Mr. Fixit

By Jeff Harding

I am on my high horse right now. Refreshed after a week off I come back to an economic mess. And I’m angry. I like to think that I’m an optimist. That attitude has been difficult to maintain with the news out of Washington. Nouriel Roubini claims he’s not “Dr. Doom,” just a realist, so I would like to claim the same title. But …

Here is my problem: if one looks at the totality of what is happening on the domestic political front, it amounts to the greatest grab of power by the executive branch in the history of the American republic. Everything the Obama Administration is doing on the domestic side is wrong and getting worse. I believe that is not good for America. And by that, I mean it’s not good for you or me.

Forget the massive spending. Forget the greatest expansion of the money supply by the Fed. Forget the new regulations that will stifle initiative in an attempt to impose “stability” on us. Forget the caving in to special interests such as unions. Forget the bailout of companies that should go bankrupt. Forget the nationalization of the health care industry.

There is something worse. That something is the ascendancy of the technocrat, whom I shall call “Mr. Fixit.”

I don’t mean to diminish the importance of the above “forgets” because they are very significant issues that will have long-term negative impacts on all of us. But the triumph of the technocrat is the “something” that has allowed the “forgets” to happen, and there is a reason for it. It has to do with philosophy, or, if you will, ideas.

Mr. Fixit is the modern version of the New Deal idealist socialist technocrat and we are giving him greater power than ever.

Mr. Fixit is not a leftist fringe idealist: he is the mainstream.

Until we can defeat the current philosophy, we will continue to lose our freedom and prosperity.

I hear all the time that I should confine my commentary to facts and current events because readers don’t want all the philosophy crap. But how do you know if the stuff I’m feeding is not crap? (Assuming you don’t already believe that it is crap.) There has to be a way to spot, if not the truth, then at least the crap. It isn’t just plain common sense.

Here’s the philosophy part: how do you know what you know? To be more precise: how do you know if the methodology used by current economics is a valid way of achieving the goals of their economic policy? Econometrics is the current mainstream of economic thought and it is not just a methodology, it’s also a philosophy.

Econometricians believe that if you look at history (data) you can come up with truths about what happened historically and, based on that history, what will happen in the future.The only problem is that philosophy doesn’t work very well. How many econometricians, or any contemporary economist for that matter, saw the crash? You know the answer to that one.

Why doesn’t their philosophy work very well?

Because the “economy” is not some amorphous aggregate that can be measured with any precision. It is instead a word to describe the decisions made by millions of individuals every day. I am not an aggregate; I am an individual. You just can’t fathom the reasons for all these decisions as if human beings were molecules of matter subject to the rules of physics. There is just too much data, even with supercomputers with yottabits of storage (10²⁴). So, when econometricians select certain historical data, they have no clue as to whether or not they’ve got the right data. They are guessing.

If you can understand that, then you are way ahead of most economist who believe in things like the classic Keynesian formula that never works.

The Austrian School economists figured this out. They pioneered breakthroughs in epistemology (the science of how you know what you know) of the social sciences. Men like Ludwig von Mises and Friedrich von Hayek developed these ideas from the ground breaking work of their Austrian economist predecessors such as Menger, Böhm-Bawerk, and others. They were intellectual giants. The Einsteins of economic theory, if you will. Yes, their ideas are that important.

Their concept is that in order to explore the jumble of data you must first start with a good theory in order to interpret it. There are guidelines (reason and logic) for developing theories. If your theory is crap, your data will be crap. If your theory is valid from the get-go, your data will be more valid because you know where to look. But, you can only paint with a big brush when it comes to predicting human behavior. All predictions break down when it comes down to my decision of what I am going to do tomorrow. That’s just the way it is.

Enter Mr. Fixit, stage left. He is the new technocrat armed with the certain knowledge that he has the answers for us. If you increase the money supply by X, then Y will happen. If you drop interest rates by Z points, then W will happen. If you have auto sales falling off, just fix it with “cash for clunkers.” If you have too much bank debt, just fix it with Fed purchases. If banks fail because they made bad investments, just fix it by flooding them with taxpayer cash. If home sales are lagging, just fix it with lower interest rates. If no one is lending, just fix it with the Fed as the lender of last resort. Just fix it!

The irony of it all is that none of these fixes is really working. The reason is because their theories are crap which renders their remedies as crap. It’s just a series of jury-rigged policies that will harm the economy in the future.

Ben Bernanke is the classic Mr. Fixit. He actually believes that in his role as Fed Chairman he can control the economy. He is a product of those famous schools of econometrics, Harvard and MIT. It was Ben who said at Milton Friedman’s 90th birthday:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna [Schwartz, co-author of A Monetary History of the US]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.

Mr. Fixit is now worried, if not scared, of what is happening. It doesn’t look like his fixes are working.

I did write an article recently on Bernanke’s apparent realization that econometrics as a science may not be working (Bernanke: A Stunning Revelation). He appears to be quoting Hayek on epistemology. While he may be aware that all is not well on his intellectual planet, I believe he is too late and he has too big of a stake in current policy to switch now.

What to do?

It is a crisis. We all need to try and change the world.

I would appreciate it if you would send this article link to as many people as you can. (Click on the share/save icon, below.)

I would appreciate it if you would tune into the Mises Institute and read up on Austrian theory.

I would appreciate it if you would send this article and Hayek’s Nobel Prize acceptance speech (on this topic) to anyone studying economics or involved in investments or banking.

I urge you to write letters to editors protesting junk economics.

I urge you to fund free market based organizations, such as the Mises Institute, the Cato Institute, the Reason Foundation, and the Competitive Enterprise Institute.

We must do something.

I feel much better now.