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Posts Tagged ‘macroeconomics’

Progressives and the Origins of the Economic “Consensus” | Mises Wire

Posted by M. C. on June 11, 2020

The London School of Economics (LSE) played a crucial role in the shaping of modern academia. A little-known fact about the LSE is that the institution was largely built and supported by the Fabian Society, a socialist institute founded in 1884. In fact, Beatrice and Sidney Webb, two of the founders of the Fabian Society, were also the founders of the LSE.

In other words, the American Economic Association would sooner elect a Soviet sympathizer president than an Austrian economist.

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There was a time when free market economists were some of the most highly praised intellectuals in the modern world. In the early twentieth century, Austrian economics was understood for what it truly is: a social science based on praxeology and human action. But from the mid-1900s through the 2000s, society replaced their appreciation for the Viennese method with a false claim that Austrian economics was an ideological, archaic pseudoscience used to justify libertarian and conservative ideas. And although the mainstream throws Chicagoan and even Austrian economists a bone from time to time, most academics have drifted toward the modern monetary theory (MMT) or some form of Keynesianism. But in order to understand why the mainstream is the way it is, we must first understand how the economic consensus came to be.

Origins of the Economic “Consensus”

The London School of Economics (LSE) played a crucial role in the shaping of modern academia. A little-known fact about the LSE is that the institution was largely built and supported by the Fabian Society, a socialist institute founded in 1884. In fact, Beatrice and Sidney Webb, two of the founders of the Fabian Society, were also the founders of the LSE.

In the Fabian Society’s infancy, it often constituted a small, tight-knit group of intellectuals who met to discuss Marxist ideas. But as the Fabian Society expanded to include the London School of Economics and the New Statesman magazine, its influence on economics underwent a sort of metamorphosis. The LSE’s reputation began to grow and few ever questioned its stances. To this day, the rapid spread of Keynesianism is largely a product of the London School of Economics and its ideologically similar neighbor, the University of Cambridge. John Maynard Keynes, after all, was an alumni of Cambridge and made notable contributions to institutions near and far, such as the LSE and the International Monetary Fund (IMF) Bretton Woods system. The circulation of socialist and Keynesian philosophies between neighboring British institutions created a pseudo-intellectual echo chamber, in which the same ideas were debated over and over again among the same academics.

However, there was a major problem with Keynesianism. Many believed that the theories of demand-side economics sounded just and noble, but they were rarely backed by empirical evidence. Therefore, most schools of economics decided to abandon Keynes’s specific prescription of demand-side economics for a broader form of policy interventionism.

Paving the Way for Modern Macroeconomics

Thus, we turn from John Maynard Keynes and the Fabian Society to other significant influencers who paved the way for modern macroeconomics. The American Economic Association (AEA), one of the leading publishers of economic literature, was founded by politically progressive intellectuals such as Richard T. Ely, an activist and professor who advocated for greater government oversight and the implementation of desirable social policies. Based on his work, Ely’s views can best be summarized as moderately redistributive and highly interventionist. One of his books contains a chapter entitled “Taxation of Incomes,” in which he states the following:

It has already been stated…that all men of means should contribute to the support of government in proportion to their ability….It is universally, or almost universally, admitted that no [other] tax [than the income tax] is so just….[T]he income tax, unlike license charges, does not make it more difficult for a poor man to begin business or to continue business. Its social effects, on the contrary, are beneficial, because it places a heavy load only on strong shoulders.

Richard T. Ely was not the only interventionist who helped establish the AEA. Katharine Coman, a progressive activist who was highly critical of capitalism, also played a major role in forming the organization. Additionally, in appointing Alvin Hanson, one of the most influential Keynesians, to its presidency in 1922, the AEA is partly responsible for the rise of Keynesianism in America. To the American Economic Association’s credit, they have given similar positions to free market economists such as Herbert Joseph Davenport and Frank Fetter. But the bigger picture here is the AEA’s clear intent to draw an equivalency between Austrian intellectuals and progressive ideologues—as if the two were morally and intellectually comparable.

In later years, the American Economic Association would attempt to distance itself from the Austrian school altogether. The last time an Austrian economist was elected president was in 1966, with the appointment of Fritz Machlup. To put this into perspective, Jacob Marschak, an economist who worked with the Menshevist International Caucus, was scheduled to be appointed to the presidency in 1978. In other words, the American Economic Association would sooner elect a Soviet sympathizer president than an Austrian economist.

All in all, the impact of the anti-Austrian and, to some extent, the anti-Chicagoan biases of mainstream academia can be traced back to various instances of famous institutions either backing progressive thought leaders or dismissing certain kinds of economic methodology that fail to fit the interventionist narrative.

The Flaws of Mainstream Economics

Much of our understanding of mainstream economics is derived from econometrics—the use of mathematical modeling to predict economic outcomes. It is arguably true that econometrics is the reason why economics as a field is suffering from an identity crisis. On the one hand, economics deals with human behavior and is therefore a social science. On the other, econometrics and similar methods of study result in a field that resembles mathematics and cold calculation rather than behavioral science or the study of human action.

It should be no surprise that econometrics has become quite popular in the mainstream. After all, the aforementioned Jacob Marschak was one of the fathers of econometrics and made an undeniable impact on universities such as Yale and UCLA before catching the attention of the American Economic Association. Since its inception, econometrics has become a sort of “industry standard” for mainstream academics. However, the fatal flaw of econometrics lies in its failure to understand praxeology. In the words of Frank Shostak in his 2002 article entitled “What is Wrong with Econometrics?”:

There are no constant standards for measuring the minds, the values, and the ideas of men. Valuation is the means by which a conscious purposeful individual assesses the given facts of reality.

As for the Keynesian and post-Keynesian schools, far too much can be said about their flaws. Little empirical evidence exists that stimulus packages are particularly effective, and the idea that Say’s law ought to be completely discarded for a demand-driven approach to the economy is nonsensical. Henry Hazlitt’s The Failure of the “New Economics” provides a full perspective on the shortcomings of Keynesianism.

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CD19 & Political Correctness – LewRockwell

Posted by M. C. on May 5, 2020


Suppose there were a deadly virus that disproportionately attacked Jewish people, akin to Tay-Sachs disease, but was contagious via the air through sneezing, or via direct human to human touch, or indirectly, via cardboard or metal. What would the proper procedure be to reduce its spread? Would it be to quarantine everyone, given that this sickness affected virtually only members of the Jewish faith? Of course not; it would be to isolate and protect Jews alone.

Suppose there were another virus that disproportionately attacked black people, similar to sickle cell anemia, with the same characteristics. Again, the policy to limit the spread of this disease would be to isolate, for their own benefit, African-Americans and only them.

If this were the case, thank God it is not, there would be cries to the heavens about Anti-Semitism, or anti-black racism. Would our society support the implementation of this partial isolation strategy? Probably not, given the power that the scourge of political correctness now enjoys.

Ditto for a communicable malady that could only or disproportionately afflict women (breast cancer) or men (erectile dis-function). The way to stop this would be again to isolate the victims, not virtually everyone.  Charges of sexism would abound, particularly if females were the ones dis-accommodated by seclusion.

Why does it make sense to approach these issues from the point of microeconomics, focusing, only, on the victims, and not macroeconomics, taking virtually everyone out of circulation? That is because there is more than one way to die, and if the labor force is almost entirely depleted, starvation, death by exposure, will ensue. We want to minimize total unnecessary deaths, not only those that emanate from Covid-19.

These are of course made up examples. But there is a real one out there: the corona virus. It disproportionately attacks the elderly.

The evidence in this regard is stark. In South Korea, for example, the recent death rate on the part of those afflicted with this dread disease aged 80 and over was 10.4%, and for those in their 70s, 5.35%. It was a mere 1.51% for patients 60 to 69, and 0.37% for the 50-somethings. Those 29 and younger registered no deaths whatsoever.

A similar result ensued in China. Eighty-plus: a death rate of 18% of patients; 70-79: 9/8%; 60-69: 4.6%, 50-59: 1.3%, 40-49: .4%, 30-39: .19%, 20-29: .09%, 10-19: .02%, and 0-9, less than .01%. An unknown percentage of fatalities from the corona virus was attributed to patients with weakened immune systems due to heart conditions, diabetes, emphysema, asthma and other such afflictions.

Young people, with a cut off point of 60 years old, are almost guaranteed not to perish if they contract the corona virus at least in small doses, assuming they have no such other medical difficulties. If they are allowed out of isolation, and contract the disease, the better for the overall human race at very little risk to themselves, herd immunity and all that.

But no. This antidote will be summarily dismissed by the forces of political correctness on the ground of, wait for it, ageism! It would appear that the social justice warriors place a higher value on their “principles” than on life itself.

The sooner the rest of us awake from our doldrums, and become willing to engage in a bit of medically required age discrimination, the soon the threat of this horrid infectious will be wrestled to the ground.

I abstract from the normative question of whether compulsory quarantines are required, or justified, and focus, only, on the positive question of which is the policy most likely to reduce deaths, other things equal. If this phenomenon afflicted farmyard animals, the rancher would certainly implement this strategy.




China, Kora, Spain, Italy

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