The Blindness of Macro-Economics; C.R. LaDow

CHARLES R. LADow T THERE IS a charming little allegory of Hans Christian Anderson which fits very well the efforts of macro economists and others who have directed public policy in recent years. In The Emperor's N e~u Clothes, a group of self-styled magic weavers undertook to weave clothes for the emperor which would make him invisible. When the invisible clothes were finished, they went through the motions of dressing the ruler and he strolled out among .his subjects to check the result. Like any "silent major ity," the people were loath to speak out questioning their government. However, one little child broke the spell by crying: "The emperor is naked!" Like the emperor's new clothes, the impressive weaving of our political economists has had a denuding effect on the exchequer. The childlike simplicity of indi vidualism is called for to show them up. Mr. LaDow, of San Diego, recently retired as a teacher of social studies in high school.

No less charming was a talk of William James to teachers and students: "On a Certain Blindness in Human Beings." James demon strated, including an example of his own lack of perception, how impossible it is to plumb another individual's motives (what makes him tick). Let anyone who ques tions the universality of this blindness read this essay in Wil liam James' little book: Talks to Teachers. Indeed, macro-econo mists are aware of this short coming in their trade. They are commonly fond of proclaiming their modesty by suggesting: "Let the political philosophers tell us what kind of an economy they want and we will produce the model." However, this shrugging of responsibility provides us with an empty alternative when most of our political philosophers are, themselves, tied u~ in analytical generalities which ignore the re alities of individual existence. Somehow, classes, races, sexes, 643 644 THE FREEMAN November and other kinds of groups are all that remain within the brackets of their consideration. The indi vidual exception is filtered out something with which they are un prepared to deal. Since each of us is an individual exception, by defi nition as well as in reality, these macro-sociologists are poorly equipped to manage the realities of human existence.

Not Even Governments Can Long flout Public Opinion While man is a gregarious ani mal whose very existence depends upon political organization, the viability of any political organiza tion is dependent upon the volun tary support of its individual members. There have never been enough jails and concentration camps in any tyrannous state to hold all its dissidents. Custom is the accretion of individual com promises found necessary to essen tially different beings in order to survive living together. (Current violence in our society is a warn ing.) Law can be successful only when it complements such long standing customs and adopts new rules only when they are clearly in accord with a previous develop ment of custom. In other words, effective reform can come about only from within society, by the voluntary consent of individuals, and cannot be successfullybrought about by government decree, or the judgment of a court.

A case in point is the current hiatus in improved race relations in this nation. Following World War II, one could see remarkable voluntary improvement in race re lations; but massive government intervention has precipitated strife and has hopelessly muddled its progress, splintering what might have become a genuine con sensus. There is scarcely a facet of our governments' recent opera tions which does not bear this onus. "Giving government back to the people" is more than a politi cal slogan. It is a practical neces sity if we wish to avert social chaos. Since the overriding bugaboo of our ruling macro-economists has been unemployment, it is incum bent upon us to show how its evils may be avoided. They have seen nothing better to do than to pro liferate publicly funded programs to ameliorate the unemployment which their unwise policies cre ated in the first place. By granting monopoly rights to the minority of unionized labor and raising mini mum pay laws, they have disem ployed marginal workers and taxed the consumer with higher prices, which fall hardest on the poor.

Escalation of public relief has created a real option of unemploy ment to many who might other1974 THE BLINDNESS OF' MACRO-ECONOMICS 645 wise find employment. Even in a period of rising unemployment, many positions stand unfilled. These policies must revert to the free, competitive market before we can achieve full employment. Figures on unemployment are nleaningless in the current mix created by public policy. No consideration appears to be given to the tru th that, while many individuals are unemployed, by choice or necessity, just as many individuals are over-employed. The wartime necessity of "moonlight ing" has become a family habit for many. To pay increasing taxes and meet family goals, working wives have become the rule rather than the exception, while the hiring of household help, once a haven for the unskilled, is outside the budget of most of the middle class. Work ing wives and husbands must face household chores when they get home. Whole industries have risen catering to the do-it-yourselfer.

While plumbers, painters, and carpenters are claiming outrage ous pri<;es for their services, the average man is doing more and more of this work for himself. That this massive effort is not, and cannot be, counted in the GNP assures us that its impact on un employment is never counted. The Keynesian inflation fathered by the macro-economists and their profligate spending of the people's money has guaranteed that all the willing horses shall be overworked to support their programs. After all, the bulk of the tax load falls on this over-employed middle class. Work to be Done There is no need to bring in sta tistics to show that the official concern over unemployment is a red herring. All that is needed is to look around you. There is plenty of work to be done. Only two re quirements exist for putting everyone to work: 1. The money to hire their services and 2. Their individual willingness to go to work at what the market offers.

1. Let us consider first what is necessary to provide the funds to hire the work done. In order to accomplish this, all that needs to be done is to abolish all govern ment funding of so-called anti poverty programs and unemploy luent relief. The resultant possi bility of lowering taxes by at least fifty per cent should leave enough money in the hands of individuals and firms, the productive factors in the economy, to take up any slack in employment and allow people to get the work done that they need instead of what govern ment decides to do for them. This should even take care of displaced civil servants and appointed per sonnel and would put them into 646 THE FREEMAN November productive work, providing a much-needed boost to our lagging GNP. Also, the reduced bookkeep ing and red tape suffered by busi nesses should boost their produc tivity and provide a boon to the consumer in lowered prices, which are universally raised by the fixed costs of government meddling.

2. While there are some indi viduals who would work even if there were no necessity to do so, it may be generally agreed that the urge to work is directly propor tional to the need for making the effort. Otherwise, there would be few labor-saving devices and much less enthusiasm for vacations. So, if we remove the various govern mental programs which encourage people to get along without work ing, or to join some nonproductive bureaucracy, we are likely to see a renaissance of the work ethic. After all, the reign of this virtue among our ancestry was more due to the raw necessities incidental to taming a continent than to an industriousness peculiar to their genes. We honor them for their courage in facing hunger, thirst, and many hardships unknown to even the poorest of us. Should we deny to any of our contemporaries the honor due to the courage of facing necessity? After all, if we deny it to them in the productive workaday world, they will seek it ."in daredevilry, violence, and crime, as is now being demonstrated. If you look at individuals, rather than sociologists' evanescent groups, you will have to admit that most of them would go to work at whatever the market offers their talents - if they had to. In a uni verse fraught with dangers, the most sincere and useful tutor is necessity. To remove it from a person is to disarm him in the midst of war.

Why the· Great Depression? At this point, we anticipate the cries of those who revert to the "Great Depression" and a memory of people "selling apples on the street" and saying that we can't have that happen again. To begin with, honest economists are agreed that the great slump was caused by inept manipulations of govern ment itself, most particularly those of the Federal Reserve Board which allowed the banking system to become paralyzed. Fol lowing that, Federal controls were applied to hamstring enterprise,. which has had to learn to live with its hamstrings ever since. That is why people were selling apples on the street. But, even at that, what is wrong with selling apples, if that is the best thing you can think of to occupy yourself? Isn't that a better scene than the punks today ripping off old ladies' purses 1974 THE BLINDNESS OF MACRO-ECONOMICS 647 in broad daylight, or smoking pot on a tenement step while collecting relief? Governments which appro priate, in one way or another, 40 per cent of their productive citi zens' earnings are poor moral ex amples, either to the industrious or to the idle. We need not be sur prised that the former favor us with endless strikes, while the lat ter do it with riot and crime.

But, some win say that removal of government crutches would bring wages down to a starvation level - the old socialist argument. Well, two factors contribute to ris ing wages: inflation and techno logical advance. The inflationary factor is controlled by government by means of taxation and the money supply. Technological ad vance is altogether provided by in dustry, although it is aggravated by the selective inflationary intru sion of government, such as the mandating of smog devices, seat belt interlocks, space engineering, public transport, and others too numerous to mention. (That some of these intrusions may be legiti mate does not erase the probabil ity that most of them are not.) Henry Ford was the first to raise wages to five dollars mini mum per 8-hour day. This was a revolutionary, totally voluntary, step up at that time, made feasible by technological advance and wise merchandising in the pure free market sense. True, Mr. Ford was a benevolent despot who fought labor unions with his own police; but he was way ahead of the un ions in an honest wage raise which still left his product, the Model T, cheapest and best to the consumer.

The labor unions are the first to protest that their wages never keep up to inflation; but they lead in efforts to support inflationary government policies, which ·leads to a questioning of the intelligence and knowledge of their leaders and members. Rea' Wages at Stake It can be positively stated that wages and prices are inextricably related; for, as all economists agree, all we have to split up is what we produce. Whether the la borer gets the 40 cents per hour of the 1920s, or the $5.00 per hour of today, and whatever his "fair share" may be considered· to be, it must still be diminished in the proportion appropriated by gov ernment by taxation and inflation. We may be sure that such ad vances in his standard of Iiving as have occurred in the past four decades are solely due to the tech nological advances in the private sector under the vast handicaps of political intervention and legal ized seizure by the public sector.

Whatever dollar wages may be in a free market, real wages will be 648 THE FREEMAN November increased in the degree to which government withdraws its inter ventions and taxes. The individual will always claim the highest -~vages available to his personal capacities in a competitive market, because firms and households are literally helpless without help. The most that unions and gov ernment can do is to enforce equal splitting of the income pie - an outcome no one really wants. Any general rate of wages for a par ticular class of work has always been, and will always be, estab lished by the market; so forceful intervention in the process is fruit less in the first place. At some price, there is work for every body; but there is no form of government short of slavery which can force people to hire workers at over the market price. There is always the option of closing shop or doing the work oneself. Nobody should deny the right of any in dividual to hold out for the high est price for his services. Neither can anyone deny the right of all other indi vid uals to refuse to hire him.

Perhaps unions perform some service to firms in removing their need to bargain individually with workers. Bossed labor crews have long provided such services, as in field labor; but such arrangements have never been considered partic ularly favorable to individual workers. This writer worked in military construction during World War II. A union shop ste ward was overheard suggesting to an officer that raised military pay was due to union efforts. The of ficer replied: "Without our war, you wouldn't have such high pay." This illustrates the inexorable effect of supply and demand on general salaries and wages. Those who claim credit for increa~es must look to their arguments. Macro-Metaphysics Macro-economics is a metaphy sical art providing an ideal vehicle for such brilliant expositions as those of Professor Paul A. Samuelson, author of the textbook bible in the field. A sample-oc curred in The Morgan Guaranty Survey, for June, 1974, adapted from a memorandum to the West German Council of Economic Ad visers. One cannot help admiring Dr. Samuelson's breezy style and broad-brush technique in painting the generalities of the world eco nomic situation. Coining the term "stagflation," he correctly discerns that the current worldwide state of economic stagnation combined with inflation is not to be de scribed with one simple formula, but is an extremely complex situ a.tion, which he describes very well. He suggests, in closing, that a domestic cooling off might be in 1974 THE BLINDNESS OF MACRO-ECONOMICS 649 order, but questions that the poli tical climate would allow that. In a scholar, such disinterestedness is academically virtuous; but it fails to point out that the descriptive technique of macro-economics, when applied to practical affairs, is largly responsible for the public paralysis which grips. us.

At the close of Ernest A. Moody's book, The Logic of Wil liam of Ockham, there is a sum mation of Ockham's work which is germane to this discussion: "Problems, as Aristo,tle indicates in the Topics, are propositions; hence existence, and our aware ness of what exists, are not prob lems to be solved, but means of solving our problems." While one would not go so far as to suggest that Professor Samuelson was at tempting to enunciate a problem in the above considered analysis, it is illustrative of that certain blindness here attributed to m~cro-analysis. What we need is problems to solve. Perhaps he has given us the means of solving such problems as we are capable of bringing up; but it is a shame to see all that intelligence used only to show us the bad news that exists. It reminds one of Demos thenes' Third Philippic, where he challenged the Athenians to offer a motion to do something to pro tect themselves against the ad vances of Philip of Macedon, instead of paltering with one an other. There must be a motion leading to some action, or there is no problem. All the analysis of the general "isness" of the universe leads us nowhere until some prob lem is clearly stated.

Sociological Legislation The obligation of government to protect us from one another's aggressions, and even from de stroying our mutual environment, is generally accepted as estab lished custom. The laws on fraud and crime, when evenly enforced, are as effective as might be ex pected in an imperfect world. With the law on torts, they provide for reasonable protection and redress for individuals. However, the tor tuous decisions of courts, in recent years, often invaded by ambiguous sociological considerations, are long overdue for an overhaul to fit a society made up of individuals. As for the laws to prevent us from ruining our general environ ment, fines charging us, within rea son, for any harm we do would be ·more effective than the piecemeal, and often conflicting, regulations which have harassed us in this era of macro-decisions. If we look to land use, government its.elf already controls the largest area in the nation. If government would per form the rules of conservation in lands and installations under its 650 THE FREEMAN Novembel' control, which it would enforce upon the rest of us, any abuse which we might apply to our own private property would certainly not be so considerable as to call for draconian controls, or bribes to comply. Improper use of one's own property creates its own pen alty; and damaged neighbors may, and do, sue.

Macro-economists' prevailing view of pollution and waste of natural resources is another case of astigmatism. Fractional re serves allowed by the Federal Re serve with the resulting multiplier effect on credit and the monetiza tion of debt have provided artifi cial stimulation of consumption. Long term inflation has made cer tain that people will turn money into goods and commodities as rapidly as possible. These are the policies which have reigned under the advice of the macro-economists and over which firms and individ uals have no control, except at the ballot box. If over-consumption be desirable, then pollution and waste must be accepted as a necessary cost. What is the sense in belaboring citizens and firms for conditions solely due to public policy? Make it easy to borrow, constantly cheapen the people's money; then blame them as a bunch of wast rels! It doesn't make sense. All that is required to bring pollution and waste under control is to hold each bank fully responsible to de positors and halt the governmental creation of inconvertible currency.

One is not sure that banks, with branches on every corner, or a lot of multiplying enterprises and con glomerates, would like this pros pect very well; but they might pre fer it to an eventual credit col lapse, with resultant bankruptcy. If the emperor isn't naked, he is certainly doing a strip-tease. Let Us Try Freedom Micro-economics has a proposi ti on to offer: We move that we ac cept the reality of the free market and deny politicians the option to control it. While it may be true, as Macaulay suggested in 1824, that "Free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular," still Americans have enjoyed its bless ings more than most and they have a tradition of its support among their great men, from Thomas Jef ferson on down, so they are far better equipped to understand its options than most nations of men.

The advocates of a "mixed econ omy" need to be reminded of Lin coln's aphorism: "I believe this government cannot endure perma nently half slave and half free." Although this was applied to phy sical servitude, it is certainly 197.4 THE BLINDNESS OF MACRO-ECONOMICS 651 equally applicable to economics where our civil rights as persons are usurped by government, plac ing over a third of our productive efforts in bondage to the state (a form of part-time slavery). While we have never enjoyed a truly free market in the United States, in recent decades we have been moving away from that de sirable policy with increasing ac celeration. A real opportunity for statesmanship is clearly before our politicians and voters. Keyne sianism has had its chance. Its programs are failures in every de partment and are bleeding our economy slowly to death. Let us remove our blinders. All of this world's problems are created and solved by individuals doing their own thing, making macro-analysis an impossible maze. Give the individual a chance.

Admittedly, such a drastic change in policy cannot be accomplished in a day; but, if we know where we are headed, we can get there sooner than anyone suspects. Just as means can be found to adj ust a household budget to a sudden crisis, a nation can put its house in order to meet a new set of prior ities. We will all be happier when we have exchanged the welfare state for the personal liberty guar anteed by our original Constitu tion. ~ IDEA.s ON LIBERTY Power Corrupts Leaders POWER ACQUIRED by force and subject to no continuing functional check is bound to corrupt. Corporate managements are kept in line by the right of stockholders to move their equities when they are dissatisfied and by the right of consumers and other pur chasers to take their patronage elsewhere without let or hindrance when price or quality are poor. If the house of labor is to be clean, the same general principles must be applied there, with the work ingmen of the nation in the position of stockholders and consumers.

It is as absurd to expect good clean unionism in conditions of extensive compulsory unionism, as it would be to expect good government in a society where the divine right of kings or the dictatorship of the proletariat was the central political principle. SYLVESTER PETRO. "Can Labor Clean Its Own House?"