Some things in life are bad, they can really make you mad, other things just make you swear and curse. When you’re chewing on life’s gristle, don’t grumble, give a whistle, and this’ll help things turn out for the best. And…always look on the bright side of life. So go the opening lyrics to the Monty Python classic from the 1979 film Monty Python’s Life of Brian. Today’s title is in homage to the Monty Python troupe, the surviving members of which just performed their final skit in London last Sunday.
In the classic comedy Monty Python and the Holy Grail, Graham Chapman plays Arthur, King of the Britons, and he comes upon a village where the townspeople are burning a suspected witch. Seeing this breach of Justice Arthur asks the people, tell me, what do you do with witches? They reply, Burn them! The King then asks, and what do you burn, apart from witches? And the people reply, More witches! – Wood! Asks Arthur, So why do witches burn? Of course the response is that they are made of wood.
And, Arthur states, wood floats.
A long sequence follows where other things that float (Bread, apples, very small rocks, cherries, churches, a duck) are discussed.
So, logically Arthur states, If she weighs the same as a duck, she’s made of wood, and therefore a witch!
One of the townspeople then asks the key question, Who are you, who is so wise in the ways of science?
Who are you who is so wise in the ways of science? In the late 5th and early 6th centuries, the period during which the legendary King Arthur was supposed to have lived, relating witches to floating might well have been considered respected science. This is why I worry so much when I see people, leaders and the media buying into dogma and considering it to be absolute fact. We should all worry whenever we hear someone suggest that the debate is over. As I have suggested in this column before, George Washington was bled to death for the flu because in 1797 it was settled science that imbalances in the body’s humors led to disease. As late as the 13th Century, when King Alfonso the 10th of Spain commissioned the Alphonsine Tables, it was thought that the Earth was only about 8,000 years old. Of course, current estimates, based on radioactive dating, place the age of the planet at around 4.5 billion years.
As with science, economics is full of dogma that the orthodox of the faith accept as true in spite of little things like … facts. This showed itself in this week’s Economist magazine. Once the standard-bearer of liberal (in the English sense) economic thought, the magazine is now tilting totally Keynesian and is full of the dogma of orthodox Keynesian economics. In an editorial discussing America’s lost economic prowess, the editors mentioned at least three bits of dogma that are simply not factual.
Potential Growth: Orthodox Keynesian theory suggests that there is a sort of speed limit on the economy after which resources would be in such short supply that growth could not occur without inflation. This concept of Potential Growth suggests that limits in the capital stock, the potential labor force (which depends on demographic factors and on participation rates), and the level of labor productivity all put limits on how fast an economy can grow. While this explains why expansionary monetary and fiscal policies tend to be inflationary in the long term, it is pure hokum when it comes to an economy’s ability to grow. Economic growth comes about when factors of production (capital, labor, knowledge, natural resources, technologies and entrepreneurial talent), are moved from a low value to a higher value use. These factors of production are in many ways limitless and the ability to move them from one purpose to another is limited only by regulation and tradition. Technological change provides a good example of how the speed limit can so easily be broken. Prior to the 1950’s when products were shipped by water it took literally hundreds of longshoremen many days to unload a vessel. Today, the technology of containerization allows a handful of men the ability to unload a ship in a matter of hours. An economist in 1951 would suggest that there was no way to make shipping more productive so the potential growth of the transportation sector was limited. They were about as correct as Ptolemy when he suggested that the sun revolved around the Earth.
Baby Boomers Leaving the Workforce are a major Driver of Lower Participation Rates: The Economist suggests that the ageing of the baby-boomers is a reason why labor force participation is falling. Again I call Hokum. The labor force participation rate is simply a measurement of the percentage of people between the ages of 16-64 who are working or looking for work. As The Economist suggests it may be true that many pensioners pull out of the labor force before they reach 64, but just as many people work well into their 70s and 80s. The fact is that the labor force participation rate is falling because young people can’t find work paying as much as they believe they are worth (or enough to pay their student loans), and because women are leaving the labor force. So if demographics is a cause of this decline (and I don’t think it is) it is due to the current baby-boom, not the one that I was part of.
Demand is what drives the economy: This is the key mantra of Keynesian dogma, kind of like Arthur suggesting that witches were made of wood. Simply put, demand drives economic activity, and economic growth can be sustained simply by encouraging people to buy stuff. Hokum, hokum and hokum. Economic growth comes about from production, not consumption. Imaging the Keynesian world. Everyone received money off of trees and uses it to buy what they need. Where would the stuff come from? I guess Chinese people would make it and we could use our tree money to buy the Chinese stuff. But what can the people actually working in China do with the tree money – well I guess they can use it to buy the trees. Simply put, you need the demand side of the economic machine, but a machine that only spends and does not produce will quickly run out of fuel. This is why policies that encourage spending and discourage production lead to nothing more than inflation.
There are so many other bits of economic dogma that were not brought up in this article – the lump of work fallacy, the income equality equals poverty fallacy, etc. but all of these fall when looked at in the light of facts and reality. Economists, climate theorists, bio-statisticians, even chemists and physicists and biologists are not so wise in the ways of science as they may believe.