Statists often like to couch their arguments in economics.  By appealing to elegant graphs, equations, and mathematics, the statist can appear both sophisticated and scientific.  The façade of objectivity is thereby maintained when the economist suggests that net social utility can be increased if the government intervenes into the market.  The layman trusts physicists and engineers when they describe the mechanics of the world, so it might seem just as reasonable at first to trust the economist when he speaks of human action and the allocation of resources.  However, mathematical equations have no meaningful role in good economics, and their primary use is in obfuscating the agenda of statists.  Scientific socialism may be dead, but scientific statism is alive and thriving.

When statists use economics to support government interventions into the free market, they use terms like “efficiency,” “externalities,” and “market failure.” One must first understand how these terms are used in order to see through the statists’ arguments.  A general overview of economics, and the difference between good economists and bad economists, is thus needed.

Let us first invent a magical stopwatch.  When we press this stopwatch, time stops.  However, time only stops in the sense that we do not age and our desires do not change; we can still act and trade.  Now picture that at any given time, we press this stopwatch and all assemble in a magical room.  In this magical room, we bring everything that we produce for trade, and there ensues a huge auction.  Now, when the auction ends, and everyone has traded everything to others that will be traded, we press another button on our stopwatch.  This makes the auction happen all over again, but this time people can decide to produce different things, though their desires still stay the same.  Finally, we give this imaginary fantasy world an utterly confusing and wholly nondescriptive title, “the evenly rotating economy.”

Economists love the evenly rotating economy (ERE) because one can clearly determine what will happen in it.  Given that the people in the ERE have unchanging value scales and that the auction process has occurred enough times, every product in the market is produced at the point where supply equals demand.  Furthermore, no one will enjoy any profits, because if there were any then other people would produce that object until the price was sufficiently lowered to allow for no profits.  The economist will generally point to the allocation of resources under the ERE as the efficient outcome.

The “efficient” outcome of the ERE is held as the goal of the market, and anything that makes the market deviate from this goal is called a “market failure.”  For example, if anyone obtains profits, it means that the efficient outcome has not been reached.  Monopolies are the primary target of such reasoning and are often accused of preventing the efficient outcome. 

Bad economists use the above logic in judging economic systems.  Good economists recognize that the evenly rotating economy is an imaginary fantasyland that is only good for thought experiments.  In the real world, of course, things change.  People’s desires change, and the environment changes.  The ERE concept of efficiency is therefore completely inapplicable in real life. 

Bad economists view the market as a machine that is supposed to distribute resources in a preapproved manner.  When this does not occur, the market has failed, and the government must intervene to set it straight.  Good economists, on the other hand, view the economy simply as the realm of human action.  Along with the bad economist’s use of a mythical efficient outcome is the idea of externalities in justifying intervention.  An externality supposedly occurs when one individual does not pay the full price of an action.  If I buy a Slayer album, for example, and this causes Tipper Gore much distress and pain, an externality is said to have occurred.  I must be made to pay extra for the album (or at the least suffer from a parental advisory sticker).

Bad economists pretend throughout all of their analysis that human happiness can be measured.  Good economists recognize the fundamental truth that preference can only be revealed through action.  Subsequently, externalities can only be defined arbitrarily by the economist, since they have no counterpart in real human action.  If their premise is accepted, then one can justify any intervention merely by specifying whatever externality one wants.

Finally, there is the use of mathematics.  Good economists rely upon axiomatic truths of human nature to verbally express the laws of economics.  The science is highly logical and deductive.  Bad economists, on the other hand, solve differential equations and suggest that their answers are just as valid as an engineer’s analysis of an electrical circuit.  The bad economist applies calculus to the evenly rotating economy (since only here do value scales remain constant) and claims that the result is meaningful.  Good economists, and in fact just about every sensible human on the planet, know that human activity and happiness cannot be expressed as a mathematical equation.  

May 1, 2002