Tuesday, April 23, 2013

Love the Counterfactual - And - Laissez-nous faire, á moins que vous proposer subvention...

Here's Robert Samuelson making sense in yesterday's Washington Post:
The International Monetary Fund recently held a conference that should concern most people despite its arcane subject — “Rethinking Macro Policy II.” Macroeconomics is the study of the entire economy, as opposed to the examination of individual markets (“microeconomics”). The question is how much “macro” policies can produce and protect prosperity. Before the 2008-09 financial crisis, there was great confidence that they could. Now, with 38 million unemployed in Europe and the United States — and recoveries that are feeble or nonexistent — macroeconomics is in disarray and disrepute.

Well, Hayek did say, a few decades ago:
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

Apparently men, despite all the demonstrating, still don't get it.

Here's more from the article:
Perhaps the anti-economist backlash has gone too far, as George Akerlof, a Nobel Prize-winning economist, argued. The world, he said, avoided a second Great Depression. “We economists have not done a good job explaining that our macro policies worked,” he said. Those policies included: the Fed’s support for panic-stricken financial markets; economic “stimulus” packages; the Troubled Assets Relief Program (TARP); the auto bailout; “stress tests” for banks; international cooperation to augment demand.

My how "they" (policymakers and their economists) love to deploy the counterfactual. That is, without their genius, we would have been hurled into "a second Great Depression." But hey, I love counterfactuals too: That is, if they had let markets work, let excesses be purged, let losses occur where capital was misallocated, let resources flow unobstructed to their most productive uses; our economy would (free-market enthusiasts would presume) be growing at a more reasonable (faster) pace, given the depth of the recession and the record of past expansions.

One more:
Since late 2007, the Fed has pumped more than $2 trillion into the U.S. economy by buying bonds. Economist Allan Meltzer asked: “Why is there such a weak response to such an enormous amount of stimulus, especially monetary stimulus?” The answer, he said, is that the obstacles to faster economic growth are not mainly monetary. Instead, they lie mostly with business decisions to invest and hire; these, he argued, are discouraged by the Obama administration’s policies to raise taxes or, through Obamacare’s mandate to buy health insurance for workers, to increase the cost of hiring.

Well, yeah, intentions notwithstanding, injecting uncertainty---and certainly higher costs---into the labor market has to (has to!) mean less, or substantially slower growing, labor. French businessman M. Le Gendre said it perfectly when asked by his country's finance minister (circa 1680) how the state could be of service to merchants and help promote their commerce: He simply replied: "Laissez-nous faire" ("let us do").

Of course, with regard to the Affordable Care Act, or tax reform, or financial (or any other) industry regulation, or, for that matter, all manner of corporate welfare, there's a whole slew of businessmen beneficiaries who might reply to such a question with: "Laissez-nous faire, á moins que vous proposer subvention" ("let us do, unless you offer subsidy").

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