Sunday, 11 May 2014

The Invisible Hand is not your friend, either.

     Something I've been stewing about for a long time (and written about before) is the central myth of free market ideology. I've been meaning to write more about it for a long time, but as often happens it took a quote-meme to provoke me to action. Here's the quote:
Depressions and mass unemployment are not caused by the free market but by government interference in the economy.
     The quote is attributed to Ludwig von Mises, and it suffers from the same problem I've encountered trying to confirm other dubious quote-memes in that it doesn't bother to identify which work the quote comes from or what occasion the supposed author uttered it. And of course, the first several pages of hits I get googling for it are all instances of the same forwarded meme, which doesn't help at all. I don't know if Ludwig von Mises ever uttered exactly that sentence, but it is consistent with his other writings, and in any event, since the idea is so widely accepted (and so destructive), I'm more interested in refuting this absurdity than confirming its provenance.

     What's both funny and tragic about this myth is that it tends to be held by people who think of themselves as hard-headed realists, who see everything government does with a kind of pessimism that handily dismisses anyone who proposes government might actually be good for something as hopelessly naive. As I've written before, though, such cynical pessimism is particularly crippling because nothing closes one's mind to the truth more effectively than the belief that one already knows it. Yet the belief that we would be spared economic calamity if the government just disappeared is every bit as naive -- and in almost exactly the same way -- as the romanticized view of Mother Nature some tree huggers and most three-year-olds seem to have. Compare:
Starvation and mass extinction are not caused by nature, but by human intervention in the ecology.
     It even sounds superficially plausible, because of course we are in the middle of a mass-extinction that almost certainly is caused by human "intervention". But nature, in the absence of nasty smelly habitat-destroying humans, is not in fact always a cheerful place where carefree animals frolic in harmony. Animals kill and eat each other, even in the most sustainable ecological balance, which is never permanent; natural history is full of extinctions. While we are to blame for the dodo, the moa and the passenger pigeon, we have a pretty solid alibi for the trilobites and dinosaurs; humanity wasn't here to interfere with Permian and Cretaceous ecosystems. So yes, humans are responsible for some extinctions, but it's pure fantasy to suggest there'd be no extinctions without humans.
     Similarly, it's certainly true that governments can seriously screw up an economy, and there are lots and lots of historical and contemporary examples of this happening. But it does not follow from that trite observation that all economic strife is attributable to government intervention, and that economies would hum along with prosperity and plenty for all if the government would just back off.

     There is a strong parallel between ecologies and economies, of course, and it's no coincidence that the two words are so similar. Analogous feedback processes tend to drive both systems back towards a stable balance after most upsets. And it may well be appropriate, when looking at a natural ecosystem, to adopt a kind of heartlessness about what happens there, to accept that the rabbit must die to feed the coyote, because it's all part of Nature's Way. Likewise, cycles of boom and bust (and the poverty and hardship that go with them) are a natural part of how economies self-regulate.
     But while this kind of Prime Directive is sensible from the perspective of an ecologist studying a system, it's not something you can expect the rabbit to embrace. Indeed, from the rabbit's perspective, it's entitled to do whatever it can to try to avoid being eaten, and is perfectly within its rights to ignore the ecologist's tidy model and kill the coyote.
     In the same way, while I have sympathy for the economist who tries to avoid influencing the system he's studying, it's inappropriate for him to expect the people who suffer from unemployment or disenfranchisement to shrug and meekly accept their fate because it's Nature's Way. The human being, and the rabbit, have no obligation to respect that as normative.
     It gets worse. The very act of telling governments not to "interfere" is itself an interference, as it deprives the less powerful of the only legitimate means they might have had to level the playing field. There was a time, after all, when police called to the scene of a domestic disturbance would be reluctant to interfere with a "private dispute", but now we recognize that treating domestic violence this way actually legitimizes and endorses it; it amounts to siding with the wife-beater. Government's declining to get involved with economic exploitation of the powerless isn't simply "not interfering"; it's siding with the powerful.

     There is nothing unnatural about humans collectively making and enforcing rules about how they are to deal with each other. That's just what government is. Now, like anything else, it can be done well or done badly, and I certainly agree that it's better in practice to be sparing with the rule-making. But declining to make a rule is not a way to avoid "interfering" with the economy; government absolutely cannot avoid that. The decision to make a rule affects things, and the decision not to make a rule affects things. Either way, a government is responsible for the consequences of that decision.

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