Rationally Choose Your Fields of Ignorance

Ludwig von Mises

John Maynard Keynes

A reader, commenting on a recent post dealing with the coming economic collapse, had this to say:

Unfortunately I share your pessimism, and got into a fairly heated discussion about this very topic in the doctors’ lounge at work yesterday. I am still dumb founded at how very bright minds can still look at the figures and come up with the very illogical conclusion that everything will “be fine”. Economic reality doesn’t get put on hiatus because people OD’d on hopium. Meanwhile, our populace is no longer taught about the founding principles that made this nation great. They are no longer taught about the Constitution. They are more likely to have a class about proper condom usage or fisting rather than one about the Constitution. American Karaoke and iPhones are the new opium of the masses. We are collectively economically illiterate. There is no understanding of the free market. The little “understanding” we DO have is actually false as the media and academia have falsely demonized capitalism ignoring the wealth it generated and all of the amazing goods it created that bettered the world. The only version of economics taught in college involve Keynes and not Friedman, Hayek, Mises etc.

When one looks at the history of nations that have collapsed, one notices that the transition is usually not slow. There is typically some triggering event that leads to a series of events in a domino matter resulting in collapse virtually over night. We saw it in the Czech Republic, the former Soviet Union, Zimbabwe, Argentina, etc etc etc. The same will happen in Europe, and at some point here when people realize that over night our US dollar became absolutely worthless. As you accurately concluded: “There is no easy or safe solution to our problem.”

There is truth in these observations and also a sense of frustration. Others have expressed similar thoughts and concerns, so I thought some comments might be useful.

Arithmetical Ignorance: There is no excuse for arithmetic or logical ignorance, especially by “very bright minds.” Both subjects are learned adequately in grade school. Understanding them does not require bright minds, merely average ones. Thus, I suspect that something else is at work in the comments above.

The Power of the Status Quo: Bright and busy minds often don’t have time to learn the particulars of topics outside their chosen areas. They resort to history as in “it’s never happened before so it won’t happen now” as a short-cut means of evaluating claims outside their field of expertise. While not scientific (and sometimes not safe), it is a convenient and efficient way to make judgments where information is inadequate or imperfect.

History plays a large part in making the coming events so difficult to comprehend. If it never happened before, it is unlikely to occur now. This status quo orientation makes it difficult to have a rational discussion with someone who does not have access to the same information you used to reach your conclusions.

The economic crisis is now beyond economics and subject to the rules of arithmetic. Most people obviously can add a column of numbers, but only if they know what the numbers are. I suspect that their disbelief arises from not having the set of numbers you do. If they had them, then the laws of arithmetic would likely make your conclusion(s) reasonable rather than incomprehensible.

Economic Illiteracy or Ignorance: This ignorance is rampant. But ignorance is not necessarily bad. We all have massive areas of ignorance because we all have time constraints. One should choose his areas of ignorance wisely. I am ignorant in medicine, opera and thousands of other areas. That has allowed me to spend more time, and presumably become better, at my professional interests.

In a world where the division of labor has become so finite and the extent of knowledge so broad, there can be no more Thomas Jeffersons. Jefferson was the polymath of his time. Today he would be considered a “jack of all trades but master of none.”  Intelligent dilettante would likely be used to describe him today. He would be unable to compete with specialists in any area.

Frederich Hayek

The choice of economics as a field of ignorance was rational. Why should a doctor, dentist, lawyer, factory worker, chemist, pianist, baseball player, artist, etc. have to know economics? Basic business sense is a necessity for life, but not the technical field of economics. Based on recent performance, a good argument can be made that few economists are not ignorant in this their chosen field. This observation is not new:

We have indeed at the moment little cause for pride: as a profession we have made a mess of things. Friedrich Hayek Nobel Prize Acceptance Speech, 1974

What Has Changed: Economics used to be a rational choice of ignorance. Unfortunately that is no longer the case. Economics, as a profession, was co-opted and corrupted by the political class. Government, via grants and employment opportunities, made economics a lucrative profession. But these grants and positions were available only to those who preached statist economics — Keynesian economics.

The underlying premise of Keynesian economics is the presumption that the free market is unstable and needs to be managed by government. This premise opened the door for central planning. Over time the government’s intrusive role in the economy grew as did its power. Economics as practiced by governments around the world is little more than interventionism. Any problem, real or imagined, is an opportunity for government to intervene to correct the inequity or problem. Governmental economics is not economics but political plunder and control. This increased involvement has shifted wealth toward the political class. Some of this wealth is used to buy votes among various constituents and some finds its way into the new worth of the political class.

When economics was honest, devoid of politics, choosing economics as a field of ignorance was reasonable and quite rational. In a world where economics has been corrupted and is used to justify political pandering and power, not knowing economics can be harmful to your net worth. Few specialists, be they doctors, lawyers or hard-toiling wage earners, have any understanding of economics and what is coming.

Their ignorance is justified based on the following two incorrect assumptions:

  1. Economists/politicians know how to manage the economy.
  2. Economic advice is based on what is good for the economy as opposed to the political class.

The need to become wise in the ways of political economics is necessary. Given the inflection point that we are approaching, it could be the difference between financial survival and death.

Ironically, the need to understand economics is another way that government involvement hurts the economy. Whatever your skill set, you should be able to hone it to whatever level your capability and motivation allows.  It should be a waste of time for you to understand economics. Sadly, this diversion from what you do best may provide the best return on your time, given what lies ahead.

Bad times are coming and few economists and no politicians will tell you that. You must understand why on your own.

 

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2 Comments

  1. Phenomenal article. My only source of optimism comes from the number of economics students who are actually going outside their academically created cage and discovering Austrian based economics, or as I call it, TRUE economic theory. There have been several interesting youtube videos put to music comparing Hayek to Keynes, etc. The problem is, what percentage of students do they represent? How many hear their message? The fact that they are there is encouraging as this was not the case a mere decade ago.

    I am a physician by trade, and have never enjoyed economics. Self preservation, and a bright young cardiologist friend of mine challenged my mind and made me delve deeper into the topic. Again, this goes to your point. How many have that inner intellectual curiosity, the force that drove me into medicine originally? How many have a friend well versed in Austrian economic theories? I preach the message at forum threads such as this every chance I get. I get into the mechanics of how an economy works at the absolute basic level. Hopefully others will join in. This is a fight for the soul of our country. Again, excellent article.

    1. It is very difficult to be an Austrian economist. To commit to such a path dooms the practitioner to generally second-rate academic appointments (although that may be slowly changing). That itself requires a commitment to a more spartan life than other economists, especially those who work for the government.

      To choose this route is noble in the sense that it represents a loyalty to the truth (at least as seen by the chooser) even though it means less income, less recognition, etc.

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