Modern economic policy is a game of trickery and deceit. Today’s standard-brand economist plays the part of wizard, bolstering his pronouncements with the arcane magic of his models. His chief function is to aid politicians and their vast bureaucracies to continue pulling the wool over the eyes of the populace.

That is, the reason economists get paid what they get paid is largely to support the general policy of the age, that taking wealth from the people (in taxes, mainly) and giving it back in dribs and drabs in the form of earmarks and sinecures and grants and handouts and so forth, while skimming off the top to maintain the vast corpus of institutional governance. The pretense of this policy that all this taking and giving and skimming makes us all better off.

Nonsense, of course. But the job of the economics profession is largely to justify that. It’s no wonder that otherwise sensible folk, such as trade specialist Paul Krugman, appear in public mostly as a shill for Keynesianism and redistribution: The trade theory is his scientific work, the shill-work is the professional duty to the establishment. And it seems that he really enjoys this latter over the former. Too bad.

The game of “magic” is pretty obvious in both theory and practice, but, like in religion, pious people pretend that it all makes sense. So many lives and careers are on the line.
My favorite example of pandering to baser motives and instincts, to keep the whole affair rumbling along, is the modern policy of inflationism. We cannot have a free banking system, or a gold standard, or any metal standard, because then we would have general price deflation. And what is so bad about prices gently falling?

Well, Tyler Cowen explained this to Russ Roberts of EconTalk, not too long ago. The people are stupid, you see. If prices fall then wages — the price of labor — must fall too. And the average Joe does not understand the difference between nominal and real wages. So he objects. He balks at having his wages lowered over time, and considers himself getting poorer, even if he is getting richer because of the general fall in prices.

Now, there is certainly a germ of truth to this. People are very stupid about economics.

At the end of the 19th century and the beginning of the 20th, even as living standards were quickly rising, the pressure keeping nominal wage rates low from the adherence to the gold standard gave rise to all sorts of nearly insane working men’s movements: communistic anarchism, syndicalism, communism, Progressivism, trade unionism and the like. These various forms of vague (and not-vague-enough) “socialisms” were wreaking havoc across the civilized world, and being exported into the semi-civilized world (that is, Russia) to disastrous effect.

In contrast to Marxist revolution, our serpentine wise elites offered up the modern model of constant tinkering with the economy, and their crowning achievement was in central banking. And what the new central banking theory was a repackaging of seigniorage to fit the modern modes: inflationism.

And, says Tyler Cowen, it’s all to fool the fools. They simply cannot understand that a gentle deflation is an increase in wealth. So, in its stead, a “gentle (and often not-so-gentle) inflation” becomes the rule. The monetary rule.

But pandering to this poltroonish stupidity has its costs. Abandoning a stable monetary system for managed money of centralized banks set up a system whereby savers tend to be penalized and short-time-horizoned consumers get rewarded, crippling the economy in several very crucial ways, and corrupting society in general, mainly by politicizing economic processes.

By pandering to human error, and to the illusion of nominal wage rates, managed money encourages forms and depths of class exploitation not possible under honest monetary regimes. If I am being hurt, in my savings, then I must marshal more of my savings into riskier investments. Many of these do not pay off, so my desire to get a political guarantee increases, too. Much of the current “too big to fail” policy stems from the “little guys are too stupid to accept the truth” argument of the monetary policy.

This sort of thing riddles the whole of today’s economy. And it is mighty hilarious to read “sophisticates” who have graduated from college superficial econ and poli sci courses lecture us about how important our “safety net” and “regulatory systems” are to the basic populace. Most of the evidence for this is pure bluster. The science behind it? Pseudoscience, scientism, based on hasty readings of surface evidence, a lack of studied understanding of long-term and widespread effects.

Against the modern regime of constant bureaucratic management — which lurches between micromanagement and crude negligence, in reactive waves of trendy analysis and political pressure — must be pitted the ideal of an honest rule of law. A few simple principles carefully applied, with rigor, is enough to establish a voluntary social order where co-operation provides a vast panoply of goods and services to increase all our wealth. Making the regulatory system complicated doesn’t allow for more complexity in the voluntary order, it discourages and throttles it.

I suspect that even dimwits can be trained — by policy and a little good education (not necessarily, of even likely, provided as “public schooling”) — to understand the difference between real and nominal wages, just as even accountants come to glory in the difference between the rate of a tax or a profit and the gross and net amounts of such things. And, generally, people can wise up.

But this will only happen if wise folk like Tyler Cowen stop propping up lying as a way of life. The modern state is drenched in lies. I see no reason to encourage economists to bend over backwards to bolster up such indecency and folly.

And this seems true, especially now, since it appears that the cost of the new order is a system that goes ever-more out-of-control and perilously close to insolvency. The repeated historic end of inflationism is the liquidation of the spontaneous order of markets.

Back in 1980, when I first began to read economic theory (I juggled Mises and Friedman tomes, with increasing interest), I had a fascinating chat with a budding young economist (I forget his name; it would be interesting to know who he was). We were discussing Misesian and monetarist approaches to sound money. He pushed the Misesian pretty hard, and I, in catholic spirit, stated that “I’d be happy with a simple, consistent monetarist policy.” And, what do you know, that’s what we got. Volcker and then Greenspan basically kept inflation low, but “positive.”

The trouble with a mild inflationism, it seems to me now, is not that it is so horrible for the economy as such (though I think a mild deflation would be better), but that it is, like a whirlwind, impossible to contain. It is institutionally supported by forces that will, periodically, push it out of balance, crowding out good theory with bad. That’s what happened under the late Greenspan/Bernanke watch, and it will happen again, if the Federal Reserve survives the current crisis.

Now, like Hayek later in his career, I am thinking we need to put money out of the hands of politicians and central bankers.

And we should try to avoid establishing “fooling the fools” as the basis of our policy. Fooling folk as a way of life has this tendency to come around and poke you hard in the posterior. As Herbert Spencer wrote, years ago, in his one great essay in monetary theory, “The ultimate result of shielding men from the effects of folly is to fill the world with fools.”

Yes, that great line came from an essay called “State Tampering With Money and Banks.”
Such is the lesson. May we all learn it.