Oh! These Absurd Measurements Of The “National Economy” – From Competitiveness To Growth And Including Economic Freedom: Take #3

Recall my recent post on colonial Hong Kong – in particular, that the Brits refused to set up a bureau for the collection of economic data, or “statistics,” thereby ensuring that in the eventuality of a communist takeover, no “economic planning” would be possible. Indeed, this is the reason why communist Red China, which runs the island today, says, “One Country, Two Systems.”

Contrast that with socialist, centrally planned India:

Isn’t “Indian Economics,” taught universally in schools and colleges, nothing but data, data and more data – all of which need to be mugged up before the exams, only to be promptly forgotten the very next day?

Not surprising – for Nehru’s great “advisor” to the grandiose Second Five Year Plan, which launched his Soviet-style “heavy industrialization under State ownership,” was a STATISTICIAN: PC Mahalanobis, founder of the Indian Statistical Institute (ISI). Mahalanobis' ISI is much more dangerous for our health than the Pakistani ISI - in my honest and sincere opinion.

Now for the Daily Noose: There is this report today on how India has fallen on a World Competitiveness Index published by the World Economic Forum (WEF) – which is essentially a “socialist” as well as “political” talking shop, parallel to the other such organization based in Switzerland, the World Trade Organisation (WTO). Both are engaged in “politicizing” international trade – not freeing it to open and free competition.

What is India’s REALITY – if not the FACT that there has been occurring a competitive and coordinated devaluation of the paper Indian rupee vis-à-vis all major fiat paper currencies ever since when. The US dollar is now close to 60 rupees. The British unsterling pound almost 90 rupees. The Euro, almost 70 rupees. I myself remember the US dollar at 8 rupees; the pound at 25 rupees; and the Euro, which is a very recent development, at 50 rupees. Further: Whenever these devaluations occurred, always bit by little bit, our central planners and national economy experts would hail this on the grounds that this would “raise exports.” In other words, such devaluations IMPROVE NATIONAL COMPETITIVENESS. During the rupees recent slide, Kaushik Basu said the same thing – and I read he has moved to the World Bank as Chief Economist. Of course, for they would want a guy like him – because they are interested in keeping this fiat paper money system, central banking, and all the inflationism that is part of it, going on endlessly.

When the value of the "national currency" is in perpetual decline, imports decline. We export more and more cheap junk - like low grade iron ore - while we can afford to import NOTHING. Makes SENSE to you?

What is competitiveness? Well, here is MY view, the concluding paragraph of my column calling for a “Return to the Gold Standard”:

Any nation can unilaterally revert to the gold standard whenever it chooses. If we do so, our rupee, now pegged to gold, will always appreciate against the rest of the world’s fiat papers. This will help us become big importers. And cheap imports, including of capital goods and components, will make our manufactured exports competitive in terms of technology, quality and price. Our banks will attract the world’s savings, and we will possess capital, the vital ingredient of “capitalism”. All prices will steadily fall and the consumption of the poor will rise in leaps and bounds. This is the power of “sound money”.

Recommended read: This article by Frederic Bastiat on the so-called "Balance of Trade" in which he concludes by asserting that "if the foreigner inundates us with all sorts of useful commodities without asking in return — that our imports are infinite and exports nil - I defy you to prove to me that we should be poorer on that account."

Let us now proceed to the ROOT of this ERROR – and that is Ricardo’s extremely stupid example, using nations as well as mathematics, to prove the Law of Comparative Advantage. Nobody understands this as the “Law of Human Association” – that is, on an INDIVIDUAL basis, and even on a non-market basis.

Even Ricardo himself, and all the Ricardians, did not get the full implications of the strange two-nation, two products, calculations that James Mill actually furnished Ricardo with in order to "prove" this law. Which is surely why, many years ago, a student pursuing a Master’s degree in Economics from Jawaharlal Nehru University (JNU) approached me with the following question:

Sauvik: My professors say that the Law of Comparative Advantage no longer applies in the modern world. What do you have to say about that?

Note: Prior to JNU, this student had successfully completed a 3-year Bachelor’s degree course in Economics from the “elite” St. Xavier’s College in Bombay!

It took me not more than an instant to prove the Law of Human Association – for just then my doorbell rang and the guy I had hired to tend to all the potted plants on my balcony entered. And so I turned to this student and told her:

I am a better gardener than this man, but he has the job because of Comparative Advantage.

In the sense that I was then working as an editor of a business daily – and my mornings were busy, busy, busy, reading various newspapers, thinking out ideas to write about, and so many other things required to get ready and hit office by the scheduled time. If I had spent that time on my plants, my actual costs would have been more than what I had to pay this second-rate gardener.

This Law of Human Association – which Ludwig von Mises called “The First Law of Sociology” – teaches us much: that all INDIVIDUALS, rich or poor, equipped with advanced skills or lesser skills, GAIN when there are NO BARRIERS to such associations, as with Customs and Immigration barriers. Indeed, the lesser off, and lesser skilled GAIN EVEN MORE – for example, the surgeon’s assistant, who cleans his instruments; or his chauffeur; or the housemaid. This is why Third World nations that have had NO COMMERCIAL CONTACTS with the developed West – like Myanmar – are WORSE OFF than all those who have had open commercial contacts, like Hong Kong, Taiwan, Singapore, South Korea…

So much for JNU, the WEF, and the WTO as well.

When humans associate freely based on Comparative Advantage the resulting pattern of the gainful specializations that occur in the division of labour are another example of what Adam Ferguson called, “the result of human action but not human design.”

Who are in error?

Those who purport to know how to “manage the National Economy.” These State-owned economists also run the State-monopoly of a “miseducation system.”

And hence promote autarky and protectionism - the swadeshi nonsense.

So, let us proceed to “central monetary planners” and their “national economic growth rate.”

The Daily Noose – as represented by this extract from the lead editorial in Mint today, titled “The burden of central bankers,” asks a question, and then offers an answer that is neither ”theory” nor “history” – it is merely “opinion” expressed on an “opinion page” by its monopolist:

However, at a fundamental level, and after two rounds of QE by the Fed and other unconventional measures adopted by various central banks, the basic question is, can monetary policy—conventional or unconventional—solve the underlying problem the global economy is facing today, especially in the developed world?

The biggest defence in favour of unconventional means is that things could have been a lot worse had central bankers not used them during the financial crisis…

I have discussed the “theory” only yesterday – Carl Menger’s – and, pointing towards cowrie shells, illustrated the fact that “hard commodity moneys” of various kinds have always emerged spontaneously out of market exchanges, without requiring any “common will” (a State, a King, or even a Chief) to bring them about. These are also “the result of human action but not human design.”

Further, as yesterday’s quote from Mises made clear – that gold became money is a historical fact, and this has nothing to do with the “theory,” which is “abstract,” and applies generally; that is, to all the kinds of money that have arisen in history, from buckskin to salt to whatever.

Thus, the very title of this lead editorial is in error – for what exactly is “THE BURDEN” on the central bankers of the world?

Or are they, quite precisely, a BURDEN themselves upon the toiling masses, because they penalize savers while rewarding borrowers?

The second paragraph of the editorial I have quoted is a HISTORICAL ERROR – this is NOT a “statement of fact” – but I shall leave my reader to make up his own mind about whether any “economic stimulus” or “bailout” by any central banker has ever worked.

I stand by private money and free banking under the laws of the Natural Order.

I am opposed to centralized monetary planning and inflationism – the highway to decivilisation.

If this is “politically impossible” – then WH Hutt is my armour: for it is he who wrote, “The scientific economist must stick to the scientific truth, while politicians and bureaucrats must adjust their conduct accordingly.”

The battle is for public opinion, after all. None of want to be “advisors” to the State, or to any politician, or the World Bank.

Let us now get to the ROOT of the error in the above editorial – and it is the same that we found in the WEF Report on Competitiveness: which is, that the “national economy” exists, and requires centralized managers and caretakers.

In the case of central monetary planning, it is not just Keynes; it is also the Chicago School that has grievously erred. And not just Milton Friedman with his Essays in Positive Economics, but also Friedman’s teacher, Irving Fisher, who proposed a “mathematical relationship” between all the variables in the old-fashioned Quantity Theory of Money. The way that this is now taught – as “quantitative” and not “qualitative” – misguides students and public opinion alike by suggesting “measurements” and “predictions” can be accurately made by these central monetary planners. They can, thus, “predict growth”: “predict inflation,” and so on.

NONSENSE!

Since there are NO MATHEMATICAL CONSTANTS – all are VARIABLES - there are NO STATISTICAL LAWS in Economics.

The best example of this “scientism” – which is the “pretension of being scientific” – is the recent “bestseller” Freakonomics, in which the authors arrive at all their “freaky” conclusions by examining the same statistical data.

And the best PROOF of the FACT that central monetary planners themselves do not know what exactly will happen after they inflate the money supply is the following quote from prime minster Manmohan Singh's recent speech in Rio:

Like other countries, we too allowed the fiscal deficit to expand after 2008 to impart a stimulus. We are now focussing on reversing the expansion.

 

This is what differentiates Physics, Chemistry and Astronomy from Economics – the last being a purely “logical science.” Its predictions are “qualitative” – not “quantitative.” But this is also a Science – the “youngest of all sciences” – and a very important science for all of humanity to know and understand, because it is this science that lies at the very “pith of civilization.”

The medical doctor, the great engineer – they fail when economists get it wrong, and The Market fails.

The “national economy growth rate” is FICTION.

The “national economy” is itself the GREATEST DELUSION, ever.

It lies at the root of National Socialism worldwide – which is in parts Keynesianism, Protectionism, Welfarism, Interventionism, et. al.

National Socialism is the NAZI philosophy – also known as FASCISM, or CORPORATISM.

The Other Path lies in "private economies" - each one of us, all INDIVIDUALS, doing a "row, row, row your boat, gently down the stream... "

Each "minding his own business."

Each man for himself, each man by himself.

Each responsible to his customers.

None even DARING to PURPORT they will look after the "economic interests" of all.

No "narrow, domestic walls."

But "catallaxies" - and The Open Society.




What about the much talked about World Economic Freedom Index?

Again, how can "freedom" be meaningfully measured?

In any case, what precisely does it mean when the entire planet is using fiat paper as money, with a central banker in each nation-state issuing them monopolistically?

If we do not possess the "freedom to choose our preferred medium of exchange" then what do all these indices of freedom measure?

We can qualitatively predict poor Indians will be poorer because of the recently imposed customs duties and other taxes on gold.

Do read Hans Sennholz's Money and Freedom.




And the fact that the less the freedom, the more the poverty can be predicted QUALITATIVELY, anyway.

The Law of Human Association can predict it.

And the History of International Trade can, too; if we "let history be our guide."


Also, and most importantly for guys like me, what about the HOLY SMOKE?

Singapore is #2 in every "economic freedom index" - and they HANG anyone who smokes a joint there!

So, what then is FREEDOM?

Freedom is obtained by following a PRINCIPLE.

That principle is the Inviolability of Private Property.