By Chet Yarbrough
How An Economy Grows And Why It Crashes
By Peter D Schiff, Andrew J Schiff
By Richard Heinberg
Narrated by Paul Boehmer
Both of these publications are popular audiobook versions that remind one of “Chicken Little”, the 1943 animated film. The sky is falling according to the Schiffs because economists do not know what they are doing when tinkering with economic policy.The Schiffs create an apocryphal tale of economic growth to simplify
everyone’s understanding of economics. The “fish tale” they create is summarized at the end of each chapter with real world opinions about various real people–like John Maynard Keynes, Franklin Roosevelt, Alan Greenspan, Ronald Reagan, Henry Paulson, George W. Bush, Ben Bernanke, Barrack Obama; etc. Their tale suggests all of these men fail to understand the “truth” about what makes an economy grow and why it crashes. Putting aside the fact that neither of these authors are economists and neither have policy responsibilities like the people they criticize; one takes their opinion with reservation.
To begin with, the Schiffs infer that Keynes was only an academic economist. That is false. Keynes began his career as an academic but became deeply involved in the day-to-day policy decisions of Great Britain before, and during WWII. Unlike, academic theoreticians of Austrian economics, Keynes dealt with real world crisis in formulating economic policy. One might be critical of his formulation but unlike the
Austrian’ academics of his time he was knee-deep in the causes and consequences of economic policy in the real world. Roosevelt, Greenspan, Paulson, Bush, and Bernanke held responsibility for a nation while the Schiffs were responsible for what?—themselves and a hundred, a thousand, a few thousand people.
The Schiffs view economics through the prism of unbridled capitalism without regard to human consequence. Their fundamental argument is that government interferes rather than protects fair play in capitalist countries. Without using the words “trickle-down economics”, the Schiffs believe everyone benefits from capitalism.
One has to agree that government does interfere with capitalism but not always to the detriment of its citizens. Human beings are flawed. They are both good and evil because money, power, and prestige are motive forces in all humanity. Whether one is a business person or a government leader, he/she is motivated by human nature and, as a consequence, makes good and bad decisions. The Schiff tale of fishes infers that business capitalists always know best because they make decisions based on freedom of choice and market forces. The Schiffs infer that if capitalists make good choices everyone prospers; if they make bad choices they go out of business—they argue capitalist freedom is a win, win proposition.
Yes, just like Bernie Madoff who sits in jail while thousands of bilked investors lost their savings because they believed in Madoff’s capitalist vision—shame on those dumb investors. The Schiffs are right, Madoff is out of business.
One wonders, how many bankers, brokers, mortgage moguls, and investors in the 2000-2007 years ripped off the public with worthless mortgage-backed securities because of a lack of government oversight. Yes, Fannie Mae and Freddie Mac were nefarious participants in the crises of 2008 but how many “quants” were hired by government subsidized mortgage lenders and private businesses like Bank of America, Lehman Brothers, Merrill Lynch, JPMorganChase Bank, Goldman Sachs and others?
The fly in the Schiffs’ soup is that weak government regulation of capitalism leads to economic crises. Business people took advantage of lack-of-regulation during the Clinton/Bush administrations because they were seduced by money (greed), power (CEO influence), and prestige (institutional reputation). Government is partly intended to mitigate harm to the general public just as Thomas Hobbes outlined in the 1651 publication of “Leviathan”.
The Schiffs are correct–bad government regulation impairs capitalism but no government regulation releases capitalist immorality. Human beings are flawed; complete freedom is anarchy.
The Schiffs tale is too simplistic. Economic policy holds an elusive answer to a moral balance between capitalist regulation and freedom. Keynes, Paulson, and Bernanke have not found the answer but they are in the hunt while the Schiffs of the world observe and gripe, “The sky is falling”.
Richard Heinberg is another Chicken Little that forecasts a dismal future. Because energy alternatives to oil are not being discovered or produced fast enough to continue world economic growth Heinberg believes world economies are at “The End of Growth”. Heinberg argues that the world will run out of energy; that world ecology will be destroyed by fossil fuels, and humankind will die from starvation because of over population. Heinberg argues that a kind of social engineering is required to save the world. Heinberg suggests small communities need to emulate some of the tenants of communism by joining in community groups that return to the land to support a philosophy of zero economic growth and self-preservation.
Heinberg believes capital should only be used to insure public welfare through public works like replacement of private transportation with public transit. Heinberg suggests that trade should return to barter based on human need rather than capitalist free choice, and that all governments should abandon economic growth as a measure of national wealth.
Magically, Heinberg believes a reorientation of nation-state’ understanding of national wealth, will stabilize population growth and reduce the depletion of natural resources. Heinberg infers human nature will change–maybe, but not because of a belief that economic growth is no longer necessary.
Human nature will change but it will be through technological invention. Human nature will change but it will happen over centuries of adaptation to a changing environment. Human nature is already showing signs of change with the advent of computers and increased human reliance on machines rather than memory to recall histories’ lessons; lessons that instruct the future.
As logical thinkers know, saying something does not make it so. Heinberg recounts many environmental facts about today but stands on infirm ground when predicting the future. This is not to say that calamities will not continue to occur—natural disasters, man-made disasters, famine, natural resource depletion, pollution, et al will continue to plague society.
Freedom of choice is the source of humankind’s magic. Freedom is desired by all people of the world even though many fear it. (Freedom is feared because of its inherent quality of personal responsibility.) As freedom grows, which is genetically ingrained in humankind, science and technology will expand. History suggests science will come to civilizations’ rescue.