Hayek and economic loss

If the economy is growing at 5%, but then it slows to 3%, that is an economic loss. The numbers are not negative, but the gain is less. Compared to the 5% we would have expected, it is a loss. If you expanded your business based on the expectation of 5% growth, you might suffer an actual loss because growth slowed to 3%. But either way, anticipated or experienced, the loss is real and monetary.

Real and monetary as opposed to the imaginary loss of an "opportunity cost". Opportunity cost is when you must choose between Plan A and Plan B, and you choose Plan A. Since you can't do both plans, you set Plan B aside, and you don't earn the money you imagined you would make from Plan B. They call that a cost, an opportunity cost. It's pathetic, really, to call it a cost. There is no actual (monetary) cost involved, and no real "loss".

People with so much money that they can take the time to sit around evaluating different plans to make even more money for themselves, those people consider every plan they don't adopt as a cost, and money lost. The rest of us know what cost is.

If economic growth slows from 5% to 3%, there definitely is a loss. Perhaps the 5% growth was more than "potential output" indicates, so that 5% was "unsustainable". Doesn't matter: If growth slows, there is still a loss. (Anyway, potential output is a made-up number, and they often change both the past and future estimates.)

Even if growth only slows, there is still real loss. That's my starting point.

 
From chapter 7 of The Road to Serfdom (p.92):

Strictly speaking there is no "economic motive" but only economic factors conditioning our striving for other ends. What in ordinary language is misleadingly called the "economic motive" means merely the desire for general opportunity, the desire for power to achieve unspecified ends.

Hayek's topic? The problem with economic planning. If we plan our own spending, we get to decide our spending priorities. But in a planned economy, the planning is centralized and the planner gets to decide what our spending priorities will be. You can see the problem.

Maybe you can't, I don't know. When I was young, I was taught that the communists had five-year plans. They planned their economy five years at a time. I don't remember anything but "five-year" plans and that the commies had em. If you were taught this as a kid in school, you can surely see the problem with economic planning. (The other thing I was taught was that ducking my head under my desk would protect me from nuclear attack.)

But I want to set aside planning, and talk about the economy. Hayek lays things out in terms of economic loss (p.93):  

So long as we can freely dispose over our income and all our possessions, economic loss will always deprive us only of what we regard as the least important of the desires we were able to satisfy. A "merely" economic loss is thus one whose effect we can still make fall on our less important needs, while when we say that the value of something we have lost is much greater than its economic value, or that it cannot even be estimated in economic terms, this means that we must bear the loss where it falls.

I love Hayek's argument. But the argument about bearing the loss is incomplete, because Hayek applies it only to economic planning. The economy I write about is an economy in long-term economic decline. Our world is littered with economic loss. In such a world, being deprived "only of what we regard as the least important of [our] desires" severely understates the problem.

Maybe we still get to choose what we give up when there is a loss. But in a world of long-term decline, the losses are endless. Now maybe we are strong of character, so we can take the losses and endure. We can "take it like a man". Is it still okay to say that?

But when you put numbers on loss, the losses add up. With the economy there are always numbers, and the numbers are money values. It's not like playing poker just to see who wins more often. It's playing for money. Playing for real.

In an economy in endless decline, at some point every one of us will reach a breaking point. Almost every one of us. When we reach our breaking point, we have not many options. If we were playing chess we could tip our king on its side. If we were playing Monopoly we could say "I'm out" and finally get out of the game. In real life, I guess we can go homeless; for this is the long-term decline version of "bear the loss where it falls". That, or we can insurrect. There are not a lot of options.

Let me say again, however, that insurrection is a political solution. Endless economic loss is the problem. It is an economic problem. Insurrection is a political solution to that economic problem. But political solutions cannot solve economic problems. We require an economic solution. I have nothing else to say about that.

For an economy in long-term decline, with gains and losses measured in terms of money, there is a  limit to the loss one person can endure. The following sentence offers Hayek's concept of how we deal with loss:

So long as we can freely dispose over our income and all our possessions, economic loss will always deprive us only of what we regard as the least important of the desires we were able to satisfy.

But again, Hayek's topic was economic planning, not long-term economic decline. His sentence doesn't properly evaluate economic loss during long-term decline.