2.2.3 Economics and transparency

The author didn't know that the Austrian school is so famous in the US and South America. At the beginning, he wanted to eliminate the chapter about Friedrich Hayek because he believed the Austrian school is irrelevant.

A little research on the internet, however, shows that there are a lot "think tanks" and lobby groups in the US of austrian tendency, for instance, the Ludwig von Mises Institute and the Cato Institute.

The revival of the Austrian school can be explained by the phenomenon already explained in the chapter before, see Is it posible to convince people with arguments? Economic theories are seldom really refuted by arguments, the just fade out if the circumstances changes and reappear again if an explanation is needed for a crises. Austrian school see itself as the opposite of Marxism. They are very similar, and they share with Marxism some basic concepts, for instance, the concepts of saving and capital. The only real opponent to Marxism is Keynes because he refutes the classical and neoclassical concept of capital.

Nowadays, we still are in the year 2014, both the Austrian school and Marxism reappear because the basic errors are not understood. That's not the way democracy should work. If we consider a democracy, following the ideas of Karl Popper, as a learning process, wrong theories should be definitely eliminated. It is not enough that they just fade out, but they must be refuted by logical arguments. See the little book about Keynes downloadable from the start of this website for free.

The Austrian school and Marxism are both based on the classical/neoclassical concept of capital. Both suppose that saving, not consumed income of the past, in other words, capital, is the condition of investment and that more saving leads automatically to more investment.

The reader can understand very easily that this is not true imagining that he or she inherits, found, or wins in the lottery 10 million dollars. What would she or he do with this money? Obviously they will buy or construct a very nice house a very nice car, a lot of clothes and so on. This way she or he will spend let's say 5 million dollars. However, what would she or he do with the rest of the money? They are going to invest it in the most profitable way; that's obvious. However, how  can the most profitable use be found?

Léon Walras assumes, and Austrian school and Marxism share this idea, that the optimal allocation of capital, we talk about capital because money inherited, won in a lottery or found in the street was prior saved by someone, is no problem. Is this really true? Does the reader of these lines really know what to do with these five million dollars? Is he really kind of Larry Page or Sergey Brin, does he have his own company where he can invest more and more, does he have a lot of brilliant ideas and profitable projects?

That might be true for 0.1 percent of the people, but not for the resting 99.9 per cent. What will she or he will do with this five million dollars? He and she will believe, that institutional investors, banks and insurance companies know how to invest best the money, and the will give it to them. This confidence is barely justified, see for instance this article Big Insurance worries about the future. The public believes that institutional investors have no problem with investing money. That's wrong.

What do institutional investors with the money they get from their customers? They invest in things which are sure, in other words, it must be possible to revoke the decision on the investment. This is possible if the investment can be reconverted into money. They have a preference for liquidity, as Keynes calls it. That means they invest in the stock market producing bubbles, or they give credits to people who want to buy a house because, in this case, they can encumber this house with a mortgage.

We are not going to discuss the whole issue here again and recall the reader to the little book downloadable from the start of this website. Some basic errors of the Austrian school, Marxism, ordoliberalism, neoliberalism, all tendencies based on classical and neoclassical theory, produce a lot of errors and a rational debate about economics is not possible if these basic errors are not understood.

Economic theory is not difficult; everybody can understand that the problems are, as we have already discussed several times, the data. However, some issues must be understood.

The question is why people like Friedrich Hayek and Milton Friedman are so famous, although they contributed nothing to economic theory.

(Monetarism is actually a special interpretation of Keynesian monetary transfer mechanisms. Assuming that every increase in the amount of money lead to inflation, Friedman gets to the same results as the neoclassic quantitative theory of money.)

A possible answer is that they channel all kind of mistrust against governmental intervention for any reason; justified or not justified. People who believe that they pay much taxes can interpret taxes in general as a 'Road to Serfdom', as well as the parents, who are unhappy with the public schooling system the people dissatisfied with public health care. The savers who think that they don't get enough interest rates for their savings, because the FED flood the market with money, can use the 'arguments' of Hayek that type of interests never can be high enough. All these people find a consolation in the books of Hayek and Friedman, although no answer for their problems. Sometimes it is enough that someone, in this case, the government can be blamed for all the problems of the world.

The message of the Friedman/Hayek duo is simple. Everything should be controlled through the mechanism of the market and what cannot be controlled through the mechanism of the market, should not be controlled at all. It is clear that this statements leads to nowhere and has no practical relevance.

Most of the practical problems discussed, Milton Friedman, discusses a lot of them as we are going to see later in this manual, see Milton Friedman, can be resolved by establishing more transparency. However, it is to admit that Milton Friedman makes some concrete propositions to resolve concrete problems and some of them, concerning for instance licensing, are worth to think about.

That's what distinguishes Hayek from Friedman. Hayek is pure philosophy. A general statement that anything beyond a laissez-faire free market economy is socialism and a road to serfdom is not very helpful when discussing concrete issues.

In the previous chapter, we have already shown by a lot of examples that governmental activities can be controlled and transparency can exert a control almost as strong as the mechanism controlling a market economy. It is to assume as well that well-informed people will vote for political parties who imposes more transparency because they pay the bill of inefficient government.

The real problem is something completely different. The problem is that people have the impression that they are well informed. If all the mass media repeat the same news in the newspapers, the radio, television on the internet, distributing them even through apps, then people get the impression that they are well informed because most of the news already are not new, see also The fascinating and fascinated public of economics.

The voter in the US is completely unable to say for instance whether it is possible to bring democracy to Afghanistan through military power and which other means are necessary, same thing for Germany, obviously, nor is there any possibility to get enough information in order to evaluate the situation and it is not even sure, that the government who takes the decision to intervene there military has enough information. It is hard to believe that a democratisation of Afghanistan is possible if the Afghans are not given a clear vision for their future.

There are of course people who are in favour or against intervention, but without information what the different countries are doing there, what can be done, the different alternatives and so on no rational debate is possible. However, in public debate nobody cares about the access to information.

Some political experiences show that transparency is not really on the public agenda. The German Piratenpartei had many problems and were not really "professionally" managed. However, their main problem was, that they didn't succeed to demonstrate the relevance of their main topic: transparency. People feel well informed. The demand for information is not high.

In contrast to the neoliberal philosophers and the Austrian school who reduce the question to 'liberty or socialism', not helpful, they made very concrete propositions, very often based on technology. This is a more realistic approach. There will never be an agreement on the services and product to be offered by the government and about governmental intervention in general. However, people will always agree that whatever the government does with the tax payers money, it must be done efficiently.

A similar somehow theoretical discussion is the question whether democracy can be strengthened by implementing more plebiscitary elements. The discussion is a little bit theoretical if it is not even possible to make a rational choice every four or five years.

A much easier way to implement more plebiscitarian elements would be to oblige the public television, that exists in some countries like Germany, that a topic must be discussed in television for, let's say 4 hours, if more than one per cent of the population want it to be discussed. (The votes can be gathered from institutions like, etc.) It doesn't make actually a lot of sense to demonstrate in the streets reaching a few thousands of people, when political parties who has access to the public mass media can reach easily millions of people.The initiators of the campaign must have the possibility to oblige the addressed politicians or responsables to show up in these debate.

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It is very difficult to get to an agreement about the services and products the gouvernment should offer or about governmental intervention in general, but everybody would agree that whatever the gouvernment does, it should be done efficiently.

From a practical point of view the way the austrians or neoliberals discuss the topic is therefore useless. Governmental intervention can't be discussed in the terms of 'socialism or freedom'.

From a practical point of view the whole question is about introducing in the governmental sector mecanism of controls as efective as the mecanism controlling a market economy.


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