Road to 2024: Episode 3
“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
The greatest temptation of collectivism is thinking humans can centrally plan and direct a national economy. Hayek called it the fatal conceit.
If you consider the failed and failing communist states, they always turn to capitalism to save themselves - both China and Cuba did.
Capitalism is more than just competition.
Yes, it requires competition, but it also requires voluntary cooperation (with the emphasis on voluntary).
Back in 2013 the economist, Paul H. Rubin, wrote a great paper titled: Emporiophobia (Fear of Markets): Cooperation or Competition? (download here). Dr. Rubin, at the time, was the Samuel Candler Dobbs Professor of Economics at Emory University. Doctor Rubin defines this collective fear of markets as “emporiophobia” and says that this fear is pervasive:
The evidence that many people reject markets is all around us. I will not provide detailed citations to the literature showing the difference between economists and others on issues. For anyone seeking such evidence, a good starting place is Bryan Caplan’s wonderful book, The Myth of the Rational Voter (Caplan, 2007). Caplan identifies four systematic areas where the public disagrees with economists. The first and most important for my perspective is “antimarket bias,” which is equivalent to emporiophobia. Caplan provides a wealth of evidence that the public is much more anti-market than professional economists…females are less likely to think like economists than are males.
Moreover, dislike of markets is not only widespread, but is also economically significant as well. The statute books are full of laws limiting or restricting markets (minimum wages, farm price supports, occupational licensing laws, tariffs, numerous entry restrictions, anti-gouging regulations following disasters). Washington is packed with regulatory agencies whose purpose is to limit the functioning of markets.
So here we are as classic liberals, conservatives, libertarians (and even sometimes Republicans) trying to tell the masses that they should place their future in the hands of “the market” when the research shows that they do not trust – or even understand – it. This is significant because the work of Doctor Rubin and others he cites:
…showed that ideology, including anti-market bias, was an important force in driving political outcomes…
So how do we sell a capitalist model that is defined by words like competition, winning and losing, independence and self-reliance? These being words that the political left has nefariously created the connotation of being “alone” and meaning that the political right doesn’t care about the poor, the underprivileged and the aged.
Now to the question…
Can a national economy be “managed”?
There will be arguments that we have to “manage” an economy to be “fair” – this is another leftist/central planning lie because the central planners define “fairness” as an equal distribution of income or “economic equality” – we dump the entire productivity of the nation in a bucket and everybody gets an equal share with no regard to the effort you put in. In true capitalism, fairness is described as getting a return on your investment in proportion to the value that the market places on what you bring to it.
“Managing” an economy will always fail due to two significant reasons (not the only ones but two of them): 1) the Law of Unintended Consequences and 2) the Heisenberg Uncertainly Principle.
The Concise Encyclopedia of Economics defines the Law of Unintended Consequences as:
The law of unintended consequences, often cited but rarely defined, is that actions of people—and especially of government—always have effects that are unanticipated or unintended. Economists and other social scientists have heeded its power for centuries; for just as long, politicians and popular opinion have largely ignored it.
The concept of unintended consequences is one of the building blocks of economics. Adam Smith’s “invisible hand,” the most famous metaphor in social science, is an example of a positive unintended consequence. Smith maintained that each individual, seeking only his own gain, “is led by an invisible hand to promote an end which was no part of his intention,” that end being the public interest. “It is not from the benevolence of the butcher, or the baker, that we expect our dinner,” Smith wrote, “but from regard to their own self-interest.”
These “unintended” consequences can be good or bad, but the issue is that they are “unintended”, in a planned economy, the assumption is that there are none of these; however, in an economy the size of a nation, there will always be things that simply cannot be contemplated by every law, regulation or control. It is physically impossible – for an example, just look at Obamacare. Love it or despise it, there is no argument that there were items that were not known at the time of passage and will continue to develop as the regulations are defined (at least until it is found unconstitutional or repealed – which themselves are examples of unintended consequences) and it only presumes to address 1/7th of the total economy, not even a majority.
Add to that, the Heisenberg Uncertainty Principle, and we complicate the activity greatly. This principle is a facet of physics, of a branch called quantum mechanics; Heisenberg’s observation is the basis for the initial realization of fundamental uncertainties in the ability of an experimenter to measure more than one quantum variable at a time. Attempting to measure an elementary particle’s position to the highest degree of accuracy, for example, leads to an increasing uncertainty in being able to measure the particle’s momentum to an equally high degree of accuracy.
The best illustration of this principle is a thought experiment called Schrödinger’s Cat. Herr Schrödinger…
…came up with this idea of putting a cat in a box. Along with the cat is a device with an atom that could decay (radioactive decay) and cause a poison to be released and kill the cat. Or, the same atom could decay and not cause the release of a poison and the cat would live. It all depends on the nature of the atom’s decay. Since the probability of the atom decay one way or the other is 50-50 we have no way of knowing which way the atom decayed until we opened the box and looked at the cat. There is nothing unusual about this experiment until you ask about the cat before the box is opened. By the way, this experiment was never done! This is what is called a thought experiment.
Before the box is opened, is the cat dead or alive? In the answer to this question lies the whole key to quantum mechanics. The answer is …… are you ready? The answer is……. Both! Both! The cat is both dead and alive. It is only at the moment in time that we actually look at the cat that one or the other reality becomes the reality upon which the next question about the cat can be asked.
…And in conclusion.
(Not really, there will eventually be more – this is just something that smart people say to let you know they are tired of talking to people like me - and I just wanted to feel smart.)
So basically, our intervention in a market or an economy sets off a chain reaction of consequences that we do not anticipate and just by observing those effects, we change them. The temptation of government is to add another layer of rules or regulations to affect some sort of control, but the end result is another cascade of consequences, more unanticipated results and more rules. It is a never-ending cycle of cause and effect where the “regulator” is always behind the curve in information and action and with every action, the regulator gets geometrically farther behind until the system either overcomes the regulator or collapses.
The mortgage bubble and the subsequent crash and the Covid disaster are perfect examples of these two aspects combining with the presumption of regulatory control to create disaster…and what happened after?
Rather than look at the true causes, in true form, the proto-communists in our political class cried out for even more regulation.
That is like saying that the fire won’t go out because we aren’t pouring enough gas on it to drown it out.
These are facts about our American, capitalist economy, the one that has produced the greatest amount of widespread and equally distributed prosperity in the history of mankind.
That simple message is something the Republicans must convey.