September 21, 2012 § Leave a Comment
I am an unapologetic capitalist. Individuals and society are demonstrably better off when people can make choices; when they are forced to compete, adapt, and improve; even when they can fail. Growth and efficiency happen when capital freely flows from unproductive to productive sectors and companies. As a result of a proliferating capitalist movement in most of the developing world — particularly China and India — people are nourished, clothed, housed, educated, and enfranchised on a scale never seen in human history. Turning my head one way, I observe one camp — albeit a small and shrinking camp — with the look of “you imperialist Nazi”; turning the other way, I observe a sacrifice burning on an alter to Ronald Reagan. I’m obviously not comfortable with the former side, but neither am I with the latter.
This is a post about how we think about the free market — specifically the words “free market” and how they limit our economic thinking in ways that are self-defeating to the very free market that we support. I’m convinced that our country would be less divided and more powerful if in one specific way we talked about the free market with slightly more nuance.
In the “free market,” everything that impedes anything, any restraint on any activity — real or imagined — is automatically bad. There can never be a good law, a good tax, a good program, agency, regulation, or anything public in a free market. When we aim for a free market, we are always over-regulated and over-taxed. Our government might get smaller and smaller, but it will always be too big. The problem is that we really need the government to do certain things. And yet it can’t when the limit of our thinking is free versus not free.
I believe we would be better off if, instead of using the phrase “the free market,” we instead opted for a “mostly free market.” The former phrase is absolute and uncompromising. There is only one question: Will this law restrict my freedom in any way? If so, that law is bad.
However, the phrase the “mostly free economy” is clearly a generality rather than a prescription because it is vague rather than absolute. Because of its vagueness, it forces the individual to ask more important questions like “will this make people better off?” “how is a person made better off”? “might there be unintended consequences?” “if so, can we construct the policy so that they be avoided?”. In the “mostly free market” world, the goal is well-being, not freedom. Freedom is generally a means of reaching the goal, but it is not the goal itself. The mostly free economy is an economy in which people are generally free to make decisions about their lives; companies can invest in what is profitable; where government will stay out of most of most day-to-day decision making——but where government will operate in the rare occasions in which the characteristics of the free market become the very things that cause its own destruction.
History is explodingly clear that having freedom and prosperity in the long term occasionally requires that freedom be taken away in the short term.
The old rules about humankind are gone. We are quite capable of creating a world that is inhospitable to ourselves. We have to make centralized choices on a macro scale that we haven’t had to make before—choices about Earth’s scarce resources, choices about waste, choices about what to exploit and what to leave alone.
If this were not so, I would hardly be motivated to write this post.
This seems to have been the understanding of Richard Nixon, who signed into law the Clean Air Act and the Clean Water Act in the early 70s. These two acts — the most successful of the environmental movement in history — have lead to then-unrecognizably cleaner air and waterways, all without destroying our economy as was predicted at the time. I don’t have to say that Nixon was a capitalist, but Nixon understood that capitalism has to be protected from itself occasionally. While capitalism is the best economic model, not only is it not perfect but it’s flaws can be astronomical. These must be dealt with in the public sector.
Another example. Our investment banks of today occupy the hub of our economy in much the same way railroads did more than a century ago. Because of this unfortunate reality, banks that fail create a lot of problems for hard-working, responsible people. We were caught flat footed when Bear Stearns and Lehman Brothers began their steep fall. Both companies were leaders in securitizing income from the interest of real estate loans into mortgage-backed securities, products that were disastrously insured by credit default swaps, pioneered by AIG and others. Because there was such a market for mortgage-backed securities, local loan officers (historically whose well-being was directly tied to the ability of the mortgagee to pay back the loan) began relaxing their loan requirements in order to sell more mortgages to investment banks. Enough of this created a bubble the size of which we’ve never experienced.
As the financial crisis reached the precipice, 20% unemployment was not out of the question. The Troubled Asset Relief program (conceptualized by Treasury Secretary Paulson and Federal Reserve Chairman Ben Bernanke, both Republicans) stopped the drop and to this day actually made a small profit for the federal government and the taxpayer—hence the use of the word “investment” to refer to this and similar government spending. Further, sensible regulations were put in place to prevent the things that created the bubble in the first place and to insulate the economy in the event that a bank fails again.
But in addition to harm-reducing measures, governments work in ways that augment the power of the free market. They make important investments in education, science, infrastructure and so on. Of course, citizens have to remain vigilant to ensure accountability in these projects, but the simple truth is we would not have the internet without the government. The project to create the internet was a wildly successful collaboration between the private and public sectors. Today, our private sector benefits from it as much as any human invention.
So let’s dispose of the phrase the “free market.” The “mostly free market” is not much harder to say, and will help us get out of our own way when thinking about economic challenges.
January 21, 2012 § Leave a Comment
It’s probably a fair criticism of my writing in recent years that it disproportionately targets conservative viewpoints and leadership. I’m labeled by many as a liberal, a troubling label to me because, while I advocate some liberal stances, as far as my analytical framework and worldview go, the liberal-conservative dichotomy really misses the whole point. So I want to offer something different—perhaps more constructive. I want to promote two conservative thinkers who I believe to be brilliant, who have a mountain of substance to contribute to conservative thought, and whose works, without reservation, are foundational to my worldview.
The first individual is Matt Ridley. Ridley is a scientist, businessman (albeit a failed one), and an author. Most of his writings have been about genetics and environmental science. On the surface, that Ridley would possess such a juggernaut of influence over my economic world view might surprise many. First, and most obvious, Ridley is not an economist in the traditional sense, he is a biologist. But more striking—believe me, this irony surprises even me—Ridley is a pretty dogged libertarian.
A complete reading of Ridley’s The Rational Optimist ought to be a prerequisite to every living person’s next opinion. Boiled down, Ridley attempts to do three things in his book, two of which he succeeds. First, he removes whatever nostalgia we may have romantically and naively acquired. Life on Earth is better than it ever has been. Not only is life better, but, by almost every measure, it’s almost embarrassingly better.
Having thoroughly convinced that the world is better, he moves to the question of why? As convincing as his thesis that the world is at its best and is improving still, Ridley attributes the upward trajectory of mankind to one remarkable thing: trade. The Rational Optimist is certainly about economics, but at its heart, it’s a book on anthropology. From that, Ridley interweaves his third and, least convincing thesis—that government is the problem. Ridley’s suspicion of government is less convincing than his enthusiasm for trade. I, for one, do not believe government to be the enemy of the market economy. But I do believe a healthy market economy to be essential to a healthy human spirit. Ridley establishes a tight correlation between the two. You will never be more astounded at the potential of humans than from reading The Rational Optimist. You will never be more convinced at our ability to overcome challenges. And you will never be more struck by how wired the human and humans are to trade.
The second is Niall Ferguson. Ferguson is an economic historian at Harvard, a columnist for Newsweek, a prolific author, and speaker everywhere. He was named among the world 100 most influential people by Time Magazine. Probably his most famous work is The Ascent of Money: A Financial History of the World.
While Ridley’s work is convincing to the proposition that trade has been essential to the well-being of humans, Ferguson’s work is convincing to the proposition that our modern system of finance is essential to our unrecognizable world that Ridley aptly describes. In this respect, Ridley and Ferguson should be read together. And not surprisingly, Ridley references Ferguson’s work in his.
Listen. I never could have imagined a book about financial history being even remotely interesting.
Not only was it interesting (Ferguson is witty and superbly articulate) it was paradigm-changing. By modern finance, I mean bond markets, stock markets, credit, insurance, banking, insurance, and hedge funds. The financial banks are the new railroads. Our standard of living is completely dependent on their well-being. This is a point that libertarians critical of the bank bailout would do well to acknowledge.
And the best thing about The Ascent of Money is that you don’t even have to read it. You can watch the PBS documentary and get as much as I did from reading the book.
Ferguson makes a sport out of criticizing Paul Krugman and has endorsed Mitt Romney. In Romney, Ferguson sees someone who understands the volatility of the bond market and its potential to make or break a country. Ferguson is right about bond markets, but seems to be ignoring the successes of the 90s when our budgets were balanced, our economy was booming, but yet our taxes were just a bit higher than they are now.
In that sense, I disagree with Ridley and Ferguson regarding the precise political implications of their works. But I cannot help but be profoundly influenced by the broad perspective they have helped instill. Pick up a copy of The Rational Optimist and The Ascent of Money, I don’t care what your political or economic persuasion.
On second thought, don’t follow Niall Ferguson. Since I wrote this article more than a year ago, the man has gone out of his way to be wrong about, frankly, everything. One could confidently govern a nation by inviting Ferguson’s opinion and then doing the exact opposite.
August 25, 2011 § 2 Comments
Science and Christianity have never coexisted well. From the beginning of the scientific age, Christians have been unable or unwilling to reexamine their interpretations of the Bible in light of scientific developments. In all fairness, scientists for the most part are blinded from what they cannot observe by a notion that knowledge can come only from what is observable. While I have plenty with which to criticize the scientific community, my concern here is with Christians.
Beginning with Galileo’s proclamation that the Sun, not the Earth, lies at the center of the universe (notwithstanding Joshua 10), Christians have erroneously construed threats to their interpretations of Christianity as threats to God himself. To the detriment of our faith (and the faith of many unbelievers), Christians have approached in the most uncritical manner issues such as the Big Bang, the age of the earth, evolution, and climate change. My faith happens to be threatened by none of these.
So I’m going to take this time to talk about a current of scientific thought that, though more subtle than each of these, has the potential to be a significantly more legitimate and substantial threat to the Christian faith. This current, which exists in many variations, generally comes from the behavioral sciences—generally, psychology and sociology. I’ll be honest, this scares me.
Let’s begin with Phineas Gage, the well-known railroad worker who suffered an iron rod through his head, damaging his frontal lobe. Debates exist over the exact facts of the Gage case, but it is generally agreed that post-accident Gage was not the same as before. According to Harlow:
The equilibrium or balance, so to speak, between his intellectual faculties and animal propensities, seems to have been destroyed. He is fitful, irreverent, indulging at times in the grossest profanity (which was not previously his custom), manifesting but little deference for his fellows, impatient of restraint or advice when it conflicts with his desires, at times pertinaciously obstinate, yet capricious and vacillating, devising many plans of future operations, which are no sooner arranged than they are abandoned in turn for others appearing more feasible. A child in his intellectual capacity and manifestations, he has the animal passions of a strong man. Previous to his injury, although untrained in the schools, he possessed a well-balanced mind, and was looked upon by those who knew him as a shrewd, smart businessman, very energetic and persistent in executing all his plans of operation. In this regard his mind was radically changed, so decidedly that his friends and acquaintances said he was “no longer Gage.
The Gage case is one illustration among many of our dependency on our nervous system.
In many ways, we also seem quite dependent on our upbringing. For most people, the environment in which they grow up—how they were raised by their parents, their socioeconomic standing, whether they were abused, whether they were successful early—will shape them at least as much as their biology. As an example, the American black community is 6.4 times more likely to be incarcerated than whites. Take a second to soak that in. Now, before I go on, this statistic has as its cause many factors. Part of this is no doubt attributable to racial profiling. But a large part I believe is attributable to present and, especially, historical income inequality.
The black community has been fighting an uphill economic battle since they were brought to America as slaves. Even after slavery ended, Jim Crow segregation laws continued. Jim Crow created a vicious feedback loop: as resentment and disempowerment accumulated, blacks increasingly turned to crime; as many turned to crime, they were increasingly distrusted by whites; as they were increasingly distrusted, resentment and disempowerment accumulated; and on and on. Even with Jim Crowe abolished and our various civil rights acts and amendments, we are still fighting history. Currently, blacks are unemployed at twice the rate of whites. The black-white income gap is the highest it has been since the census began tracking information on this subject in 1984. For the unbelievably disproportionate percentage of blacks who will end up in prison in this country, as a group it’s hard for me to point a judgmental finger. I refuse to believe that blacks are inherently less virtuous than whites. But these problems in the black community aptly demonstrate the powerful force that is disenfranchised history and upbringing.
It is well-argued that Christianity is nothing if people lack meaningful choice in their life, that is to say: if people cannot approach a situation with options and have the capacity to make a real choice among those options, then one has to question the justness of God—really, whether there is a god at all. While we are not saved because of our deeds (really, we are saved in spite of them), the salvation of every Christian is going to depend on choices that have to be made by the individual.
However, it is clear that your “choices” are going to be shaped tremendously (if not determined) by factors that you just can’t control. So the question I have is what god would send people to Hell for things that they have no control over? Nothing I can think of could be more harsh. Harsh hardly captures it.
My point here is not to resolve this question, or even begin to. I have many reasons to believe that there is a God. My point here is to frame the conversation. Questions like this have to be addressed honestly. If God really exists, then scrutiny along this line of questions should not too big for him. Don’t get hung up on the examples I have provided. Instead, use these as evidence that people are predisposed to conduct based on circumstances that are uncontrollable. This is a trend I see in many things.
I welcome input on this issue and will continue to post on my thoughts as they come to me.