Among the economists whom I am at odds with are college professors and government economists. Among those is the always wrong Federal Reserve Chairman Ben Bernanke. How it is that such smart people can be wrong day after day and year after year? One problem is that graduate level economics courses are economics in name only. What is really studied at these levels is actually accounting and has nothing to do with economics. Students leave college convinced that one number causes another, then go out into the real world and stumble all over themselves. Firm is the belief that if it is taught by a credentialed professor with a 165 IQ it is the gospel.
The economics taught in school applies perfectly to the fantasy system that is assumed to exist in the U.S.A. However the fantasy system leaves out important ingredients and further, has mutated and doesn’t even exist. In the real world economic decisions are not made in the way they are assumed to be made.
Conventional economic thought assumes that decisions, both private and public are made in keeping with intellect. In the real world instinctive impulses drive most political decisions and contribute greatly to economic decisions. Leaders in government are even more controlled by instinctive drives than is the general population. People have an instinctive drive to serve a master and a bias toward giving government a significant role in allocating resources. Individuals are not capable of behaving in the ways necessary for a market economy to function efficiently. I am nothing close to an expert on human instinct but just recognizing that it is a constant influence, gives me a real edge in figuring out where the economy is headed. All of the esteemed who are oblivious to the relevance of instinctive behavior in economics are completely limited.
Today the public sector accounts for a huge portion economic activity. There is a huge misunderstanding concerning why government has grown so large. Of course, because of instinctive biases, growth of government is always hard to contain but there is more. After a long time there are dynamics in a democratic system that no one anticipated. Democracy provides a stage on which the 5% or so of the population with insatiable thirsts for power can compete. In the old days a person had to be born into royalty to be a king or a queen. Today the power hungry promise to have government do things for you that you can’t do for yourself. Politicians promise to use government to take resources from groups who have no political power and give the resources to constituents who support them. The competition for power is now so intense that you are even being promised things that government cannot do.
These are the types of dynamics that are determining economic outcomes in the modern world. What a person gets with an economics degree is an abridge version of the economic arena where the most significant influences are left out. Ben Bernanke can’t do anything right not because he isn’t smart but because he isn’t looking at anything that makes a difference.