October 08, 2014

Economic Magic

I'm getting a wee bit annoyed with Keynesian economists calling me "idiotic", "ignorant", or "illiterate". Seriously, folks, if you want to know what happened to "civil discourse" perhaps you should start by looking in the mirror.

We live in a global economy. Events on Wall Street affect the quality of life in a Nigerian slum while Islamic terrorists in Nigeria have a direct impact on Wall Street. That is a simple reality that most economists readily acknowledge regardless of which school they follow. Our world is completely interconnected. It does not matter if you or I or anyone else happens to like this simple fact, the fact itself does not change. Keynesian economics posits that by changing the tax rates, using debt to fund poverty relief, or some other economic witchery, a national government can magically gain control over this global monster. That is not science. That is simple old-school numerology. A numerologist believes that equations not only describe reality, they control reality, therefore by changing a number in the equation the numerologist can change reality. Well, I do apologize, but it just doesn't work that way. At least, not for very long.

Consider, for example, solar power. A Keynesian economist would have us believe that if the American government simply borrows enough money and pours it into solar power we can eliminate our reliance on fossil fuels. They ignore that fossil fuels have been the basis of multiple human societies for at least seven thousand years, and possibly longer. Evidence of coal burning has been uncovered in archaeology sites all over the world. Everywhere that coal can be found on or near the surface humans have used it to fuel their forges, heat their homes, and cook their food. No matter how hard we try to break away from coal it remains one of the most efficient, easy to use heat sources ever discovered. Those are simple facts that no amount of disgust with coal-based pollution can overcome. We can minimize coal burning by replacing it with cleaner burning natural gas in many circumstances but we cannot change the fact that as long as we can keep digging coal out of the ground people will keep finding reasons to burn it. The coal is there, it burns well, and it is easy to use and transport. Until we have exhausted it completely someone, somewhere is going to use it. Meanwhile, at last count nearly 50 Obama-backed Solar Companies were bankrupt or nearly bankrupt. Changing the equation does not change the reality.

"But what about the poor? Surely it is the duty of government to help the poor!"

A very long time ago the Earth's climate changed dramatically. A combination of changes in the sun, volcanic eruptions, the flooding of the Baltic Sea, and many other variables shifted the heat patterns of the world and the atmosphere began retaining a tiny bit more heat than it reflected. The polar ice caps melted. Tens of thousands of species went extinct. The planet began to warm. That warming trend continues right to this very day. And yes, there is considerable evidence that it might be gaining momentum, but that does not automatically mean humans burning fossil fuels is the cause. Volcanoes are still exploding, ocean tides are still shifting, the sun is still expanding, all of these things have a far more powerful impact on our climate than burning fossil fuels. The Centralia Mine Fire has been burning since it was ignited on the night of May 27, 1962. Environmentalists are quick to blame a team of Centralia firefighters who ignited some trash at the town landfill, however, no one has yet proven that the trash fire ignited the coal seam. More importantly, it does not matter if the trash fire is indeed to blame. The seam is burning and will continue to burn for another century, possibly for another two centuries. Every year the Centralia coal seam fire dumps millions of tons of carbon dioxide, carbon monoxide, and other gases into the atmosphere. No one is quite sure how much, and the Centralia coal seam fire is only one of several known to be burning. These fires cannot be extinguished, so even if humanity completely eliminates industrial use of coal, millions of tons of carbon pollution will continue pouring into the atmosphere from these fires.

What does feeding the poor and providing them medical care have to do with global warming and unstoppable coal fires? Quite simply, everything. As the Earth began warming many of the species that went extinct were species humans depended on for food. Unable to produce enough food by hunting, many small groups began farming. Technology and techniques improved with practice and within a dozen or so generations humans were more dependent on some level of farming than they ever had been on hunting. The idea that until a few centuries ago most of the human race relied on hunting and gathering to eat is simply false. It's not based on fact. It is based on romantic notions about free-ranging ancestors and nomadic societies living at the very fringes of arable land. For at least twenty thousand years, the primary food source for humans in every corner of the globe with arable land has been farming. Dry-land grains or wet rice farming have been feeding us for nearly as long as we have been human. Grains were supplemented by meat either harvested, traded for, or raised, and that meat is vital to keeping our brains fully functional (clearly before we were hunting we were scavenging, and that is why our brain depends on a steady diet of meat). For at least 250,000 years we have depended on meat to keep our brains working and therein lies the problem.

No prehistoric human society existed that did not include consumption of meat. This simple fact has been verified through both archaeology and paleontology. For as long as we have been "human" we have needed meat. Control over meat determined social rank, leadership, problem-solving ability, creativity, tribute authority, trade wealth, and countless other facets of human society. Every "economy" humans have ever functioned under has involved some kind of meat, some kind of grains, and some kind of luxury items. Meat, grains, and luxury items are our human economy. Access to economic participation has always been determined by two things: resources and ambition. It is the combination of resources and ambition that makes some people succeed while others fail. Wealth is derived by transforming labor into one of two things: food or material goods. If a person has no food, they must either produce food or trade for food. In order to trade for food, a person must find or create something the person who has food is willing to trade for. Work and not money, is the basis of all real economic activity. Money is simply an easy way of trading my food for your material goods or vice versa. "Capital" is a concept that arose once we realized that "money" represented food, material goods, or labor. It simply abstracts an existing reality. Capital and the movement of capital is what economists describe. Regardless of how they label themselves or which school of economics they follow, the real-world subject of all their fancy equations is capital and "capital" is simply an abstract way of thinking about food, material goods, and labor.

And that is why I insist that Keynesian economics is not science. Keynesian economics ignores food, material goods, and labor. Keynesian economics only recognizes the abstraction, not the reality. That is why Keynesian economists are completely convinced that if they move a few numbers around they are changing reality. Well, they aren't changing reality, at least not for very long. The real world of food, material goods, and labor can be described mathematically. Economists of all schools are very good at describing the real world with numbers and equations. However, that does not give them any form of control over the food, material goods, and labor that are the real basis of human economic activity. It is possible to describe economic activity through mathematics, but it is not possible to control human economic activity through mathematics. There is one simple reason for this: numbers can't control people and people's choices are what create economic activity.