Thursday, July 7, 2011

Interview by the Polish-American Foundation

While at Acton University 2011, I was interviewed by a representative of the Polish-American Foundation for Economic Research and Education (PAFERE). He asked me questions about bureaucracy, money, macroeconomic models, and monetary theory and policy. You can read the interview on PAFERE's website, but it is naturally in Polish. They have kindly allowed me to post an English translation here:

As a libertarian who actually knows bureaucracy from the inside (because of your work at Bureau of Labor Statistics) would you say that such institutions (that collect statistics) are absolutely useless or maybe there is some reason for their existence?

I would say that in general they don’t really serve a helpful purpose. I think that in the best case scenario the statistics, by the time they’re collected, if you’re going do it right, have to be collected and then you have to review it to make sure that your statistics are fairly accurate. It’s a fairly extensive review process, but by the time they get published the data is already somewhat old. One point of justification they try to make  is that the businesses who participate in the surveys can benefit from this information but businesses always have to be forward looking and the data they give is always backward looking, so even from the practical standpoint I do not think it’s very helpful, although I’m not a businessman so maybe they do find it beneficial. However, I don’t see how it would be that helpful. The most pernicious thing these statistics do is give politicians the idea that somehow they can manage the economy, that they can use this data to guide them to see is this tax increase helping or hurting or is that government spending helping or hurting and I think it’s an excuse for them to try to control more the economy. I think that’s a disaster.

Do you think that there is some solution to get rid of such a huge bureaucracy? Is there some chance to do it from the inside? From the organizations?

I don’t think there is a chance from the inside. I think the vast majority of people in the bureaucracy are committed to it. The people that would be powerful enough to make those kind of decisions have to spend such a long time in the bureaucracy, essentially they are committed to it. The people that get in and see the problems and don’t like it can’t exist in that atmosphere for a very long time and so the people that understand the problems they tend to get out and do other things. The people that stay in long enough to reach a position high enough in the bureaucracy to actually do something positive, tend to buy into the ideology, the bureaucracy, so it’s very difficult.

I will change the subject to teaching economics. When it comes to macroeconomics – are mathematical models able to explain something?

I don’t think the mathematical models explain anything. They might maybe fun to play with. But frankly all the mathematical models can do at best is establish some statistical correlation between a couple of variables but that itself doesn’t explain how the economy works.

And then you have to find some theoretical explanation?

That’s exactly right, so I don’t think they [mathematical models] are really helpful in understanding the economy at all.

So maybe we should consider another way of providing explanations. Like praxeological

Exactly, that’s the key. You have to have an understanding of how individual humans act and then how they come together in the market place and how different markets or intertwined and interconnected through the entire production structure. That’s what makes up the whole macroeconomy, but it’s the understanding of human action that allows us to understand the macroeconomics. It’s not the mathematical models based on arbitrary assumptions about this variable or that variable.

You were talking about money at one of the lectures at Acton University - What’s your opinion about the monetary policy? Is it necessary to have one or do you think market would provide appropriate monetary system?

I think a free society would be the best. Just like we don’t have to have a central soft drink provider or a central furniture provider we don’t have to have a central money maker. If we had a free society people would voluntarily decide amongst themselves and throughout society what good would be used as money and then there would be a market for producing that thing and the supply and demand for money would in some sense take care of itself. The human beings would take act so that supply would be balanced with demand just like for any other good. The best policy in some sense is no policy. We don’t need central banks. We don’t need any type of monetary authority trying to hit the so-called optimal money supply.

You’ve mentioned that you support the gold standard. Would it be in your opinion obligatory to have the gold standard or would it be a free market decision of people?
When I was talking about the gold standard I was sort of speaking historically--that historically free societies have adopted a gold standard. In reality I would be for the free market standard. Whatever commodity—it could be gold, could be silver, could who knows what. Whatever currency…

…or few currencies…

That’s right. It could very well be that in different locations different people use different commodities for their money. Whatever the market decides that is what would be used. And there is no reason for us to then necessarily say that: “Oh, wait a minute! No, you’re using the wrong thing, it has to be gold!” I wouldn’t be in favor of that.

Thank you.

You are welcome.

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