of Chicago in the late 1940s:
But we were not, at Chicago, affected by the Harvard-MIT syndrome that led us to proceed as if we were called to be advisers to politicians. Jacob Viner, who left Chicago one term after I arrived, had famously said that the task of economists was to expose fallacies in the arguments of politicians rather than to offer positive advice.
DBx: Viner (pictured here) was correct. He remains correct. And because politicians are an endless source of fallacies, sound economists’ have a full-time job by sticking to this task.
…..
The sound economist understands much better than do most non-economists – and even better than many persons trained in economics – just how unfathomably complex is the modern economy.
The economy looks relatively simple to the untrained eye. We have statistics on artifactual aggregates such as GDP, industrial output, unemployment rates, industrial-concentration ratios, Gini coefficients, annual spending on health care, U.S. merchandise exports and imports, and on and on and on. These statistics give the impression of being records of a reality far more concrete and objective than it really is. (Who decided, for example, what outputs count as “industrial” and which do not? Who decided how to define an industry? Who decided what is and is not to be classified as “merchandise”?)
Statistics such as these – however useful they are (and they often are very useful) – combine with the market’s astonishingly smooth operation to create the false impression that economic reality is much simpler than it really is. The literally trillions of daily adjustments made around the world in light of local knowledge of details are not seen. Yet these adjustments are necessary if the economy is to continue to produce and make widely available items as ‘simple’ as pairs of socks, electrification, and loaves of bread.
Those who propose industrial policy are either ignorant of, or they recklessly ignore the reality of, the need for these trillions of daily, decentralized adjustments to be made – adjustments that are possible only if individuals with local knowledge are both free to make these adjustments, and have incentives to make them in a manner that is productive for the larger economy.
One of the most profoundly important lessons of economics is this ironic one: Only by giving individuals such freedom to make decentralized economic decisions as each deems best, within a system of private property rights and competitively set prices, will the economy perform well for society as a whole. Attempts to consciously, centrally arrange for the economy to perform well for society as a whole – attempts that necessarily suppress the freedom of individuals to make local decisions – result in the economy performing poorly for society as a whole.
Also ignorant of the the unfathomable complexity of the modern economy are those who are not much troubled by Covid-19 lockdowns and other suppressions of economic activity. The economy is not an engine that can be stopped or slowed, and then, at will, started or revved up again. The government doesn’t “run” the economy. And liquidity from central banks, or fiscal “stimulus” from treasury departments, is not really “fuel” for the economy. People in power and with influence who think in this way, by failing to grasp the (I have no better term) unfathomable complexity of the modern economy, pose a far greater danger to the public than is posed by any physical pathogen such as the coronavirus.
