Posted by: rbbadger | January 22, 2009

An economist’s oath

With the new administration in power in Washington, D.C., all sorts of promises are being talked about and the members of the Obama Kirche (Obama Church) are no doubt in thrall to their newly enthroned deity and what he and the government will do for us.  Unfortunately, though, altruism is no more a part of American politics than anywhere else, it seems. 

Henry Hazlitt, a writer on economics for The New York Times once said in his masterful Economics in One Lesson that “the art of economics consists of looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups”. 

Hazlitt was a follower of the Austrian School of Economics.  Austrian economics differs greatly from most of the dominant schools today.  Rather than focusing on statistics, artifically concocted experiments, and sophisticated mathematical models, it focuses on human choices and the logic behind them.  It is suspicious of economic forecasting, given that economics is concerned with human action and human choices which can be highly subjective.  Rather, it advocates laissez-faire economics with a maximum of freedom in economic choices and a minimum of government intervention.  Hazlitt was a close friend of Ludwig von Mises and Friedrich August von Hayek, whose masterful work showed how central banks, such as the Federal Reserve, caused financial crises by keeping interest rates at an artificially low level, thus creating false economic booms that eventually go bust.  (Does any of this sound familiar?  It should.)  It was for this work that von Hayek received the Sveriges Riksbank Prize in the Economic Sciences in Memory of Alfred Nobel in 1974. 

This prize, often referred to as the Nobel Prize in Economics, does confer on its bearers a great deal of prestige.  In his remarks given at the banquet after receiving the prize, he while thanking the Sveriges Riksbank for giving him the prize, spoke of how he would advised against creating the very prize he received.  Economists are treated a bit differently than other scientists, in that the things that they do can have terribly great impact on our world in very personal, financial terms.  Hayek did not fear those who work in the natural sciences from getting an over-inflated ego, seeing that if they exceed their competence, their colleagues will quickly cut them down to size.  But for an economist, one whose audience often consists of laypeople, such as the media, politicians, civil servants, and the public, there is a terrible temptation for laypeople to view a Nobel Laureate in Economics as being competent in everything and capable of having solutions to every social problem.  Even worse, there is the temptation for the laureate to believe it himself.  Hayek said he was almost inclined to suggest that every Nobel Laureate in Economics have to take some sort of oath like that which doctors take, to “first do no harm”. 

Obama and his team have a lot of ideas.  Some of them may be good, others not so.  Hazlitt’s dictum ought to serve as a guide for how public policy and economic policy is done, not only to consider how it may benefit in the here and now, but also for the time long into the future long after all of us are dead and gone.  But I doubt that Obama, much like our nation today, is capable of thinking that far ahead.

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Responses

  1. I guess my biggest worry with Obama is that he’ll socialize everything. But I just pray that he can do some good somewheres.


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