Crystal-ball truths

Donald J. Boudreaux
Friday, May 12, 2006 12:00 a.m. | Friday, May 12, 2006 12:00 a.m.

Economists often are asked to predict -- predict tomorrow's price of gold, the future course of the Dow Jones industrial average, next month's unemployment rate and on and on.

My honest answer to everyone who asks my predictions of such things is: "Your guess is as good as mine."

I can't answer such questions because people want specific numbers such as, "Next July the price of gold will be $752 per ounce." Such specifics are unpredictable, not only by me but even by those who confidently offer such predictions.

I can and do, however, make what the late Nobel economist F.A. Hayek called "pattern predictions." For example, if the Federal Reserve significantly increases the rate of growth of the supply of dollars, I predict that inflation will increase. I don't know by how much it will increase, except that it will increase more the greater is the growth of the money supply.

Here are some pattern predictions that I'm willing to make, recognizing (as I do) that the world is a deceptively complex place:

No country ever will be economically harmed by free trade. Or, put differently, every country that frees its consumers to buy from abroad will prosper as a consequence

Government K-12 schools, as now run everywhere in the U.S., will never excel at educating students. The reason is that each school gets its students and its budget without having to compete for them.

Imagine if, say, supermarkets were run the same way we run schools. Everyone in my county would pay taxes to fund the county supermarket system; each one of us would then be assigned one specific county supermarket at which we are allowed to shop.

Of course, once in our assigned store, all the groceries that each of us gets are "free" -- meaning, we don't have to pay for them on the spot. If the products and services supplied by the supermarket are of poor quality, we're not allowed to switch to other county markets; we must, instead, complain to politicians.

The managers of the supermarkets will agree that their stores offer abysmal service and undesirable products; they will assert that this sad fact is caused by underfunding. We will be warned that only by paying higher taxes will we have any possibility of getting better supermarkets.

So our taxes will rise and funding for supermarkets will increase. But quality will remain poor -- and the excuses offered by the government-employed managers of the supermarkets will remain that they need yet more funding.

Price controls never will work. Goods and services in short supply -- say, because of a natural disaster -- will only be harder for ordinary people to get if government prevents sellers from raising prices to "abnormally" high levels

France, Germany and other countries whose citizens seem fervently to believe that job security exists only if mandated by the government will suffer unusually high rates of unemployment unless and until they stop believing this myth. Whenever government raises employers' costs of firing workers -- say, by making the firing of workers very difficult -- it raises employers' cost of hiring workers. Fewer workers are hired

A follow-up prediction to the one just above: Average worker productivity will be higher in those economies cursed by heavy government intervention into the labor market. Although at first this prediction might sound counterintuitive, it makes perfect sense. When government artificially raises the cost of hiring workers -- by mandating high minimum wages or by increasing the amount of red tape firms must endure in order to fire workers -- the workers that remain unhired are those who are least productive.

Think about it: If the French minimum wage is the equivalent of $10 per hour, then French workers who can produce no more than $9 per hour of revenue for employers will not be hired, while in the U.S. such workers will be hired.

By pricing the lowest-skilled workers out of the labor market, European regulations ensure that only relatively high-skilled workers get jobs. So measures of average worker productivity will tend to show that workers in restrictive countries such as France and Germany are more productive than are workers in America. But this statistical outcome is a deceptive artifact of lamentable labor-market regulations whose burdens fall disproportionately on Europe's poorest peoples.

Finally, I predict that people everywhere will continue to be assaulted with economic misinformation. We will continue to be told that giving monopoly power to domestic producers is the road to wealth and told that government officials possess some special talent to make choices for each of us on how we live our lives.

But the triumph of these lies is not inevitable. Stand guard against them.

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