Column on the Amorality of Macroeconomics

The Amorality of Macroeconomics

Tibor R. Machan

In a surprisingly sensible essay in The New York Times,
on Sunday October 17, 2010, David Segal gives a pretty good explanation
of why macroeconomics is so unsuccessful.  It’s human nature, stupid.
 People just aren’t predictable–will they do this or that when provided
with easy money from the government?  Is soaking the rich really a good
idea–suppose they would do much more good with their money than would
government?  Do the poor really deserve a break in tax policy or are
some quite irresponsible and thus not good candidates for giving them
tax breaks?

As
Segal concludes his piece, “But the economy is a hugely complex
problem.  So we either simplify the problem and offer a solution, or
embrace the complexity and do nothing.”  Yes indeed, and it is the
second alternative that makes the best sense.  Why?  

Because
while “we”–which is to say, governments–may do nothing, that is by no
means the end of the story.  While governments do nothing, the rest of
us may very well do a great deal.  Indeed, it is probably in large
measure because the government does nothing that most of us do
something, something with the funds the government does not extort from
us.  If we can keep those funds, they will not usually be put under our
mattresses but spent on various projects that we want to get done and
which then will create jobs that are actually achieving something that
is wanted by people instead of the allegedly “shovel ready” jobs no one
needs and government merely invents (like all that road work in my
neighborhood that involves repairing what does not by any reasonable
assessment require being repaired).

One
thing that Mr. Segal’s essay brings to light is just how unprincipled
is much of macroeconomic theory, the type that fancies itself capable of
managing a country’s economy. In one of his passages Segal relates
Harvard econ professor N. Gregory Mankiw’s thought experiment from his
book
Principles of Economics (Thomson/South-Western,
2004), in which “a town must maintain a well. Peter, who earns
$100,000, is taxed $10,000, or 10 percent of his income, while Paula,
who earns $20,000, hands over $4,000, or 20 per cent of her income.”
Never mind that being taxed isn’t exactly “handing over” a portion of
one’s income (although such language does show just how thoughtless is a
lot of macroeconomic thinking).  Notice, instead, that in the thought
experiment, which is, all in all, a pretty realistic one, it is taken as
given that the town must maintain a well.  

But
towns are not people.  They are not even corporations–they are
populated by people, some of whom may not want or need a well at all,
some of whom do, and some of whom may find a well useful up to a point,
after which they might elect to pay for water brought in from somewhere
else.  The kind of thinking that treats the people of the town as some
kind of beehive or ant colony is way off.  

A
town–and, of course, a country like the USA which the government
macro-economists embark upon managing–is made up of a lot of very
different individuals, with very different goals, abilities, virtues and
vices, and so forth, and to lump them together is utterly misguided and
must produce bad policies. And once the economic issues are treated not
as those faced by towns but by various individual human beings in the
various groupings of their own choice, the situation presents itself
quite differently. For one, ethics enters the picture.  And in nearly
any ethical code human beings have identified as guidelines to how they
ought to conduct themselves, it is unacceptable to confiscate funds from
Peter and use it to support Paula unless the two of them reach an
agreement to enter some such arrangement.  It is not to be dictated from
above, as is macroeconomic policy, with no regard for the niceties of
ethics or morality. (Which is what’s so bad about centrally planned
economies.)

One
reason the human race has come up with certain general ethical
principles–contained in, for example, Aristotle’s list of virtues, the
Ten Commandments, Kant’s categorical imperative, or the various school
of morality–is that these are thought to be sound clues to what kind of
actions people may take and what they ought to avoid taking.  Not
everyone will follow the advice but it is no surprise that if they do
not, mayhem is produced.  

And
that is just what happens in interventionist macroeconomic policy.  So
not doing anything–given the real complexity of human affairs and the
broad ethical guidelines that actually prohibit doing what
macro-economists propose doing–is a good alternative to simplistic
meddling.

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