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Economists for Sale

Mises Daily: Thursday, October 12, 2000 by

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A mathematician and an economist were asked, "What is the sum of two plus two?" The mathematician immediately answered, "It is four."

The economist, on the other hand, closed all windows and doors and asked quietly, "What do you want it to be?"

Just when we think this story is simply another silly economist joke, reality sets in.

The latest outrage from the Profession that Gave Us John Maynard Keynes, John Kenneth Galbraith, and Paul Samuelson is in the form of a story in The Economist.

According to the recent article, 91 economists who have served as referees for American Economic Review said that (1) most of Al Gore’s economic plans are average at best, (2) most of George W. Bush’s economic proposals are below average, and (3) they "would jump at the chance of a policy job in Washington" working either for Gore or Bush, although the majority prefers Gore.

What is outrageous about the latest revelation from the "cream" of this august profession is not that they support Gore over Bush. Neither candidate, in my opinion, has articulated an economic plan that subordinates the state to private enterprise, although Bush does seem to be on somewhat more solid ground.

No, the outrage is that economists are still mired in the Keynesian claptrap of aggregates, and have no idea why private property is essential to the success of an economy. In the minds of most of the Gang of 91, the "market socialism" paradigm of Oskar Lange really is superior to the operations of private markets. Private property is something that just stands in the way of the state conferring its largess upon us.

About 15 percent believe that Bill Clinton and Al Gore have given us prosperity, although they don’t articulate exactly what they have done to bring us such good fortune. Nearly 60 percent believe that Alan Greenspan is responsible for "the economy’s success," although they would probably be hard put to explain why this is so.

Nevertheless, the majority of economists are convinced that tax cuts are a bad thing because it would probably keep the government from having a "responsible fiscal policy." While they concede that Bush’s plan is "much better than Mr. Gore’s for promoting economic efficiency," about three-fourths of those polled said that Gore’s plan is more "fair."

This is a breathtaking position to take. Actually, taxes never do promote "economic efficiency." They always reduce efficiency as Murray Rothbard and Ludwig von Mises have so eloquently demonstrated. Second, the economists fail to point out (or maybe they don’t understand) that taxes are a confiscation of private property.

Their "fairness" point is that Bush’s tax plan is not progressive enough. However, the prospect of steep, progressive income taxes also violates the assumption by economists that income is payment for productive services that have been rendered by individuals. The two positions cannot be reconciled. If one receives income for offering productive services, then confiscating that income will result in that individual offering fewer productive services in the future.

At the same time, if income is simply "distributed" in an unfair way, then one cannot speak of income as payment for services rendered. At that point, confiscation of income in any form would have no negative economic consequences whatsoever. In other words, if "fairness" is the key to a good tax plan, as the economists seem to think, then "efficiency" does not matter at all. Since the majority of those polled also said that the income tax should be replaced by a more "efficient" consumption tax – which is a regressive tax that hurts low-income people more than it does high-income earners – it is clear that the economists are so muddled in their thinking as to render any suggestions they may make nearly useless.

While the article did not mention Gore’s energy policy, let me add that since the economists believe the Veep to be generally sound in his economic thinking, they must not be objecting very much to his schemes. Yet, for those of us who have actually listened to Gore in his speeches and read his energy positions, what the man recommends is nothing short of disastrous.

First, many of his proposals are a rehash of the failed policies of the Jimmy Carter Administration. People who enjoyed sitting in gas lines and enduring cold homes during the winters will also appreciate what Gore wants to do. The rest of us who might have something better to do, however, do not want one of his energy and environmental ideas to become law. Apparently, the Gang of 91 believes that price controls and government allocation of crude oil products will promote efficiency.

Second, Gore and his economist allies fail to understand that without real private property, an economy will descend into chaos. Since these folks are recognized as being at the "top of the profession," however, I suppose they believe that they can substitute their wisdom for the "invisible hand" of private enterprise.

I could go on, but I think the readers understand my point. Mainstream economics, if the Gang of 91 is any indication, has simply become intellectually and morally bankrupt. As a doctrine, such economic analysis has not become only useless, but it has actually can do us real harm. While Rothbard, Mises, and other Austrian economists fail the mainstream "market test," at least they can actually explain economic phenomena. The Economist may not be polling the Austrians, but maybe that is exactly what they should be doing.