Social engineering

Once upon a time, economists thought of themselves as moral philosophers. We have come a long way since Adam Smith. We've worked hard to turn ours into a truly respectable, hard, mathematical, value-free, "positive" science. Once we were jealous of the successes of natural sciences in revealing the mysteries of God's creation. Now we know how to apply their tools to the study of production, exchange, and consumption. Humility is no longer a virtue in our ranks.

Today, many of us believe that we have figured out how the economy works. That gives us confidence to propose ways to fix markets should they malfunction. We advise policymakers on how to manage our economic lives in so many ways. We have become engineers of full employment, social progress, and fair distribution of wealth. Alas, we sometimes forget that we do not study planets, rocks, or subatomic particles. We deal with human behavior. Humans have the deficiency to think on their own. As a result they often frustrate our attempts to build them heaven on earth.

One lesson we learned the hard way back at the height of Keynesian theory and policy is that money is not neutral. Deficit spending creates winners and losers. Outcomes of free market competition are also uneven. Some participants succeed, some fail---but these are mostly based on merit, i.e., how well they serve consumers. On the other hand, producing winners and losers through regulations and monetary and fiscal interventions brings much more social tension. Sometimes outcomes are pre-determined by political allegiances. Mostly they come with all the randomness of the unintended consequences of messing with a system that we will never fully understand.

At the very least it would be unwise to focus on a few real or perceived benefits today while trying hard not to think about who will pay the bill tomorrow. Perhaps a future government will have the political courage to deflate the fiscal bubble before it bursts and takes us all down. Perhaps the Fed will be able to reverse its easy-money policy on time to prevent America from going down the road of Zimbabwe. We simply do not know enough to predict if and how the economy will react to the current anti-crisis or future anti-inflation measures in the short run. The long-run legacy of the current and previous administrations' poor stewardship of our national resources, however, will very likely have the usual outcome of increasing the burden on the working poor.