My friend and former business manager John Mauldin has become an economist. I hate to see this.
He is a good analyst. He is a good commentator on business trends. His site is a veritable clearing house of insights of famous market analysts. But now he has wandered astray. He has become an economist.
His most recent newsletter begins with these insights:
In this business we spend a lot of time thinking about problems. What if we could wave a magic
wand and make them all go away? Maybe we can.
The wand isn’t made from wood. You don’t need Latin phrases or a special incantation learned at
Hogwarts to make it work, either. It’s a simple six letter word: growth.
Get the economy growing at a decent pace again, and most of our problems will get better. Conversely, they’ll only get worse if we stay in slow-growth mode. And don’t even think about what a recession will do to the markets in this environment.
Fortunately, there are things we can do to bring growth back. We just have to decide to do them.
He has now adopted the defining outlook of all academic economists, except for Austrian School economists. It is a four-word phrase: “If pigs could fly.”
He does not literally say this. Economists never do. He substitutes a shorter phrase: “if we just.”
I wish to focus here on the key concept: “We.”
The term “we” is best understood in this context in terms of the punch line of a famous hypothetical exchange between the Lone Ranger (a Chicago School economist) and Tonto (a member of Congress): “What you mean ‘we,’ paleface?”
The Austrian School outlook is best seen in the response of Ludwig von Mises to this question: “Professor Mises, if you were given complete power over the economy, what would you do?” His one-word answer defines the Austrian School: “Resign.”
If the political reformer has enough power to reform the economy, he has the power to make it worse.
Think of these words: “Alan Greenspan” and “Federal Reserve System.”
Mauldin cites John Cochrane, a former economics professor at the University of Chicago. He is now on the staff of the Hoover Institution. He cites a paper — an ancient term relating to the pre-Internet world, comparable to “rewind” and “video footage” — by Cochrane on economic growth. You can read it here:
Our economy is like a garden, but the garden is choked with weeds. Rather than look for some great new fertilizer to throw on it, why don’t we get down on our knees and pull up the weeds? At least we know weeding works! For another metaphor, our economy has become like a hoarder’s house. For a while he could get through the passages and keep life going, but now the junk is closing in. Well, rather than read the architectural magazines about just what the perfect house will look like, let’s get to work cleaning up the mess.
Notice the term “our.” It implies ownership. Therein lies a problem. This problem was best formulated by economist F. A. Harper back in 1949: “The corollary of the right of ownership is the right of disownership. So if I cannot sell a thing, it is evident that I do not really own it.” [F. A. Harper, Liberty: A Path to Its Recovery (Irvington-on-Hudson, New York: Foundation for Economic Education, 1949), p, 106.]
I can make changes in whatever I own. I can even sell it.
I therefore have a problem with the concept, “our economy.” So did Mises, when he said: “Resign.”
In what way do “we” own “our economy”?
How can “we” get together to reform it?
Dr. Cochrane has a plan.
(For the rest of my article, click the link.)