1.2.3 The fascinating and fascinated public of economics

As we already said several times, the author does not think that the situation in the different countries is so different as people usually think it is. The paladins of wisdom, the mass media, the universities and the politicians, for different reasons, will lose control over the society.

Sometimes for economic reasons. Through the internet, everyone can have access to several hundreds of newspapers. Therefore, a lot of them are not needed anymore. Secondly, they have lost the ad market. For every kind of ad, jobs, real estate or cars, there are specialised offers on the internet. Nobody will pay for trash content generated by international operating news agencies like Reuters, AFP or AP. With the loss of income, they lose influence as well. Relevant content is often produced by small groups who, have, for different reasons access to relevant information.

The case of the television is not as critical, at least in countries, like Germany, where they are financed through mandatory fees to be paid by everyone, even if he or she doesn' t have a television. At the other side, television and radio will not lose the public even if they spread the same trash as newspapers because people watch television while eating, ironing the clothes, talking and so on, making it an ideal condition for advertising.

In theory, economists could play an important role in this transformation process. They should be interested in that process because an economist relies on data. Many times, a situation is not difficult to evaluate because special skills are needed, but because the simple data is unavailable. For example, the effects of custom duties are easy to understand and well known since 1776 when Wealth of Nations; Adam Smiths first book was published. However, in order to evaluate the impact, data is needed about the products taxed, the total amount of the duties and who pays them. In order to form an opinion about the general budget of the state, information is needed about what and how the money was spent. It should be possible to control the whole payment flow from the reservation of the money in the budget until the final payment.

There is no need for a deeper knowledge of Perú, New Zealand, Germany or China to know that the respective bureaucracies will kick against the publication of this kind of data. Neoliberalism, Milton Friedman and Friedrich Hayek contributed little to economics. It is nothing more than a radicalized version of the neoclassic theory, but some statement of Milton Friedman in free to choose about bureaucracies are right. Bureaucracies are not the altruistic servant of the people; bureaucracies have their interests, and they will defend their interest by all means..

For political parties on the other side, large bureaucracies and influential bureaucracies are interesting. The bigger they are, the more power they have and finally for the press, it does not make any difference to spread information they can easily obtain and at low costs or to spread relevant information. The problem is that relevant information is not easy to obtain. However, if the press wants to survive, they have to compete with specialised websites.

Until now we have spoken only about the offer of information, and many arguments allow us to believe that there will be an improvement in the future. However, the supply side is only one part of the problem. The other part is the demand for information. If people "buy" in democratic elections advertising slogans and likeable people instead of concrete, rational proposals democracy is not going to be a learning process as supposed by Karl Popper. There will be a lot of repetition.

Democratic models like the one of Anthony Down focuses on asymmetric information due to different levels of training. That is well possible. It is possible that the better-educated voters make a more rational choice, but that is not the interesting topic. The interesting topic is how to make relevant data and theories accessible for everybody. The problem can easily observed, and there is not even any need for any mathematical modelization. The interesting point is how to resolve this problem.

Anthony Down is a typical economist. Much more interesting than resolving concrete problems is publishing discussion papers in "scientific journals" or to "advice" politics. The academic career depends on the amount of articles published in "scientific" journals and not on the quantity of problems resolved.

The homo oeconomicus is a coherent concept in a free market economy with a sufficient degree of competition. In this case, he maximises the utility of the society by maximising his own. However, if the homo oeconomicus works in a bureaucracy, he becomes a homo burocraticus. Both of them maximise their utility but in the case of the homo burocraticus at the expense of the taxpayer. We will return to the subject in the chapter on Adam Smith.

The general problem with the demand for information in the context of democratic decision making is that very often few people are concerned with governmental decisions. Therefore, there is no need for the majority to gather information or the impact on the individual is subtle and the effort to inform oneself is therefore not worth the benefit. Both phenomena help small pressure groups to influence politician making.

However, if the cost of gathering relevant information would be as cheap as gathering information about the problems of the different kind of royals, actors, sportsman, sex affairs and so on, then it is very probable that people would gather relevant information.

Economists have a bad reputation, all over the world. Few people regard the economy as a science and more or less everybody is convinced that it is completely useless. This is actually a little bit strange because, in practice, they trust economists or have no choice than to trust them. Few people, for example, invest the money they saved themselves. They give it to institutional investors, banks or insurance companies and hope that these people, economists, will do something useful with their money, at least to pay them the interests promised. We will see later on when discussing about Keynes, that this probably won't happen, but this is not the interesting point right now.

The fascinating point is that the public discussion is completely dominated by economic theories. If people are asked what they think about economists, the are all convinced that economic theories are wrong. If they express their opinion about something, if wages are too high or too low, if interest rates should be lowered or not, if public spending should be increased, if taxes should finance public health or not, if universities should be free or not, they have an opinion about economic issues and very often economists influence these opinions.

We can agree that economic theories are very often pure ideology, in other words, they serve only the interests of a certain group of people. However, if these ideologies lead to big confrontations, something we saw very often throughout history, then it is time to reflect on the economic knowledge of society. Ordinary people produce at least as much garbage than economists. Perhaps even more.

The critique toward economists would be more convincing if in the public debate wouldn't be used the same arguments ecomists use.

Perhaps economists argue in a more sophisticated way, at least it looks more "scientific" if there is a heavy use of mathematical modelization, but they never learned to express themselves in a clear way and can't, therefore, influence the public debate, something more important than policy advice.

Most economists regard sciences like physics or chemistry as the methodological paradigm. We will see throughout this manual that this is wrong. However, this way of thinking does not only have an impact on methodology; it has a more practical impact as well. Economists regard themselves as engineers, and this is a logical consequence of their methodology. If the economy can be described by universally valid "economic laws" having the same precision as physical laws, then the impact of, for example, a change in the interest rate and the money supply on saving and investment is as stable as the impact of the mass of two objects on the power of attraction and can be predicted and influenced.

This way of thinking has a second consequence. There is no need for engineers to explain how the device or machine works. People do not even want to know how it works and if a detailed information is needed to get it running, they will buy something else.

The economy is not a machine of this kind. Perhaps it would be something like that if only one goal should be attained, but if several goals are to be attained and if there is a trade-off between one goal and another, the machine is controlled by a democratic decision making. The electorate must be able to evaluate the different alternatives and to understand the different trade-offs.

In other words, the economist does not sell a machine, but the knowledge about the working of the machine. His products are enlightened minds and, therefore, he must be able to make himself understood, something he never learnt and were not even part of the academic curricula.

The problem is that the career of an economist depends on the amount of "scientific" publications in journals and not on the impact on society. There is an, economically speaking, a false incentive. If every economist speaks to the public, it is through articles in a newspaper or on "talk shows", something they get paid for because the internet is not a good medium.

Their problem, in the long run, will be that the internet will become more and more influential, and if they are not present there, they will disappear from the earth.

Confusing concepts often dominate the public debate, and very often it is not clear what people mean when they use these terms. A good example for that is the word capitalism, used all over the world, in South America, Europe, the USA and in Australia without anybody knowing what he refers to using this term.

Capitalism, to make this point clear once for all, points to the accumulation of capital happening with the security of a law of nature leading to the same security to a final stage. In this sense, the term is used by Marxist economists.

The most astounding is the fact that both sides, those adept in classical economics and socialism use this term and indeed both of them commit the same mistake, although they draw completely different conclusions. Both believe, and most of the economic theories based on the concepts of classic/neoclassic economy like the Austrian school still do, that accumulation of capital is needed for investment. This is the fundamental error as we are going to see later on when discussing the Keynesian theory.

The term capitalism is not only wrong because it is misleading, but it also describes a wrong concept. However, because the fundamental difference between a planned economy and a market economy becomes blurred, using the term capitalism when referring to a market economy emphasises the importance of capital accumulation. This is something irrelevant, instead of the decentral processing of information through prices.

Obviously, prices can only have an impact on the behaviour of the people if they also act as an incentive too. Companies would not react on rising/descending prices if they do not have an impact on their earnings and, therefore, property has to be protected so that people can earn money. However, that does not mean that accumulation of capital is the essential characteristic of a market economy because a market economy does not depend on capital in the sense of non-consumed past income if we will see later on when discussing the Keynesian theory.

Both sides, the classic/neoclassic economy and their strongest opposition are obsessed with the accumulation of capital, but that is not the crucial point. The crucial point is that a decentral information processing through prices is much more effective than central planning. Individuals always know much better how they best react to changing prices because they know the better alternatives they have, the preferences they have, and they have a better knowledge about the respective markets than a centralized planning commission.

To keep it simple, when we talk about capitalism, we refer to a system, where capital is accumulated; something irrelevant in modern economies. Also, if we talk about market economies, we mean that information is processed by individuals in a decentralised way through prices. The first thing has nothing to do with the second, and if the term capitalism is used in the public debate, no reasonable discussion is possible because it is unclear what people are talking about.