Government Has No Business Directing the Economy
because all it knows is how to fight
When you start noticing, you can’t help noticing articles about what “we” should do about this or that economic issue.
There’s “The Energy of Nations” by Constable and Lieberman worrying that “Without science, we are more or less energy blind[.]” Note the “we.”
In a slightly different take, in “The Financial Times on the Road to Damascus” by Bradley A. Thayer, we have the question of whether or not we should treat China as a trading partner or a strategic enemy.
Then we have the whole universe of “The Great Reset” and investors using “Environmental, Social, and Governance” (ESG) factors to guide their investing.
All these ideas may have merit. Maybe we need to reduce CO2 emissions; maybe we should not help China climb into the economic stratosphere. Maybe we should direct traffic in the economy to advance social objectives.
But I say that once the political gets involved in the economic then “we” reduce everything to subsidies and grants and loot and plunder.
The government provides credits for purchases of electric vehicles. In response, the EV manufacturers raise their prices. The government provides loans to college students. In response colleges have raised their fees way about the rate of inflation.
My point is that the world is full of powerful people with ideas about the economy: whether it should provide greener energy or housing for poor people. But the question is always: will it work? And if it doesn’t, how do we know, and when do we pull the plug if it doesn’t?
Almost everyone sneers a little at the libertarian notion that we should just leave it to the market to work everything out. The objection is always to isolate some group or other that gets hammered when the market changes and people get hung out to dry.
Politics, it seems to me, is all about defending us and our way of life from the enemy. We want to live in our ancestral lands as we always have, from generation to generation, for ever and ever.
But it never works out like that. Maybe there’s a famine. Maybe there’s a plague. Maybe there’s an invasion from the east. Maybe the rulers get into a war with each other. And then there’s the aftermath of wars when the economy struggles to recover from the economic disruptions of the war.
My point is that, when something has to change, politics and government won’t fix it. On the contrary, people instinctively look to government to protect them from change.
There is a human institution that adapts to change, every moment, every day. We call it the market. But we hate it when the market turns against us: when wages fall, or employers layoff their workers, or an industry making widgets is replaced by an industry making wodgets.
It all comes down to my Four Laws.
Socialism doesn’t work because it can’t compute prices. Prices tell you what to do and what not to do.
Administrative government doesn’t work because it doesn’t have the bandwidth. And, of course, the only people that administrators talk to are influential power-brokers.
Regulation doesn’t work because “regulatory capture” by the industries being regulated.
Government programs cannot work because you can never reform them. People fight to the knife to keep their checks coming.
What these Four Laws are telling us is that the political elite doesn’t have a clue when it comes to what to do and what not to do with anything except fighting its enemy and rewarding its friends. In fact, it reduces everything, whether economic policy or education, to fighting its enemies and rewarding its friends.
Oh, and, as we have seen over the last 200 years, it loves to propose a comprehensive and mandatory plan to set the world to rights, from Marx to the Progressives to the New Dealers to the Great Society to our current anti-racists and climate warriors.
People go into politics for the fight. This was driven home to me in the recent primary election between two Democratic House colleagues from New York City, Jerry Nadler and Carolyne Maloney. Wow, did they go after each other in the election campaign! Of course they did: politics is about taking the fight to the enemy.
But most of human existence is about everything except taking the fight to the enemy.
And what “we”should do is go work in the garden. Just like Candide.