Economist Robert Higgs says you probably have as much expertise in economics and you have in astrophysics. Few of us know much about astrophysics and the rest of us are wise enough not to claim otherwise. But while everyone complains about the weather but nobody does anything about it, everybody complains about the economy and a great many unfortunately try to do something about it. [Well, life in the 21st Century has become so silly a great many are also trying to do something about the weather.]
The overwhelming part of what people learn in graduate school in economics is mathematical mumbo-jumbo whose substance boils down—if it boils down to anything, rather than simply evaporating—to what F. A. Hayek called the pretense of knowledge. In short, these “experts” are ill-educated fakers. My best guess is that no more than a couple thousand real economists exist in the entire world, and I would not be surprised if my estimate were too high by a thousand.
Besides the real and counterfeit pros, perhaps several hundred thousand other people purport to possess genuine knowledge about how the economic world works. At least 95 percent of them haven’t a clue. They are charlatans, whether they know they are or not. One has only to surf the Web, read the articles and comments, and consider the character of this froth. It’s almost all crap.
People are generally sensible enough that they do not go about their lives pretending to know about astrophysics at a professional level. They don’t dish out crackpot ideas about the red shift or the events that occurred in the first millionth of a second after the Big Bang. They realize that pretending to know anything much about astrophysics would only make them appear foolish to anyone who heard what they have to say. If only people had enough sense to realize that with very few exceptions, they actually know no more about economics than they do about astrophysics.
Bear in mind that knowing how to run a business successfully, knowing how to write an economics column successfully for a magazine, newspaper, or news site, knowing how to rise in your profession successfully, and knowing a great variety of other things is not at all the same thing as understanding how an economy works. How much better off the whole world would be if in regard to economics everyone settled for thinking locally and acting locally and, above all, never, never inviting politicians and government bureaucrats to do anything to “improve the economy.”
A comparison of the Depression of 1920-1921 to the Great Depression is instructive. You ‘ve probably never heard of the Depression of 1920-1921, but you’ve certainly heard a lot about the Great Depression of the 1930s, Franklin Roosevelt and the New Deal. Here is an excerpt from the Ludwig von Mises Institute on the Forgotten Depression of 1920:
The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. No wonder, then, that Secretary of Commerce Herbert Hoover — falsely characterized as a supporter of laissez-faire economics — urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored.
Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third.
The Federal Reserve’s activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.” By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923.
The reason the Depression of 1920 has been forgotten is that it was allowed to fix itself by President Harding who did essentially nothing to help it. It turned out that nothing was exactly the right thing. A free market has self correcting mechanisms that will work if only the politicians and bureaucrats will mind their own business and leave it alone and allow those mechanisms to operate.
Such a contrast to the Great Depression of the thirties when FDR and the New Dealers spent 9 years engaging in massive intervention into nearly every nook and cranny of the private sector economy, all to little avail. The New Deal began in 1932 and by 1937 unemployment was still 17% and the economy turned down again after a brief and anemic recovery. Much the same is occurring right now. The Obama administration has constantly meddled in the economy resulting in the weakest economic recovery in history and GDP has just turned negative.
It’s said that World War II ended the Great Depression. That’s rather misleading. The Great Depression did end when the U.S. got involved in the War. But rather than attributing the end of the Depression to the War effort, it is probably more accurate to say that the War ended the New Deal, and that is what allowed the Depression to end.