Messy Reality

After a quick shout-out to a topic I’ve mentioned here occasionally, the “folk economics” views that most people hve, econ prof Paul H. Rubin gets to the main point of his Wall Street Journal op-ed, which is that the economically unsophisticated beliefs of progressives lead them down a primrose path of policies which have been demonstrated again and again not to work:

Zero-sum thinking was well-adapted to this world. Since there was no economic growth, incomes and wealth didn’t grow. If one person had access to more food or other goods, or greater access to females, it was likely because of expropriation from others. Since there was little capital, a “labor theory of value”—the idea that all value is created by labor alone—would have been appropriate, and there was little need to protect capital through property rights. Frequent warfare encouraged xenophobia.

Adam Smith and other economists challenged this worldview in the 18th century. They taught that specialization of labor was valuable, that capital was productive, and that labor and capital could work together to increase income. They also showed that property rights needed protection, that members of other tribes or groups could cooperate through trade, that wealth could be created with the proper incentives, and that the creation of wealth would benefit everyone in a society, not only the wealthy. Most important, they showed that a complex economy could work with little or no central direction.

Marx’s economic system was based on the primitive worldview of our ancestors. For him, conflict rather than cooperation between labor and capital defined the economy. He thought that the wealthy became rich only by exploiting the poor, that all income came from labor, and that the economy needed central direction because he didn’t believe markets were good at self-correction. The collapse of the Soviet Union, the largest and most expensive social-science experiment ever conducted, proved Smith right and Marx wrong.

Members of the woke left want to return to policies based on this primitive economic thinking. One of their major errors is thinking that the world is zero-sum. That assumption drives identity politics, which sees, among other things, an intrinsic conflict between blacks and whites. The Black Lives Matter movement and Critical Race Theory foment racial antagonism and resurrect xenophobia. Leftists vilify “millionaires and billionaires” like Bill Gates and Elon Musk as evil and exploitative. They should recognize them as productive entrepreneurs whose innovations benefit us all.

Dislike of the rich makes sense in a world where one can become rich only by exploiting others, but not in a society full of creativity and useful inventions. Changing tax laws to soak the rich makes sense with a labor theory of value, but not with a sophisticated understanding of continual investment and technological change.

Adopting counterproductive woke policies such as racial job quotas, high taxes, excessive regulation of business, and price controls on some goods may not send us all the way back to the subsistence economy of our ancestors. But if policies that penalize saving and investing and that involve excessive government control are adopted, social capital, wealth, and real income will decline. If we bow to this primitive ideology, there will be increased racial animosity and conflict, slow economic growth, and fewer inventions.

Have you ever noticed that people who derive their understandings from secondary or even tertiary sources frequently misunderstand the point of the primary sources? Adam Smith was, indeed, the father of modern economics but his works assumed, insisted on a moral framework for the exercise of markets. He didn’t believe in a rugged individual’s war of all on all; “nature red in tooth and claw”. His emphasis was on achieving the best possible outcomes for everyone rather than absolutely maximizing wealth which may well place it overwhelmingly in the hands of a few. No, Adam Smith did not believe that class conflict (or race conflict or gender conflict) was at the root of everything but he would recognize all of them when he saw them.

The problem with a purely market economics is not that it has been tried and found wanting but that it has been found difficult and not tried. And every attempted remediation of the evils of a purely market economics itself needs to be remediated as does that remediation and so on and so on.

We don’t and won’t have a purely market system. It would be intolerable as in no one would tolerate it. So we’re stuck with the messy, messy reality of harnessing and restraining the workings of the market and the human nature on which it is based. We can’t wave them away as socialists wish they could and we daren’t remove their restraints as anarchists and minarchists dream we could. The argument should be about fine-tuning rather than about absolutes.