The chairman of the George Mason Econ department has gone back to re-read the classic works of Hayek and Keynes from the 30s and 40s, and reflection on the writings of the two top economists of the last 100 years has inspired some killer op-eds in the popular press.
From the Daily Record, March 21, 2009:
Keynesian economists also fail to understand what the great Austrian economist F.A. Hayek understood; namely, that markets allocate resources by relative prices. For example, suppose consumers’ taste for fish intensifies while their taste for beef weakens. Consumers will then spend more money buying fish and less buying beef. The resulting higher price of fish relative to the price of beef will signal to entrepreneurs, investors and resource owners to produce more fish and to produce less beef. This change in production patterns is precisely what should happen.
Specialized beef producers, though, aren’t so keen on this little piece of economic change. Some workers in the beef industry will lose their jobs.
Would it be a sound economic diagnosis to attribute these job losses to a reduction in total consumer demand? Of course not. Would it be sound economic policy for government to save those jobs by entering the beef market and buying more beef? Of course not, for to do so would divert scarce resources from other uses more valuable to consumers.
Now suppose that an unusual amount of such economic changes take place at one time. The result will be, and should be, that an unusual amount of economic displacement takes place in the short-run as an unusually large number of workers adjust to the new pattern of consumer demands.
Keynesians, however, misread such events as evidence that total demand is too low and prescribe higher government spending. Politicians, ever eager to justify meddling further into the economy, jump on this Keynesian bandwagon. The result is that the normal corrective adjustments in the market are thwarted and government’s power over the private economy grows dangerously.
From the Tribune-Review, March 18, 2009:
Oil exploration and refining, tire manufacturing, steel production, auto-parts making and retailing, automobile insuring, road-building — these are only some of the many industries whose existence is promoted by, and whose existence promotes, automobile manufacturing. Yet no one designed, or even foresaw, this outcome. No one designed how all the many industries’ efforts are coordinated with each other. This outcome evolved into its modern-day pattern through billions upon billions of individual decisions, some bigger than others, but none larger than a tiny part of the total number of decisions that combined with each other to make automobile driving an unremarkable reality in the early 21st century.
Stupendous coordination of millions of individual plans and talents emerged spontaneously — and not only in the automobile industry. The entire economy is a testament to such spontaneous coordination.
The single greatest fact about capitalist society is that the great bulk of it appears to be the handiwork of a master designer but, in fact, is unplanned and even unimaginable before it becomes real and familiar.
Remember this lesson whenever you hear alleged “experts” insisting that only conscious effort by government to “stimulate” demand can save the economy from its current downturn.
Read the whole thing. This is truly exceptional popular writing.