The following news reports have all been published in the current month:
So, did reading those reports make the national and global economic outlook perfectly clear to you? With so many contradictory stories, it wouldn’t be surprising if you just sustained a case of whiplash.
Going forward, are food, energy, and metals prices going up or down? Is there going to be a global food crisis later this year, or not?
Welcome to the world of economic forecasting. In economics, we study cause-effect relationships that yield such projections as, if A happens, then B will follow, ceteris paribus. It’s that Latin phrase, ceteris paribus (loosely translated: all the other factors remaining unchanged), that’s the perennial qualifier for economic predictions. The fact is, in our dynamic world, multiple factors change on a daily or even hourly basis, so economic forecasting becomes exponentially more difficult, if not virtually impossible.
Economic news reports can appear to contradict each other even when both are true. As any investor/speculator can tell you, prices (whether of stocks, food, oil, natural gas, etc., etc.) don’t move in a straight line. Charts of prices show perplexing zigs and zags. Even when a powerful new price trend appears, it can quickly reverse, maybe for a brief interlude, maybe on a longer-term basis, if a majority of market participants think a price has risen too far too fast.
But here’s the good news: At the very moment we read grim headlines trumpeting economic peril or gloom, millions of rational actors are in the process of devising ways to adapt to convulsive changes in supply and demand. They’re tapping into the most valuable economic resource—perhaps the only resource that’s more valuable than food and energy: human intelligence and ingenuity.
Wherever humans aren’t placed in economic straightjackets by oppressive government controls, their entrepreneurial instincts and talents are responding to the swirl of conflicting news reports and trying mightily to make adjustments to keep their economic noses above water, and possibly even to increase their profits.
Markets are the ultimate democracy. Every single person’s economic actions impact the overall economy. In free markets based on private property, decisions to buy or not buy and to sell or not sell—in other words, the ongoing interplay between supply and demand—yield economically rational prices that allocate factors of production and guide and shape economic production.
Socialism, in contrast to free markets, is guaranteed to obtain inferior economic results. That’s because socialism is inherently, even viciously, undemocratic. Rather than let the intelligence and knowledge of millions of economic actors give shape and direction to economic production, socialism employs an elitist approach.
Under socialism, all the key decisions about what to produce are made by a relatively small number of government officials. It’s both ironic and hypocritical that socialists in our country preach “diversity” and “inclusion,” and yet they favor an economic system that excludes most people (most minds—the source of intelligence) from contributing to solutions through a diversity of tactics and strategies.
Under socialism, those entrepreneurs who have demonstrated the specific knowledge to manage a particular industry competently are supplanted by political hacks who lack the specific knowledge to manage any particular industry, much less all industries. Socialism can never coordinate economic activity as well as market-based economies for the simple reason that socialism minimizes the number of minds making economic decisions, relegating most humans to a gray existence as a puppet or pawn of the elite planners.
Let us all extend our best wishes and most fervent hopes that millions of economic actors—some prominent, most anonymous—succeed in their entrepreneurial efforts to bring needed goods to market and avert a humanitarian disaster in this most unpredictable of years.
