Archive for February 19th, 2010

Why is Economics Produced?

Dave keeps pointing out that race determines economics. True. I will discuss that more later. But right-on it is a good point of departure to show another example of the fact that, like futurology and history, economics is an institution, and just as futurology has nothing to do with the future and history has only a nodding acquaintance with what actually happened, economics is not produced to reflect reality.

When I was a professional economist I saw studies that studied correlations between economic growth and everything. You would think that economic growth and investment would be perfectly linked. Like all correlations this one was not perfect either.

Why was this information produced? Why did economists try to find these correlations? Obviously for prescriptive purposes. If investment corresponds to growth, one could begin to say that in order to get growth one only needed to increase investment.

What was not discussed was the single clear correlation: wealth and skin color. I brought this up in the big weekly seminar at the University of Virginia to which all professors and grad students went once a week. Even in 1964 they refused to discuss it, not because it wasn’t obvious, but because it WAS obvious.

Back then, economic GROWTH was everything in economics. Liberals insisted that the “centrally planned economies, the Reds, were growing at astronomic rates. This demonstrated that socialism was the way the third world, the “developing economies,” would catch up with the West.

A quarter of a century later, both the developing economies and the centrally planned economies were at least as far behind as they had been in 1964.

In fact, the only well-known writer who predicted the economics of the coming forty years was George Orwell in his novel 1984, which came out in the late 1940s. In the society he described, everyone was destitute, but every year it was announced that the Plan had been fulfilled, growth was phenomenal, and “spontaneous” demonstrations broke out in the streets.

And every year even the Party members got poorer and poorer, the “proles” got even more abject. That was what happened in the “centrally planned” economies for the forty years after the book was published. On paper Outer Mongolia and Bulgaria double their output every few years..

If you don’t have a market economy your economy can double monthly on paper. Why would that information be produced in such countries? Because if you DIDN’T overfill every Plan on paper, you lost your job.

Or more.

In the “developing” world, anybody handling paper who didn’t show huge growth could simply disappear. So the necessary information was produced.

You cannot understand economics by looking for The Truth or some kind of Conspiracy or some kind of Bias. People look at economics as reality with a bias. In fact, the “bias” you are talking about is the real reason the field is studied in the first place.

If they had started with that, forty years of complete nonsense data produced by two-thirds of the world would have been seen for what it was and we could have had an “economics” that was useful.