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Thursday, 19 November 2015

Production vs Everything Else

I am not an economist – no apologies. Quantum Mechanics takes us well out of the range of common sense. In QM the equations work but nobody understands Quantum Mechanics – nobody! When it comes to Economics, we have to understand the theory because we have to make economic policy. Shall I take out this mortgage? The repayment is £1000 per month and my income is £1000 per month. Logic informs me that this is not going to work. What am I going to eat?
Every human on the planet understands that unless I increase my income, I cannot commit myself to a £1000 per month mortgage.

Regrettably, when we move into public policy (as opposed to personal policy) common sense flies out of the window. The most famous economist of the 20th century (JMK) has taught politicians (no-one else would have been stupid enough to listen) that deficit spending is OK – as a long term policy. All of us understand that an emergency loan may be necessary. All of us know that debt as a way of life leads to disaster. We are all more intelligent than Keynes and governments.

All of us know that the answer is to increase production. Get a better job, improve your skills or work longer hours. Billions of people do this every day.

All human beings are smarter than Keynes. It is true; but most of us live in societies governed by Keynesians.

The First World War (an incomparable disaster and folly) was foisted upon the people of Europe by idiotic politicians. Millions died. The consequences included WWII and the Soviet Union. For all our vaunted democracies, we were taken into a catastrophe none of us wanted.

The biggest division between right and left is: shall we increase production or shall we concern ourselves with equitable distribution? The good news is that since 1970 production has increased dramatically. A huge number of people (more than ever in history) have been raised out of desperate poverty. Some governments (China, India and many countries in Asia) have reduced regulation and have enabled their peoples to exploit their talents, thereby vastly increasing production, in the process enriching themselves and providing work for their countrymen. The leftist preoccupation with distribution has been shown to be absurd. We know how to defeat poverty – by increasing wealth. To defeat disease, increase health. What would the left recommend, redistribute health?

Economics is not normative. It doesn’t tell you what you should do. It only tells you what will happen if you act in a certain way. The central question is: and then what will happen? My favourite economists, the Austrian School, believe that the answers to this question do not depend upon collecting vast amounts of data and distilling from the data a set of laws. The Austrians do economics the way mathematicians do geometry. Mathematicians do not measure the angles of an equilateral triangle and then announce that each of them is equal to 60o. They may demonstrate the validity of their conclusions by inviting you to confirm them by measurement. You can waste the next thousand years trying to disprove them; but it isn’t going to happen. Geometrical truths are axiomatic. For Austrians, economic truths are likewise axiomatic. Therefore, all other things being equal, if supply increases, prices will fall – axiomatic!
Production is the key. A poor farmer knows this: if he produces more, his children will be better fed. He may increase production by working harder, by using fertilisers or by investing in a donkey – or better still, a tractor.

Mrs Thatcher was our greatest Prime Minister of the twentieth century. She brought to politics the common sense of a housewife, of a grocer's daughter.

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