In another magnificent bit, Don Boudreaux paints a picture of why liberty works better than centralization and political control of economies. Intuitively, if asked, most of us would rather the world work via cooperation than coercion. Most of us have been taught to think of democratic government interventions as at least "well
intentioned." Often ignored is the fact that any and every government intervention is based on coercive force - and not cooperation; at best, the citizens comply with the government's force. I hope you enjoy this as much as I did.
http://www.pittsburghlive.com/x/pittsburghtrib/opinion/columnists/boudre
aux/s_643873.html#
Here comes the G-20
By Donald J. Boudreaux, Sunday, September 20, 2009
The Group of 20 that travels to Pittsburgh this week for another economic summit proclaims on its Web site the goal of laying "the foundations to move beyond the crisis to a sustainable recovery." Good idea.
The difficult question, though, is "How?" One school of thought -- call them the "decentralists" -- advocates
greatly expanding the role of markets. As markets expand, so too does diversity, competition and creativity.
Entrepreneurs experiment with different types of financial instruments, manufacturing processes, retail-distribution methods and other ways of earning profits. Because markets are open, a wide variety of these
experiments in earning profits arises. Some of these ways prove to be less profitable than others. Entrepreneurs abandon the less-profitable ways and mimic the more-profitable ones. As this process goes along, some business products and practices establish themselves as being generally reliable -- "sustainable," to use the G-20's jargon -- while others disappear. Nobel economist F.A. Hayek described this ongoing competition as "a discovery procedure." No one can figure out in the abstract just what are the best ways of
doing business: What are best ways of balancing the returns on financial instruments against their risks?
What is the optimal size of a steel plant? How much reserves should banks hold? What is the optimal ratio of mortgage debt to household income? Whatever knowledge we have about these and countless other such matters is discovered through experience. And the experience that produces the most trustworthy knowledge is the experience that includes the widest feasible range of trials and, hence, of errors. For the decentralists, the ideal economy is always in a state of becoming -- becoming better, in fits and starts, as evermore useful
knowledge is uncovered by the vigorous winds of competition. And so this economy is never free of errors, failures or disappointments. But because in this economy not all financial eggs are in the same basket, if Jones Co.'s newfangled hyper-indexed-and-derivative-backed financial instrument goes bust, there's a good chance that Smith Inc.'s rival financial instrument remains strong. Mistakes are offset by successful moves. And bad luck is offset by good. The other side The second school of thought views the economy in a radically different
way.
Members of this second school -- call them the "controllers" -- advocate more detailed government management of the economy. Controllers don't trust the inherently messy process of trial-and-error competition. They are motivated by two abiding faiths: The first is in man's abilities to figure things out through abstract reason. The second is in the general trustworthiness of smart people to apply the findings of abstract reason dispassionately for the general welfare. Whenever the controllers see evidence that the world isn't perfect, they assume that the imperfection can be corrected by government applying genius to the problem.
This "controllers" approach is dangerous. First, not all imperfections should be corrected. Many are the
unavoidable byproducts of productive trial-and-error competition. "Correcting" these imperfections too often means shutting down trial-and-error competition. Second, because controllers can exercise economy-wide control only through "Big Plans," these plans are necessarily formulated in aggregate lumps. They are plans for "workers," for "banks," for "mortgagees" and so on. All nuance and individuality are lost, for these Big Plans cannot possibly be customized to account for the different tastes, talents and hunches of each of hundreds of millions of people. The differences among workers, among banks, among consumers are ignored. Third, because Big Plans are premised on the notion that the planners have figured out just how the different sectors of the economy should operate, these plans crowd out the individual, decentralized experiments that are the hallmark of a market economy. A plan isn't really much of a plan if individuals are permitted to ignore it. Fourth, unlike in decentralized markets, if the Big Plans are flawed -- either in design or in execution -- there's no offsetting, competitive alternative. Everyone is along for the dangerous ride. All eggs are in the same big basket. The problem with associations such as the G-20 is that they are by nature prone to formulate Big Plans -- and, in the case of the G-20, Really Big Plans -- plans that span not just one country but 19 countries plus the European Union.
Government leaders do not meet to agree to do nothing. Being the ultimate "controllers," they must propose to "do something." Harmony's danger "Harmonizing" regulatory rules is among the efforts they'll undertake. Sounds good. (Who opposes more harmony?) But this harmony is especially harmful. One of the most important types of competition is competition among governments. For example, a government that raises taxes to too high a level will lose investors to governments that tax more moderately. "Harmonization" eliminates this competition. But "harmonization" is a weasel word for governments conspiring not to compete against each other for capital. "We won't cut our taxes if you don't cut yours" is the kind of agreement that harmonization brings. The G-20 meeting will end with all manner of happy talk about cooperation. Some cooperation, of course, is desirable. But be on the lookout for cooperation that throttles competition, swapping the creative initiative of decentralists for the centralized power of controllers.
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