Elements of economic theory -- force versus reason

[ClaytonB]

Hi everybody, I like to write on economic topics from time to time. I've posted on Austrian forums in the past and I've tried blogging, but the forums have fizzled out and blogging just never fit my style. So, I'll be posting on this forum from time to time. Because there is so little active discussion of economics on a non-partisan basis, I thought it would be useful to write an occasional post on the basics of economic social science, as expounded by the Austrian school.

In his magnum opus Human Action, Ludwig von Mises wrote a chapter titled, Economics and the Revolt Against Reason. This chapter is well-placed right at the beginning of the book since anyone who wants to understand economics is faced with two problems, not one. First, she must encounter the subject itself, which has its own subtleties. Second, she must also reconcile the profound disconnect between the well-understood facts of economic science, on the one hand, and the language in which people, especially politically-motivated people, typically discuss the economy. There is almost no common-ground between these discussions.

For example, an article recently published in the NYT suggested a $33-per-hour minimum wage. Economists have used such high minimum wage numbers as a reductio ad absurdum argument against a minimum wage. That is, a minimum wage cannot increase the market value of any person's labor, all it can do is ban employment arrangements in the range between $0 and the minimum wage. The higher you raise the minimum wage, the more employment arrangements you are banning, that is, the more unemployment you are causing!

It is a flaw of human nature that when we encounter facts we do not like, we instinctively resort to spin in order to rationalize them. When the alcoholic is confronted with the bad effects of his addiction, rather than accepting the facts as they are and realizing that he must change his behavior, he becomes defensive and tries to spin the facts to suit his pre-established agenda. He had a rough childhood. He battles depression. There is no way to handle the hardships of life without drowning your sorrows in a bottle. And so on. This flaw of allowing motivated reasoning to override objective truth and hard logic whenever it suits our (often hidden) preferences is the psychological root-cause of the mountains of bad reasoning that can be found in virtually all public discussions of economic science.

The general public and the government that is in place are like alcoholics where the addiction is not to booze but to spending and "free" perks. Perhaps a better analogy than alcoholism is retail addiction (credit-fueled, out-of-control personal finance). There are rehab programs for people with spending addiction. They start spending and they cannot stop until they spend themselves into a black hole of credit card debt. Such individuals live in permanent denial of the objective fact of scarcity. Until they suppress the instinctive flaw to spin the facts to suit their fancy -- and accept the cold, hard truth that time and money are not available in unlimited abundance for the wishing -- they will remain in addiction, unable to escape their unsustainable behavior patterns. The credit-card is really a psychological device that allows the spending addict to separate cause from effect. The situation of having no money is, obviously, caused by having spent all the funds that were available to you. But alas, there is this magical amulet that will allow the addict to "transcend" the limits of mundane reality and go to infinity and beyond! It is a piece of plastic that fits in the pocket and confers magical exemption to the laws of monetary scarcity to anyone who possesses it.

The segment of the public that perennially falls for every tax-and-spend measure concocted by each new wave of political con-artists is in the same psychological space as retail-spending addicts. Tax-and-spend measures are the original credit-card, the original psychological device for disconnecting monetary cause from monetary effect. No public works project has ever been free. The real, economic cost must always be paid, whether by Peter or by Paul, for the same reason that perpetual motion machines do not exist -- that is, because there are no exemptions to the laws of physics (the laws of material scarcity). No matter how many babies they kiss or how many ribbons they cut, no politician can cause the concrete that will form a public-works dam to magically transport itself from the quarries and form into a dam. Real, physical energy must be expended to transport real, physical resources from one point to another. No government can overturn the laws of physics nor, by the same token, the laws of economics.

If the human tendency to spin the facts to suit our fancies ended with therapy sessions or an occasional visit to a rehab center, things might not be so bad. Unfortunately, humans are not only capable of living in perpetual denial of obvious facts and undeniable reason, we are also a violent species. That is, we are quite willing to engage in intra-species violence. It can be argued that violence is the ultimate credit-card, that is, the ultimate disconnect between cause-and-effect. No matter how much time and effort you have poured into building your life's savings, I can separate you from it quite easily with nothing more than a pistol. To the addict's mind, violence is an irresistible Siren's call, pulling like gravity. Drug-addiction is frequently associated with poverty. But how often is it pointed out in the public discussion that drug addiction is really a sub-genre of spending addiction? The drug-addict who holds up the corner store in order to buy some drugs is ultimately motivated by a retail objective -- he or she intends to use the funds robbed from the store to buy something, that is, drugs. Thus, we see that spending-addiction and violence are just two sides of one coin.

Violence, in turn, is a sub-category of the broader category of force, where force denotes every form of compulsion, whether through levies, fines, impounds, licensing, and so on. The specific details of how force is structured (that is, how compulsion is applied in the public sphere) are irrelevant to the broader principle -- force is the universal psychological alternative to being confronted by the factual connection between causes and their effects. The Fuhrer holed up in his bunker can execute every general that brings him bad news about the war-front but no amount of violence can change the actual facts of reality that are bearing down upon him. Force, then, is the intrinsic enemy of reason. Where reason illuminates the inexorable connection between causes and their effects, force is willful blindness to this connection in order to preserve a temporary, delusional state-of-mind wherein the addict continues to believe that effects do not follow from their causes.

As anyone who has suffered from an addiction knows, eventually, the piper is paid. The piper comes in the form of the hangover, the crash, the collapse, the bankruptcy, the impound, the arrest, the lawsuit, the seizure, the impeachment, the garnishment, the doxxing -- and so on, and so forth. The delusional mind which has habituated itself to prefer the illogic of force over the plain light of reason will fail to perceive even the hangover as the inevitable effect following from its causes. Rather, he or she perceives the hangover itself as just some greater will-force overriding their own will. This is purely magical, childish reasoning. When the addict gambles and loses, he or she resorts to conspiracy theories -- it's those damn Japanese, or the Jewish bankers, or the Chinese, or the oil industry, or fill-in-the-blank. There is always some Evil Other that is lurking somewhere out there and flies upon us for no reason except to thrash us with undeserved suffering, and then flies away. In this way, we are never to blame. We are never forced to admit that there is a different pattern of behavior or thinking which would relieve us from suffering bad effects by avoiding bad choices to begin with. No, all of our choices have always been the correct ones. Sometimes, the Universe just becomes a malicious typhoon and sets upon us like ancient sailors at the mercy of the capricious gods of the sea.

We do not often see clear discussion of the basic truths of economic science in the popular press for the same reason that there are so many widespread addictions. For the same reason that the drug-addict will hold up a store to buy more drugs, the popular mind will rationalize the application of government force (law) to enact social measures that preserve the delusional status quo wherein economic effects do not follow from economic causes. That is, force allows the addict to temporarily suspend his or her awareness of the cold, hard facts and the indifferent laws of reason by which causes give rise to their effects. Like the credit card -- the magical amulet of the retail-addict -- force separates cause from effect and allows us to feel we have escaped the uncomfortable reality that will inevitably be exposed by the austere light of reason.