A NEW BEGINNING

This is the end…for political theories

In previous parts, we have described the theoretical intentions of the entire range of political theories: the left, the centre and the right.

Using statistics we have shown how the standards of living are supposed to change (for the better), under those theories.

We have also shown the real-life consequences of applying those theories. The consequences are invariable negative; much less income which translates as a much lower standard of living.

We must also call attention to the fact that the decrease in income is drastic, affecting almost everybody. It is not something marginal that can simply be dismissed.

Furthermore, those catastrophic drops in economic activity are not side-effects of those economic policies, but are the main consequence of those policies.

Politicians cannot excuse themselves stating that there were errors in applying their theories because those theoretical goals are the very core of their political beliefs.  Even worse, we must remember that those politicians have had over 100+ years to experiment and not only they came up empty handed, but had made things progressively more desperate over time. Yes, they are good at hiding the truth, but they can only hide so many mistakes. The very accumulation of those mistakes is what we are experiencing today. All the economic instability we are experiencing world-wide  over the last few decades is nothing but unintended consequences of all those mistakes bursting through their covers. They are not temporary glitches, they are preambles to a series of main events that will be far, far worse.

At this point, it would be wise to ask ourselves, what, if any, is the answer? We know that neither the left nor the centre nor the right works. Actually, they are the source of the problem. And what do we do when we find the root cause of a problem? We fix it.

The only problem is, they have been trying to fix it and failed for over 100+ years simply because their political theories are the problem. So, what do we do when confronted with a root cause that cannot be fixed? We cut our losses and get rid of it altogether. There really is no other solution.

Scary stuff. It would seem that we are looking at the abyss. We can either stay with current systems and keep getting worse and worse, or we can get rid of them altogether and jump into the unknown. How do we know this is the unknown? Because politicians told us so. Because schools controlled by politicians told us so. Because we feel in our guts that the entire civilization will collapse if we get rid of them. It has to be like this, it simply has to be. Hundredth plus years of civilization cannot be wrong… or can it be?

In a single word: yes. It can and It is.

We would not be jumping into the unknown, but back in time, where things worked just fine (actually better than today) without the need for politicians and their theories. We have been there and have forgotten. All we need to do is to go back and remember that in the past it did work, and there are no reasons why it should not work again.

In the following sections, we will explore what a world free from political interference and nonsense would look like. And let us tell you this, it is brilliant!

 

A tale of three countries…again

In previous sections, we have seen the descriptions of three countries, Poorland, Averageland and Richland. They are in a free trading zone, have roughly the same population and the same natural resources. Yet, their standards of living are vastly different. We have seen this fact summarized in the following distribution:

 

 

We also pointed out that the shape of the curve did not change from country to country, it simply shifted to one side.

It is obvious from these curves that Richland is far better off than Poorland. The question that lingers in the background is: how? How is it possible that one country is doing so much better than the other, considering that they all have more or less the same economic resources?

For that, we need to go deeper and look at their political systems. It so happens that they are all Centre-Politics, which should yield about the same curve, yet they do not. How is this possible? Simple. Poorland’s Centre-Politics leans towards the Left, while Averageland’s Centre-Politics leans towards the Right.  This explains their under-performance compared with Richland.

And how about Richland then? Their politics are also Centre-Politics but they favor a freer market. That’s the key!

Richland’s distribution shows that:

• It is possible to shift the curve towards higher Net Incomes
• It is not necessary to alter the shape of the curve to achieve higher Net Incomes
• There is nothing Richland’s government did to achieve higher Net Incomes

Strange, isn’t it?

 

Austrian Economics to the rescue

In reviewing the reasons why Richland is… well… rich, we came to the startling conclusion that they were better off despite having a government and not because of it.

The most brilliant action that government ever took was… paradoxically enough… not to take too many economic actions.  They tried to stay away from interfering with the market as much as possible.

All the evidence points into the direction that the less government interference we have, the higher our standard of living is. And so, a new critical question arises. How far can we push this process? How much better off can we get?

This question was already answered in the past. Studying countries where governments stayed more-or-less away from interfering with economic conditions over long time, we can clearly see that market benefits maximize. The economic growth seems to stabilize at about 2% per year (this is real growth, not inflation-based GDP), we have stable money that nobody can forge (gold and silver), true deflation and short, shallow and swift business cycles. In summary, these conditions are the very best we can hope for. Economies “sizzle” all the time and everybody does much, much better.

And so, the next question is a simple one: can we duplicate these conditions?

Certainly!

All we need to do is to prevent any government interference in the economy. This is the essence of Austrian Economics. Get the government completely out from the economy.

However, how do we achieve this if government politics (as we have seen above) are based on market interventions to achieve their goals? Simple. Get rid of all governments. This is the essence of Absolute Libertarianism.

The connection between Austrian Economics and Libertarianism is now clear. The first depends on the second, but they also complement each other.

And so, we reach a strange, but absolutely true conclusion:

 

The only way to win at the Quality of Life political game is not to play.

 

This is the most profound and revolutionary economic truth that humans have discovered since they first developed the notion of leadership and government.  We have come full circle. From freedom through tyranny and back to freedom. The path is clear.

 

Austrian Economics Quality of Life

What would an Austrian Economics distribution curve look like? Glad you asked. Please take a look:

 

 

There are few interesting point that we need to discuss.

To begin with, the shape of the distribution curve did not change. It is still Gaussian. This could not be any other way, because the Gaussian curve is the natural curve of a free market. Austrian Economics is not trying to manipulate the distribution curve; it is simply trying to find out where is it most efficient, and then get out of the way.

Another interesting property is that there is a huge shift to the right, towards a much higher Net Income. None of the other Political Theories could  accomplish anything even remotely comparable, not even in theory.

Then, we have the fact that we still have “poor” people and “rich” people. That is as it should be expected. If we don’t change the shape of the curve, that is precisely what we will get. However, there is a major difference. In this system, even the “poor” people are far, far better off than the “rich” people from even Richland! In a free market, being poor simply means that you will not be able to afford some luxury items that the middle class or the rich people can. However, it also means that you will be well fed, well housed and possess a superior health care. This can be seen in the bar graph, where the relationship between poor, middle and rich classes has reverted to 1:10:100 (the original relationship in Averageland), however, the maximum of the curves have all multiplied by five times!

At the same time, you will have unprecedented freedom.

Austrian Economics is the art of getting out of the way and letting the market achieve its potential. It is that simple!

 

But we still like our government!

A common criticism that we receive very often is this. Why do we have to get rid of governments and allow for a free market, if the population of Richland seems to be doing OK with a government?

And our answer is always the same. Richland is a statistical aberration in terms of politicians and in terms of time.

This requires some explaining. Richland works OK because its politicians so allow. But what happens when these politicians are replaced by new politicians? They all start to intervene in the market. This means that sooner or later politicians will screw-up the markets, it is just a matter of time.

Consider Switzerland. This country was a poster child for Richland. Until the 60’s that is. At that point in time new, “social” politicians came to power and transformed Switzerland into what it is today: a socialist country. To verify this all you need to do is to find a chart of Switzerland’s external debt over time. Remember, socialists are all about borrowing and spending. So far Switzerland’s standard of living is increasing, despite its constantly growing external debt. This is no surprise. Debt begins to have an impact on standards of living passed a certain number. However, what we don’t see is how much of this standard of living could have been achieved without the debt. If the trends from previous years can be extended, the answer is quite a lot! The issue is not that Swiss citizens are now better off than how they were in the 60’s, the issue is that they could have been far, far better off without the socialist policies. Furthermore, they have mortgaged their future!

 

CONCLUSION

It is quite simple. If you want a maximum standard of living and maximum economic stability and maximum freedom, there is no other way but to get rid of governments and so unleashing a truly free market.

This is what we know. This is what you now know. Live long and prosper or get more of the same. The rest is up to you. It is your decision.

Note: please see the Glossary if you are unfamiliar with certain words.

Continue to Lesson #069 - Austrian Economics In Pictures – Corollary