The battle for freedom and opportunity is never finally won.

Via www.zerohedge.com and econstories.tv, the choice in economics explained through the medium of music:

See also

• Banks, economic interventionism and the cause of the credit crisis
• Now it’s looking like V for victory over recession

A couple of quotes from De Soto, pp 456-474.

From “Effects the business cycle exerts on the banking sector”:

Hence we can conclude that an inherent trend in the privileged exercise of fractional-reserve banking leads to bank consolidation and encourages bankers to develop and maintain close relations with the central bank as the only institution capable of guaranteeing banks’ survival in moments of crisis, situations banks themselves create regularly. Furthermore the central bank directs, orchestrates, and organizes credit expansion, making sure that banks expand more or less in unison and that none stray far from the established pace.

Eerily familiar… and for fun, from “Marx, Hayek and the view that economic crises are intrinsic to market economies”:

To contend that an economy of real socialism offers the advantage of eliminating economic crises is tantamount to affirming that the advantage of being dead is immunity to disease.

De Soto goes on to provide a clear and detailed solution which he claims could provide stable and gently growing constant prosperity.

It seems everyone is talking about swine flu and the financial crisis, but they seem to be most persistently interested in what has gone wrong with the economy. After I explained the key points of this Nobel Prize Lecture by F A Hayek to my hairdresser this morning, she had confirmed in her mind what she always knew: that economists cannot discover all they need to make accurate predictions.

This is something we all need to understand.

What follows is a precis of that 1974 lecture (sometimes quoted verbatim). It explains why and how the economic policies of the time contributed to inflation and unemployment and it points the way out of our present and coming difficulties.

This is its message:

• Physical scientists can observe and measure the things that drive the sytems they are studying.
• Society, and therefore the economy, is not like a physical system: many of the most important factors cannot be seen or measured. Consider the thoughts and intended actions of millions of people at different times, for example.
• Economists and other social scientists, in their attempt to be scientific, ignore what they cannot measure.
• Therefore, many of the most important factors affecting the economy are not considered, while some of those factors which can be measured are deliberately controlled.
• The results are incorrect predictions and actions which positively harm society.

In a sentence: society is not a machine to be controlled, but a garden to be cultivated.

By the way, the remark about making astrologers look good is attributable to the Keynesian economist J K Galbraith:

The only function of economic forecasting is to make astrology look respectable.

The precis:

A Precis of “The Pretence of Knowledge”

The topic of this lecture is the chief practical problem of economists, who must now explain how to stop the accelerating inflation they have caused. In imitating the techniques of the physical sciences, economists have made grave errors of economic policy.

The assertion guided policy that there exists a positive correlation between total employment and the aggregate demand for goods and services. It implies we can permanently ensure full employment by maintaining total expenditure. This is fundamentally false and very harmful.
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An interesting, if out-there, read from Hayek in 1977:

When a little over two years ago, at the second Lausanne Conference of this group, I threw out, almost as a sort of bitter joke, that there was no hope of ever again having decent money, unless we took from government the monopoly of issuing money and handed it over to private industry, I took it only half seriously. But the suggestion proved extraordinarily fertile. Following it up I discovered that I had opened a possibility which in two thousand years no single economist had ever studied. There were quite a number of people who have since taken it up and we have devoted a great deal of study and analysis to this possibility.

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I just discovered that a long-lost friend is a Marxist.

We agree that we are engaged in a fight for freedom, and so we return to the point on which the debate still turns: should we have a big state and trust the few or a small state and trust the many? State control or free competition?

This debate is an old one, but few actually participate, never mind after researching both sides.

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