Riding the Whirlwind

In an excellent post, Don Boudreaux explores the difference between economists who, like Paul Krugman, think economics will enable specialists to know which buttons to push in order to fix things, and economists who, like James Buchanan or Friedrich Hayek, think economics should be concerned with understanding phenomena, along the lines of the natural sciences. An excerpt:

I challenge you to read [Hayek] and not come away understanding more fully that attempts to 'plan' any economy are childish fantasies -- that the idea of there being any 'buttons' to 'push' is about as absurd a misconception as is possible in the social sciences.

. . . [Economists like Buchanan and Hayek understand] that the chief contribution of economics is to further our understanding of how billions of individuals, no one of whom possesses more than an unmeasurably small fraction of the knowledge required to cause a viable and productive economic order to emerge and grow, interact and mutually adjust to each other.

. . . [They understand] that society is an order to be explained and understood, rather than a machine to be "designed," pushed, pulled, planned, or pummeled into looking like something that any human being imagines it "should" look like.

During the past century, most Americans have come to view the economy as something that is run or managed by the government. We believe presidential candidates who claim they will "create jobs." If the economy grows briskly during a given administration, we give that administration credit. If the economy grows slowly or contracts, we blame the incumbent administration.

But no government manages the economy. The economy existed before the USA was formed, and the USA will be outlived by the economy. The economy is the sum of countless choices, undertakings, and transactions, each of which is managed only by the person or people involved. Those choices, undertakings, and transactions all interact and give rise to our economy.

No one is even certain where our modern Western economy came from. The origins of it in the 17th and 18th centuries are sought and debated by historians. If for some reason it switched back to something resembling the soporific medieval European economy, no one would know how to revive it.

Governments don't manage the economy. They are carried by the economy, like a man "riding" the whirlwind. They think they can direct it here and there with a yank of the reins or a dig of the spurs, but they really have only guesses, at best, as to what effects their actions will produce.