The Myth of 'The' Economy

Buongiorno specie al mio preferito!

We hear that phrase all the time, especially in this now continuous political season: "The Economy."

Think about it. No, in fact, that is the slight of hand being pulled. By thinking of 'them' as if they were an 'it', we are all lulled into a false sense of tractability, as if those talking about 'it' have a handle on 'it.'

Alas, 'it' is really a 'them.' Whenever you hear someone talk about 'the Economy', make an effort to actually hear 'the economies.' The former does not lead to understanding, it prohibits it.

Do we talk about 'the' weather in the United States in any meaningful way--meaning, the singular 'weather' that characterizes the entire United States of America? If you think so, then what is 'the' temperature in America right now? Should it be 'hotter' or 'colder'? Let's let the folks in Florida and Alaska duke that one out.

Silly? Then what about 'the' unemployment rate, or 'the' interest rate that best tweaks 'the' Economy?

Do 67 year old pharmacists in Altoona really participate in the same 'the' Economy as 25 year old stock brokers in Manhattan or 43 year old defense contractors in Huntsville?

Then, globally, what of the 28 year old PhD in Beijing? Do we shift a gear, and then think of 'The American Economy' as something yet different than The Global Economy, or in fact, is it just yet ever more economies at ever smaller scales, right down to your very household?

Did the Soviet Union actually win the Cold War, and America has actually conceded the brilliance of a centrally planned command 'The' Economy? I missed that. What I remember hearing about instead was an America half our present size that left over 400,000 of themselves in a meat grinder fighting totalitarianism. I'm not sure the Greatest Generation would have gone to all that trouble if they knew that their clueless kids were going to preside over the political equivalent of Macy's buying Gimbels when it comes to embracing 'totalitarianism.'

The herdists/statists running loose among us would prefer us to believe in the Myth of The Economy. It is a political argument for OnesSizeFitsAll management of that which is inherently not a single entity, but a complex aggregate of systems, some of which have no bearing whatsoever on each other, no linkage at all.

If we believe in that Myth, then we are one required step closer to believing also in the ability of Cargo Cult scientists, aka soft scientists, to manage it.

Flip a perfect coin a million times, and keep track of the net number of heads vs the net number of tails. The probability that you flip 'heads' on every even throw and 'tails' on every odd throw, or vice verse, is effectively 0%. This means, simply at random, there will be periods of 'net heads throws' and 'net tails throws' at any given time, and in fact, 'no net heads/tails throws' for a very small % of time.

We could pretend to look at those periods of net heads and net tails and predict the future with certainty, but with a perfect coin, we'd have no clue.

So, here's the God's truth: modern day state of the art economic science can't even reach a consensus and tell us what just happened, much less, what is going to happen.

Compare it with 'weather prediction.' Weather prediction has a model and a predicted outcome. Every day, yesterday's model can be compared with today's outcome. Models can be calibrated daily. And still, state of the art is about 2 weeks, tops.

How are economic models calibrated? They aren't. Consider the LTCM fiasco. Unknown/unknowable/unmeasurable terms were simply ignored. What was left amounted to a model that said "the weather in San Diego will be pleasant, sunny and warm tomorrow.' Which was true, right up until the moment it wasn't.

That leaves, Cargo Cult scientific 'modeling'. I mean, the same age old ritualistic voodoo witch doctor sacrifices at the base of the volcano. If a model guesses right, the high priests are validated. If a model guesses wrong, then the sacrifice must have been tainted.

What really drives economies? The same things that drive everything in the universe: gradients, only in the case of the economies, there is not just one gradient, there are myriad gradients, most of which are unmeasured and unmeasurable.

At most, we can hand wave about economies. As in, economies are not fundamentally driven by 'money', but by the energetic circulation of human exchange of value for value. Unlike cartoon dogma from the 19th century, value does not fall from the sky, unabetted, nor is it largely laying on the ground waiting to be effortlessly scooped up. Value is inevitably the crass, warm afterglow left over from the creative exertion of actual human beings. It is not sufficient to 'stimulate' economies--if healthy economies are our goal--simply by handing out value proxies for consumption based on borrowing from the future, or any mere credit based consumption side 'stimulation.' What needs to be stimulated is the human circulation of exchange of value for value, and that means, exertion of human creative effort. Humans taking intelligent risk, humans exerting effort, humans creating value circulates the exchange of value in healthy economies, and creates additional opportunities for creating value.

Otherwise, simply printing and handing out money to people would stimulate economies. That stimulates only one thing; some noise before the next dark ages.

Do yourself a favor, and see the world differently, with your eyes open; there is no such thing as 'The Economy.' So, ask yourself, why is it so front and center in our politics?

reguarda,
Frediano