On the Road
Some thoughts on matters economic, dateline Arizona
Here I am in Phoenix, Arizona, which has always looked to me, a native New Englander and transplanted Midwesterner, like the landscape of Mr. Bradbury’s The Martian Chronicles. My wife and I travelled to this alien place to attend the high school graduation of our two oldest grandsons—congratulations, Nate and Max! And it may be that a bit too much sun has turned my thoughts to that dismal science, economics.
It would not be an exaggeration to observe that people everywhere, with occasional exceptions, are economically illiterate. Such ignorance spawns many evils, such as trade protectionism, “industrial policy,” and other forms of economic planning. Their inevitable result is a favoring of the few over the many, and an economic system tending toward a fearful conservatism that inhibits risk taking, innovation and growth. These and other misguided policies, though emotionally satisfying, always prove counterproductive on the bottom line.
A good example of the magical thinking that surrounds economics is the charge, heard from know-nothings both Right and Left, that “American jobs” are being shipped overseas. The argument goes that if 50,000 Chinese are toiling in smartphone factories, 50,000 Americans are being deprived of work. This would be quite true if 50,000 Americans were willing to work for Chinese wages—which they are not. Or it would be quite true if American consumers were willing to pay the premium for smartphones made by high-priced American workers—which they are not. Thus any attempt to “bring those jobs home” would make everybody, Chinese and American, poorer.
It is an irony not sufficiently appreciated that economic illiteracy has become the special preserve of that tumor on society, the cult of expertise. Over and over, excessive faith in the wisdom of people with glittering credentials has led to the most dismal economic outcomes. For instance, price controls and rationing of scarce resources, sold to the public as measures promoting fairness and efficiency, merely drive the affected resources out of the market, causing shortages and distress. In the 1970s and 1980s, America experienced just such pain, thanks to the government’s misbegotten efforts to ration gasoline and control its price.
The problem is that the experts seldom know what they’re talking about or, to put it more charitably, that they’re working with radically insufficient information. A classic case in point is the Simon Wager.
In 1968, Paul Ehrlich, then a professor of biology at Sanford University, caused a sensation with his book, The Population Bomb. In it, Ehrlich argued that in the 1970s, population growth in the developing world would outstrip agricultural production to such an extent that hundreds of millions of people would starve to death. And when no such thing happened, Ehrlich went right on predicting that resource depletion and population growth would produce disaster. He had become a celebrity doomsayer, and to this day many in the media promote his apocalyptic vision.
But in 1980 he was challenged to a bet by a Stanford colleague, the economist Julian Simon, who proposed that the price of any five commodities, selected by Ehrlich himself, would be lower in 1990. Ehrlich took that bet—and lost. Ten years later, all five were cheaper.
Paul Ehrlich was tripped up by a couple of things. First, there’s really no such thing as a “scarce resource.” All resources are scarce in the sense that the amount of any given resource available at any given moment is always finite. Second, current scarcity tells you nothing about long-term availability, which depends on many factors. To assume that current scarcity inevitably must lead to greater future scarcity is, to put it no more pointedly, a free-floating assumption.
The foregoing examples illustrate the limiting factors on expertise, which are contained in the observation that the present is complicated, while the future is a blank. But economic illiteracy, both untutored and credentialed, is based on the opposite assumptions: that present problems are well understood, and that a problem-free future can be built.
Economic illiteracy also manifests itself in the form of a morality play whose plot, though it varies, relies on some perennial themes. These range from the claim that “greedy corporations” and “the rich” are exploiting workers and ripping off “average Americans” to general critiques of capitalism, market economies and consumerism.
The claim that corporations are “greedy” is rooted in the unremarkable fact that corporations, indeed all business enterprises, exist to turn a profit. Naturally enough, this desire sometimes valorizes poor judgement or leads to bad behavior. And when that happens, the discipline of the market economy exacts a high price. Just ask Bud Light or the Fox News Channel. Or ask yourself what happened to Sears, Roebuck and Studebaker.
The real locus of corporate corruption is crony capitalism: collusion between corporations and government to circumvent market discipline and consumer choice by granting special favors to favored economic actors. Numerous examples of this are to be found in the energy sector, for instance the US government’s misbegotten effort to promote electric vehicles—an initiative unaccompanied by serious thinking about the infrastructure required to support EVs. No crystal ball is required to forecast the multi-vehicle pileup toward which this policy is steering the country.
Critiques of capitalism in general, both populist or academic, are scarcely less puerile. Whether emanating from nationalist conservatives or devotees of socialism, they’re based on claims that a market economy is unjust and inefficient, and that government has a duty to correct for such deficiencies. The US government’s demonstrated incompetence and corruption during the recent pandemic, seconded in many cases by state governments, is a sufficient commentary on the wishful thinking embodied in that notion. Government too is in the business of maximizing its profits, in the currency of power, which all too often is grossly abused.
No doubt capitalism, market economics, call it what you will, is full of flaws, inequities and vices. Human nature being what it is, things could hardly be otherwise. But the relevant question is this: Compared to what? It once was possible to think that socialism could correct for capitalism’s flaws; history, however, has rendered a harsh judgement on that belief. To repurpose a truism, capitalism may be a very bad economic system—except for all the others, which are so much worse.
It’s no coincidence that today, denunciations of capitalism march pari passu with a rejection of liberal democracy and the embrace of tribal politics. A free market, operating on the principle of decentralized choice, is anathema to people who think in terms of the collective and group rights. That’s why Bernie Sanders complains that there are too many brands of deodorant on offer, and too much diversity of speech on social media.
The inflation reduction act is the worst bill the administration could have possibly passed, worse than the american rescue plan that started this spending-driven inflation.