Wanted: A New Economic Theory?

An interesting article appears in the February 6 Sydney Morning Herald. It comments on the inability of the major economic theories to predict recessions such as the current one. It remarks on Prime Minister Kevin Rudd's economic stimulus package, though it might as well have been directed at Barack Obama's - in search of an economic theory to support it.

I loved where it points out that, "Economics is far too political, and its practitioners far too personally invested. They already know what causes recessions - the left knows it's the policies of the right and the right knows it's the left."

But, more importantly, it points out how the economic effects of land are disregarded. It describes the pervasive role of land in all major economies. While the article does not endorse LVT, or even mention it, it is a great reminder that land is a necessary factor of production and not a form of capital.

It would have been nice if they had mentioned Henry George's view of political economy and the critical role of land, but then again, they were looking for some justification for government intervention, which George's Single Tax simply does not provide.

It sadly reminds me of the results of a quiz I offered to members of the local Libertarian party a couple months ago. One question asked what the essential role of the government was in the economy. Most who took the quiz tried to come up with some role. As I recall, only one person answered that there was no essential role for government. Economies exist both before and without government intervention quite nicely.

Just as sadly, it seems that a large majority of people out there believe the government must act to save the economy - that the recession is a failure of the free market. I'd be happy if I could just find an example of a free market. If the exchange of goods is subject to a sales tax, it is not a free market. If the employment of others in order to produce, distribute, or sell goods is taxed, it is not a free market. Any market subject to involuntary government regulation, inspection, or licensing is not free. If inventory or capital is taxed, the market is not free. What's left?