EKIP– Expert Club for Economics and Politics A Different Opinion
Chapter I, Part 1*
Nowadays, many people feel that the explanations of crises and social processes are incomplete, if not completely wrong. The process repeats itself - political formations change, promises are replaced, and disappointments are not long in coming. Change is needed, but not driven by the hope for new state "saviors", but by the choice of a person to take responsibility for himself and his actions. Because there is always an alternative, but we must desire it in order to see it. To understand the power of voluntary cooperation and the division of labor, which lie at the heart of economic growth, progress and prosperity. The stakes are high.
However, the belief that state intervention plays a key role in social and economic processes remains widespread. In economic theory, such an idea is embedded in the ideological concept of the Keynesian school of economics, whose founder is the British economist John Maynard Keynes. According to the supporters of this school, when economic activity declines, the state should intervene in the economy by increasing the volume of government spending in order to stimulate consumption and, hence, economic recovery. A formula that many governments continue to blindly follow to this day, trying to achieve the set government goals and the thus dreamed of economic growth. Guided by the idea that the engine of growth is consumption, not investment and savings, Keynesians recommend measures that can only temporarily postpone, but not solve fundamental problems. By resorting to various instruments of fiscal and monetary policy, state leaders drag individuals into a vicious circle, in which each subsequent state regulation becomes an attempt at subjugation and deprivation of individual freedom, but not a measure to eliminate the source of the problem.
Which is more important – the values of economic indicators or what lies behind them?
Advocates of Keynesian economics believe that gross domestic product (GDP) is the main determinant of a nation’s well-being. However, by its very nature, GDP [1] cannot explain whether the final value of goods and services produced is the result of a real increase in the well-being of society or is due to the misallocation of public funds in unproductive assets. State leaders can increase public spending, which will invariably affect the growth of GDP. But what of it? An increase in GDP does not always mean an improvement in the well-being of society. Will the construction of a sports field, for example, in a depopulated area lead to a real increase in income and living standards, or will it be an example of blind planning that needs public funding?!
The opposite position is held by the representatives of the Austrian School of Economics, who place the acting person with his motivation and ultimate goals at the heart of it. As Ludwig von Mises clearly points out in his outstanding work Human Action, the behavior of each individual is dictated by a certain dissatisfaction in the present, which motivates him to use the available means to seek a solution and achieve the desired goal. Individual choice and purposeful behavior do not mean that he cannot make mistakes, but that he will take responsibility for the consequences of his action. Therefore, the judgment whether to postpone his current consumption or spend everything at once is completely rational and is determined by his time preferences (attributing a higher value to the current satisfaction of needs than to future ones). Unlike the “mainstream” economists, who assign the main role to consumption, the “Austrian” economists consider the increase in real savings and investment of capital as the main prerequisite for generating economic growth. [1] Postponing consumption and accumulating more savings, capital, and consumer goods is the first step on the path to improving material well-being.
Individuals experience economic progress only when their needs are met, i.e. the factors of production are used in the most efficient way. For this purpose, a competitive environment is necessary, where every entrepreneur, driven by his desire for profit, has an incentive to use the means of production in a way that satisfies the desires of consumers to the greatest extent. Some skeptics will ask if this is even possible? Yes, and this is exactly what “magic” happens in the free market. Where the state does not interfere in the economy and there is no reason for a monopoly to arise. Where economic growth cannot be an end in itself for state planners, but only the result of free will and voluntary exchange between individuals.
When a country's GDP growth is based on consumption and artificial government stimulus, rather than real savings and increased labor productivity, sooner or later everything that has been built collapses. Figuratively speaking, try building a house of playing cards by placing them one on top of the other. With each new card, the paper structure becomes larger, but more unstable, until finally everything collapses to the ground. In reality, representatives of the people largely build their political strategies in exactly this way. Faced with the temptation to prioritize financing their current expenses, they focus on finding quick solutions to achieve short-term effects. In the long run, however, the picture changes and the temporary privileges for some members of society turn out to be dust in the eyes of everyone else in it, who must bear the high price of the chronic deficits and debt levels accumulated by the government - impoverishment and loss of economic freedom.
Two economic schools, two different ideologies.
Mainstream economists use mathematical equations and static methods to find connections and dependencies between market phenomena. The attempt to predict economic outcomes by applying mathematical science and combining indicators of different economic nature excludes the dynamic function and active role of entrepreneurship. By focusing on equilibrium models, the defenders of this ideology ignore free individuals who are in constant motion, competition, and cooperation with each other.
And what is economics?
“Economics is a theoretical science and as such refrains from any value judgment. It is interested in the means that the acting man applies to achieve certain ends, and not in how these ends should be chosen. Science never tells man how he should act, but only indicates to him the means to apply if he wants to achieve a given end.” [2]
Unlike mainstream economists, who see the market as a constant equilibrium, the Austrian School of Economics defines it as the interaction of people who are constantly and purposefully striving to improve their current situation. The decision to buy or sell a particular good is dictated by their subjective judgment, and the fact that they value material goods differently makes voluntary exchange between them possible. Thanks to market prices, entrepreneurs receive information about where to most effectively direct scarce resources so as to satisfy the most pressing consumer needs and preferences. And although they have some knowledge of past market prices, they face uncertainty about future consumer demand and take the risk of combining production factors. Driven by their personal interest and desire for profit, entrepreneurs are forced to anticipate and adapt their actions to the future state of the market, otherwise they will suffer losses for every inefficiency and missed opportunity.
[1] GDP = consumption + investment + government spending on goods and services + net exports
*The article is part of a project to create a collection of basic postulates of the Austrian School of Economics, which we will publish periodically. You can download and read the entire first chapter HERE
The topic is big and one needs to know how they think, and Prof. Israel Auman (Nobel Laureate in Economics for 2005) says it somewhat - https://www.facebook.com/atanas.shalapatov/posts/1763375897273970
,and I must read the book by Prof. Valentin Katasonov (World Kabbalah or Robbery in Hebrew)
Economics is a very special but also a social science - a ''living organism'' that needs policy and planning because of the exhaustible energy sources and water, which is also exhaustible for now, slowly through photosynthesis, but when 50% of food is thrown away, it is also waste, and the putrefactive processes that release greenhouse gases are a separate topic.
I research the economic theory of Silvio Gesell, and Marx is right about some things, that banks should be state-owned but with total control.
Keynes is somewhat right in the sense that we need to manage the processes in the economy, that when there is growth, we need to increase taxes and interest, and when there is a decline, we need to reduce taxes and government intervention to stimulate growth or at least keep GDP at the same level, and Keynes' mistake is that during growth, the revenues from taxes and interest should be collected in a fiscal reserve that is spent during depression, and of course, state banks, that is, 51% of the world's problems come from the banksters.
I don't like the Austrian School theory from what I read in the RDF format.
1) because there is talk of government intervention through monetary banks, but the Fed is not a state bank, etc.
2) in general, without state intervention, the wheel of the economy cannot turn, and separately, as a Nobel laureate said, worse than a state monopoly is a private one, and it is unnecessary to mention the "invisible hand" of the market.
State intervention does not only mean state-owned factories, but progressive and family-based taxation and 100% social solidarity in healthcare is mandatory on the one hand because it is the most cost-effective and, more importantly, because it is part of Christian virtues/obligations.
In recent centuries, science has discovered and proven things that are written in the Bible, including economics and finance (usury).
In the New Testament it is written: "8. And Zacchaeus stood and said to the Lord, Behold, Lord, half of my goods I give to the poor..."/Luke 19:8/
that is, ''half of one's property'' is 50% taxes (direct, indirect) and not a 10% flat tax (tithe from the Old Testament) which does not mean indiscriminate government spending but according to what St. Paul said, ''he who does not want to work shall not eat'' that is, unemployment must be maintained at 2-3% with socially useful activities and labor rationing and Keynes understood it in 1930. about technological unemployment in 2030, which is why working hours must be reduced - with 50% taxes, love for God and neighbors is not exhausted, that is, most things are covered, but there is still a little.
A significant weakness of the Austrian School of Economics is that it does not distinguish between the use of gold and non-gold money. This does not allow for correct conclusions about useful government.
The free, unregulated market sooner or later gives rise to its negation - monopolies, due to the property of capital that big fish eat small ones. Moreover, without regulation there is no provision of healthcare, education, culture, environmental policy, security.
This is absolutely not true - with fish, or with healthcare, education, etc.