Prophecy and Prosperity

posted at 12:19 pm on June 5, 2009 by Doctor Zero
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Unemployment has now reached 9.4%, a figure Ed points out is actually higher than the “worst case scenario” prediction of 8.8% that was used to frighten people into supporting the Porkulus bill. Part of the attempt to spin these numbers in the media has involved claiming the most recent predictions were actually worse, so this is a “better than expected” unemployment report. This is a little bit like watching a furniture store raise all their prices by 15% on Friday, then declare a massive 10% Off Super Sale on Saturday. In a New York Times article from January, Obama is quoted as predicting an unemployment rate of 9% by the end of the year, if his economic plans were not implemented. His plan was pushed through a Democrat-dominated Congress, and now we’ve exceeded 9%, unemployment, six months ahead of schedule.

Predicting the future is hard. Private companies frequently get it wrong, too. Several movie studios passed on “Star Wars” before 20th Century Fox picked it up, believing the risk of its sizable budget was not worth the potential rewards. Superior video and sound quality did not prevent Betamax video tapes from becoming a footnote in home-entertainment history. Fortunes were gambled on predicting the outcome of the more recent battle between HD-DVD and Blu-Ray technologies. Confident predictions that Microsoft’s Xbox 360 would dominate the current generation of video game systems were shattered when Nintendo’s Wii came out of nowhere and took the world by storm. Every auto manufacturer has a gallery of models that sold far below expectations.

Predicting the future is necessary for success in a modern economy. All major business decisions are predictive, to some degree. Money is made in the stock market by anticipating the fall of high-value stocks and selling them at their peak, and buying cheaper stocks before they rise. New products require large investments of time to bring to the market, so today’s research and design engineers are developing tomorrow’s goods. Unemployment numbers vary as companies try to guess their labor needs for upcoming quarters. In a pre-industrial economy, the metronome of success beats at the slow pace of passing seasons, but for the businessmen of the Information Age, right now is three months ago.

The problem with a state-run economy is that one set of predictions guides all economic activity. When private enterprises make predictions that prove to be inaccurate, each company deals separately with the consequences. I would imagine some heads rolled at the studios that sent George Lucas packing in 1977, but whoever green-lighted “Star Wars” at Fox probably got a nice bonus. The failure of Betamax did not bring the entire home-video industry crashing down, because other companies placed their bets on the winning VHS technology. One company’s mistaken prediction becomes another company’s opportunity. Some business plans are based entirely on the hope that a major competitor has misjudged future trends.

Economic growth depends heavily on the ability of businesses to make educated guesses about future markets. Heavy-handed government domination of the markets cripples the economy by increasing instability. Every auto company in competition with General Motors, back when it was a private corporation, invested some effort in guessing what it would do next, or what consequences it might suffer as the result of bad planning. Now that it’s a state-run industry, the old rules of action and consequence no longer apply. GM’s product lines will have very little to do with consumer demand, and its poor management decisions will be subsidized by huge infusions of taxpayer cash. Eventually, it is likely that tariffs or import quotas will be used to forcibly distort the auto market, to keep Government Motors competitive. The fate of the company will have more to do with the needs of United Auto Workers, and the politicians who serve them, than market forces. Knowing this, the political management of GM will invest less effort in the tricky business of anticipating market trends. Why bother, when they know the President and Congress will dictate what products they can create, or which plants they need to keep open, and a shroud of tax dollars will be laid over their failures?

The other problem with relying on Big Government to steer the entire economy with its flawed predictions of the future is demonstrated with those gigantic bailouts: if the shape of the future economy turns out to be different than its projections, government is more likely to use its power to reshape the economy, than change its assumptions and policies. No one in the Democrat Party will look at the skyrocketing unemployment numbers, or the huge “stimulus” spending that failed to prevent them, and conclude reductions in government spending are clearly the wiser course of action. No one in the Party will even consider the possibility that pork-fried “stimulus” spending actually made the unemployment figures worse, by changing the hiring calculus of companies that received, or missed out on, those fat piles of taxpayer loot – to say nothing of the damage reckless deficit spending does to the bond market. Look at the immediate reaction of the administration, and its media sycophants, to the latest unemployment numbers: instead of admitting the catastrophic failure of their stimulus spending policies, they try to cook up a convoluted reason to declare those numbers “better than expected.”

The only safe prediction for the coming year is that everything will be worse than Obama promised it would be, and worse than it should have been… but as each new drop of bad economic news oozes across the front page of the newspapers, it will be declared “better than expected.” Anticipating the shape of things to come is absolutely crucial to economic growth, but the government is a lousy fortune teller.

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