The 'laws of economics' don't exist … In a world increasingly framed by economic debates, the phrase "the laws of economics" has become ever more prevalent … Referencing "the laws of economics" as a way to refute arguments or criticize ideas has the patina of clarity and certainty. The reality is that referencing such laws is simply another way to justify beliefs and inclinations. I may agree that the war on drugs is flawed, but not because it violates "laws of economics" but rather because it fails in most of its basic goals. The test of whether government spending or central bank easing is good policy should be whether they succeed in ameliorating the problems of stagnant growth and high unemployment, not on what the "laws of economics" erroneously say about certain future outcomes. – Reuters
Dominant Social Theme: Everything is relative.
Free-Market Analysis: It is Austrian economics that underlies much of what passes for the mainstream economic conversation. Austrian free-market economics was always the underlying target of the financial press, even before free-market economics went mainstream following the advent of the Internet.
Austrian free-market economics was always the most important economic discipline, even when it was never mentioned. Like gravity, it bent and distorted the larger conversation. The dividing line between classical and neo-classical economics is marginal utility, which is an Austrian concept, launched some 150 years ago.
The Austrian perspective that human action expressed via marginal utility made central planning impossible so annoyed German economists that they contemptuously branded the group "Austrians" – a nomenclature that was then adopted by its targets as an act of defiance.
British economists went off on their own, as well, developing the algorithm heavy concept of econometrics, also without grappling with the fundamental Austrian point that central planning was not possible because human beings tend to operate in ways that planners could not anticipate.
Creating mathematical terminology to express what had already been debunked years before did nothing to advance the "science" of economics but merely disguised the rottenness of what had been incorporated into its foundational elements.
And now that Austrian economics has burst fully onto the contemporary scene, it dominates the conversation as much as ever, just more overtly. Every time Ben Bernanke speaks or mainstream media debates the efficacy of certain economic policies, the subterranean argument is joined once again: What is the justification for planning and the rationale for putting government price-fixing in place?
And thus we have this Reuters editorial, yet another attempt – one more in millions over the years – trying to devalue the logical idea that there are indeed observable economic rules and that if we respected them, the world would be a far better and more prosperous place. Here's more from the article:
As the U.S. Senate prepares to unveil a new immigration bill, much of the discussion centers on the economics of illegal immigration and the incentives for employers to hire undocumented workers. Said a recent Barron's article: "Immigration policy is a game governed by classic economic rules, especially by Say's Law, which says supply creates its own demand … Whether the new applicants are seeking stoop-labor jobs in California's Central Valley or high-tech jobs in Silicon Valley, the laws of economics dictate the outcome: more immigration." How about the war on drugs? Said one recent analysis: "We're losing the war on drugs because it's a war that defies the laws of economics. We might as well be fighting a war on gravity." And how about what history can tell us about our current policies?
Said one recent review of Amity Shlaes' biography of Calvin Coolidge, which makes the case for Coolidge as an exemplar of responsible economic policy: "Our current political leadership and we who elect them are spending the country into ruin. The laws of man can be bent and broken; the laws of economics can not."
… There's just one slight problem: There are no laws of economics. For sure, many economists and large parts of society believe there are. The high levels of anxiety about deficits and government debt, not just in the United States but throughout the euro zone and much of the world, stem from the belief that if central banks create too much money, it will inevitably lead to inflation. Why? Because the "laws of economics" say the supply of money will cause inflation if overall output stays the same. In the developed world, clearly, there has been an increase in money supply via the Federal Reserve, the Japanese Central Bank and to a lesser extent the European Central Bank, yet growth is minimal everywhere.
While there is no statistically discernible inflation as of yet, the "laws" strongly indicate that there soon will be. Unless, of course, those laws are wrong or simply not "laws." Some, such as Paul Krugman or other equally strong (but less vociferous) believers in the precepts of John Meynard Keynes would say inflation isn't increasing because that's what happens in recessions. When demand is depressed, more money only closes that gap between demand and supply. That, too, depends on a basic "laws of economics," that of supply and demand, which is one of the first precepts students of economics learn and one of the most widely disseminated – if often misunderstood – principles of economics.
Yet even here, the idea that these are ironclad laws breaks down. So much of economics depends on the theory that we are all "rational actors." Yet as behavioral economists such as Daniel Kahneman have shown, we are rarely rational actors. Patterns of individual behavior are very different from what economic laws assume.
You see the amount of labor that goes into explaining that actually NOTHING can be explained. But, in fact, Austrian economics is generally, though not specifically, predictive. There is a good deal of price inflation in the US but the government doesn't record it. And many dollars are trapped in bank coffers and not currently circulating. But history shows that sooner or later when currency is printed it circulates.
The bottom line is that there ARE observable phenomena and that free-market economics does provide a wonderful template through which we can view the world.
We can observe that specific government (and even private) forecasting usually does not work because people's behaviors are unpredictable and always reacting to unforeseen inputs.
We can state emphatically that government rules – laws – imposed by force are "price fixes" that transfer wealth in an inefficient and prosperity-draining way.
We can see that most if not all wars, especially those of aggression, are to a degree created to distract the populace from economic issues and to buttress the position of the ruling class.
We can assert confidently that central banks and monetary policy generally is a chimera and that it can work no better than any other kind of price-fixing, which is to say it will inevitably provide results that are destabilizing and are the opposite of the stated intent.
What works is freedom. The most prosperous societies are inevitably those that leave their citizens alone and allow "human action" to generate a spontaneous market-order in money, property, infrastructure, etc.
There is very little the heavy hand of government and economic bureaucrats can do to improve societal conditions. Almost all of it is counterproductive, and one merely needs to look around the state of the world today to see this is so.
Writing that nothing works and that humans cannot learn from experience and observable phenomenon is an extension of the subterranean debate between those who understand that freedom and free-market thinking DOES work and those who want to obscure this fundamental fact.
Don't be fooled by sophistry, ever re-occurring.