Lawmakers have been trying for centuries to find a way to promote prosperity. Niall Ferguson offers some historical perspective. As always, Ferguson provides a delightful read.

So far, centuries down the road, nothing has worked very well. But this is the promise of macroeconomics – discovering the alchemy that will allow government policy to cause economic smooth sailing.

Color me skeptical. Microeconomics is little more than common sense rigorously applied. Macroeconomics starts with some dubious assumptions, the most questionable being that aggregated data offers insight into systemic behavior. This is in contrast to the Hayekian view that the emergent order is too complex to comprehend, much less manipulate. I won’t say that macroeconomics is bunk – if nothing else, it provides some elegant and entertaining math. But the evidence suggests to me that macroeconomics is overrated.

Before Keynes and before Hayek, economists understood that capital misallocations did occur and would be corrected in free markets. Sometimes these misallocations happened on a large scale and the corrections would also occur on a large scale. As we are seeing, this can be painful. Misallocations occur due to bad economic calculations regarding any number of factors: technologies, laws, wars, weather – you name it. I see nothing on the horizon that will eliminate economic miscalculation in the future or reduce the impact of the inevitable correction.


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