Economics is beautiful. It’s the science of prosperity – how every individual in an economy can find their way to prosperity by collaborating and exchanging with other like-minded individuals for mutual benefit. The essences of economics include individualism – people helping people; betterment – everyone always seeking a higher level of well-being for themselves and for others; value – the feeling experienced when that higher level of well-being is attained; creativity – the new, never-tried-before ideas that humans are capable of generating; learning – no-one knows, controls or can predict the future, but new knowledge is continuously generated and shared through experience. Learning, creativity, the search for betterment and the pursuit of new value make economics an exciting, dynamic discovery journey of innovation and new horizons.
We might call this form of economics “People’s Economics”. It’s the science of making people’s lives better. In his book Factfulness, Hans Rosling lists 16 Bad things Decreasing (including children dying, hunger, and plane crash deaths) and 16 Good Things Increasing (including literacy, access to electricity and safe water, and immunization). His point is that the individual drive for betterment and the search for better value – i.e., the science of economics – are the source code for global progress and human thriving. The dynamics behind this progress include experimentation, collaboration, feedback loops, and entrepreneurship – what complexity scientists call “explore and expand”: keep randomly trying things that might work, and expand resource allocation to those that do.
There’s another version of economics that we’re all more used to and more exposed to. That’s government economics. It’s the opposite of the science of prosperity for individuals or the individually-initiated drive for betterment and the search for value. The focus of this form of economics is not individual people and their personal pursuit of well-being. It focuses more on aggregates – meaningless contrived statistical roll-ups such as GDP. Individual people are meaningless in GDP. It focuses on government policy: the government’s fetish for control over the individual in economic terms knows no bounds. Government has explicit and detailed rules to control everything that is produced and everything that is used or consumed. There are government rules about the size of your breakfast cereal package and the ingredients listed on it. There are government controls that govern the car you drive and the airline tickets you buy and every element of your healthcare. And the government’s second major interest in the economy, after controlling it with regulations, lies in extraction: taking, via taxes, tariffs, and fees, the fruits of the economic activity of private producers that remain even after regulation has strangled productive possibilities.
Why does government economics dominate the economic conversation? First, the government employs most economists and subsidizes their research. Most Ph.D. economists are employed by the Federal Reserve and government departments either directly, or as paid consultants and advisors. Most economic research and the papers published by universities and think tanks are subsidized or directly paid for by government grants of various kinds. Economists are paid to do government economics. And secondly, of course, government controls the media through which we get most of our economics information, through the statistics it publishes and how these statistics are covered by mainstream media. All mainstream paid media require government statistics to report on and debate, and government economic policy to publicize and weigh (don’t worry, it’s all good, they tell us). They can’t question the existence of the Federal Reserve when Federal Reserve policy and actions provide them with so much airtime content and therefore so many advertising dollars.
Any of us can switch to people economics. It’s simply a matter of reframing. Frame the economic knowledge you have and the news that comes your way through the lens of individual end-users and individual producers, both people-as-producers and firms-as-producers. For example, take the question of whether or not there is an economic recession. The government statistics say no, not yet. Some of the commentators on “macro” economics believe we are in a recession. To decide the question, look through the lens of you. Do you have a job? Does that generate cash flow for you? Are you consuming? Are you consuming less or more? Is your mortgage rate locked in, or floating? These and other personal questions determine your economic condition and economic outlook, not the statistically-contrived movements of some meaningless aggregates.
You can use the same personal assessment for price inflation. Are things you buy more expensive than they were a year ago or six months ago? All of them, or some of them? Are you able to cut back on some expenditures that don’t seem as necessary as they once did? Can you make substitutions? Can you adjust? The level of price inflation that’s painted as a “national” level is a government number. It signifies nothing about your personal inflation, or your family’s. Your inflation is not determined by the national prices of eggs or gas or any other single item, but by the monthly or weekly dollar expenditures for household expenses. Some of these are fixed and some are variable and you manage accordingly. You economize. You calculate and recalculate and re-evaluate.
Similarly, on the production side of the economic equation, People’s Economics applies at the individual level. The driver of economic production, innovation, and growth is entrepreneurship. This is a function that any individual can perform. Trading labor hours for a wage is entrepreneurial if the combination of revenue and psychic reward is greater than the individual’s perceived cost of doing the job. Working for a corporation can be entrepreneurial so long as the work is done in a value creation mode as opposed to a bureaucratic mode; bureaucracy is non-productive. Entrepreneurship can be pursued by any business owner, co-owner, or investor, so long as the focus is on producing customer value (as opposed, for example, to maximizing shareholder value).
There are a few economists who recognize people economics. Professor Deirdre McCloskey of the University of Chicago calls it humanomics, and she’s campaigning for an end to the kind of false measurement that characterizes GDP and the centralized control of people that is the driver of government economic policy. She favors individual creativity and discovery as the drivers of economic growth. She calls for liberty from policy.
The entire Austrian school of economics, of course, is the antidote to government economics, built on the consumer as the originator of value – discovering what to want – and the entrepreneur as the producer of value – meeting the consumer’s newly discovered wants with innovation.
The economics profession has a lot to answer for. Mostly, it should cease to debase itself and stop selling itself to governments. We can then rediscover the beautiful science of prosperity.