by Hunter Hastings via Mises Wire
Economists and Wall Street analysts are using the word recession to describe the looming plunge in output in the US economy. We’ll just make the point early that economists, exhibiting the typical emptiness of their failed science, can’t even agree on the definition of recession.
Undeterred by lacking a definition, the geniuses at Goldman Sachs and elsewhere on Wall Street are unrestrained in predicting the imminent arrival of the condition they can’t describe.
As is always the case, people understand the condition that economists can’t even describe in theory. They understand the lost jobs and wages, the reduction in activity at the businesses where they work. They understand fewer shifts, fewer hours, a smaller paycheck, or layoffs or furloughs, unemployment, and the need to ask the government for handouts to get by and to feed their families, when they’d rather be helping themselves. They understand uncertainty and disruption. They feel the fear of not knowing their own economic future. Recessions, like all economics, are subjectively experienced in the human mind, in individuals, in families, in communities.
We have an understanding of why recessions occur cyclically (although economists can’t agree, of course). Business growth, the opposite of recession, is driven by savings and investment in new capacity, new and more productive machines, new software, new roads, bigger ships, and all the capital that people put to work to produce more goods and services. Investment is a calculated bet on time: if a business spends this money now on new production that will occur in the future, they calculate a positive return on that investment. Recessions occur when governments get in the way and distort the calculation. They issue too much credit at too low a price, and the business calculus misfires. The low cost of credit entered into the investment calculation gives a false positive. When the investment is actually undertaken, it fails to deliver the expected profit. Projects are shut down. Jobs are lost.
We have seen this cycle many times. The failed investment calculus may apply to dot-com companies (2000), home mortgages (2008), or one or more of many other sectors. Typically, the malinvestment is quickly shaken out and economic growth resumes.
But wait. The coming recession in 2020, so coldly and unfeelingly computed in the cloud by Goldman Sachs, is not like this. We are about to enter a production slowdown—a collapse, really—not because some businesses miscalculated their investments, but because government intervened drastically and without warning to shut down all businesses. How did they do that? By taking away the freedoms of the people whose energy and application drive economic growth. Government told them to stay home. Don’t go to work. Don’t go to bars and restaurants and cinemas. Don’t take your kids to school. Don’t build cars or airplanes or computers or houses. Don’t provide hospitality at hotels. Don’t perform the tasks that constitute a growing economy, where everyone who works serves everyone who consumes and everybody thrives.
Let’s leave aside for the moment the monumental error we made in allowing government to do this—to withdraw our economic freedoms with such damaging consequences. Let us try to understand the thinking and the motivations behind this tsunami of government hubris.
First, it is based on the worst error of government: central planning. Despite all repeated evidence to the contrary, and despite their endless failures, governments believe they can predict and change the direction of the future based on mathematical modeling of the human condition. The models are computed using the government experts’ own assumptions, thereby achieving a self-referential circularity. They’re right, because they’re right.
In the current case, the government experts input a wide range of unproven assumptions about coronavirus incidence and infection rates and the exchange of infection between individuals. They arrive at predictions of infection for the population. There are wildly fluctuating model outcomes and predictions, so they pick the worst case.
The second step is the giant leap from the theoretical output of the models to the fantasy that government action can be taken against real people in order to change the inputs to the model. Reinfection rates too high? Order people to change their behavior to get no closer to each other than six feet (another assumption from some model somewhere). Tell them to stay home and abandon all economic activity. Lock down the state. Lock down the country.
Why are they doing this? Because they can. They have not actually given a reason. To save lives? Whose? Why now and not in previous flu seasons, which are much more deadly? To reduce pressure on the healthcare sector? Find other ways to do it. Which one of us has been asked whether he wants to sacrifice his livelihood in return for a theoretically reduced probability of a COVID-19 infection? They have the models, and they have the political power to order us around. Control and power over individuals is the only justification.
Worse, this escalation in the power of government, which has reached the point where they can order us not to leave our homes and enforce the order at the point of a gun, will prove irreversible. We won’t be able to unremember what they did to us. It will be indelibly recorded in history. Governments will point to this instance to justify future, worse instances.
We must start to resist.