Dear Friends,
It seems to me, a bearing is designed to reduce friction so the shaft it holds can rotate with as little loss as possible, adding sand and thus more friction increases loss to the point the shaft fails in service. We all intrinsically understand that friction makes machines break and work less efficiently but for some reason we don’t correlate that effect to our economy. Just as the friction from sand, rust or a failed bearing reduces efficiency and eventually causes failure in a machine, economic friction from taxes, regulations, corruption and having interest rates set by unaccountable people with dubious alliances, all cause an economy to function less efficiently and eventually fail.
Economics to many seems like magic, giving economists the gravitas of Merlin, but like Merlin’s magic, economics is mere pseudo science. Economics tries to explain how an economy works, and prove it understands by correctly predicting future economic conditions, given present circumstances. A tall order by any standard. It’s fatal flaw is that one of the underlying functions of economics is the human being. We are instrumental to economic outcomes. Clearly, in any area of “science” that involves the human being our science is woefully inadequate, especially as compared to our grasp of physics, mathematics and lately astronomy.
It is our lack of perspective about ourselves that makes our research into ourselves, our nature and emotions, reactions, decision making, etc… so difficult. Without comprehensive knowledge of ourselves we cannot ever really call economics a science. Our lack of dispassion concerning ourselves results in our self interests driving our observations. It is self evident that every politician always wants more power, to do whatever she sought power for in the first place, therefore, given a choice of several options she will always choose the option that results in increasing her power, it is in her self interests. Each time this happens the friction to our economy is increased. The effect on the economic outcome of each person is small individually, but the cumulative effect is huge, and the friction adds up.
Money flows through the economy like hydraulic fluid, mechanical energy or electricity flows through a machine. In a machine the engineer strives to limit the resistance to the flow of whatever the energy the machine is processing. In an economy, the engineer is the government the blue prints, government policy. The engineer builds a machine to do it’s function as efficiently as possible but a bureaucrat builds the economy as inefficient as possible. That is because the engineer is using mathematics and physics to build her machine while the bureaucrat has only his self interest to guide him. No matter how schooled in economics he may be, the bureaucrat’s incentives are in the end, self interest. The same hold’s true for politicians only to a much greater extent.
Every tax, license, regulation, requirement, zoning law, etc… requires an entrepreneur to get a lawyer, which costs money and time, multiplying the friction of the initial rule. Where an engineer puts in a bearing a bureaucrat puts in a clamp that he can tighten at will. The politician has hands to grease, and his ability to grease those hands, is based on his ability to effect changes in economic friction. He can tighten down the clamp a bit, so only the largest company in an industry can turn a profit, returning hundreds to one to his corrupt backer, for her campaign donation. At every level of government, friction to economic operation is piled on, and our politicians lament the gap between the rich and the poor.
This is only one of the fundamental problems with the “planned” economy, and why the laissez faire economy does so well… friction. The planned economy is nothing but friction, bribes, restrictions, permissions, the list of impediments to operating a business efficiently, even with virtual slaves as workers are so pervasive, that instead of adding value at each stage of the manufacturing process the system actually destroys value. In other words, the cost of labor and other inputs become so high due to friction, the value of the manufactured good is less than the original cost of the raw material. All due to friction imposed by politicians, because economics is a pseudo science, in the hands of self interested politicians.
We all want a well functioning economy. A well functioning economy produces general prosperity, low crime, advancing standard of living as well as other social advantages like less racism, more virtuous people and a return to the nuclear family as the primary family unit, that is because in a well functioning economy, we are too hard at work getting ahead, to commit crime, if we are selling sofas we could care less if the buyer is African, Asian or space alien, it is the color of his money that counts, the effects of a well functioning economy are many and positive. The way to a well functioning economy then… is to remove friction from our economy.
Sincerely,
John Pepin
