Economics. Whether you try to dodge it, ignore it, or explain it away, you cannot escape the laws of economics. Supply, demand, self-interest, etc, etc, etc. It’s like gravity. And like gravity, you ignore it at your own peril. Says Thomas Sowell (though I’ll not get into the partisan part of his article here)
I first became aware of the law of gravity as a small child when I pedalled by tricycle off the porch and crashed into the yard. Gravity was of course operating all along, whether I was aware of it or not.
Economics is a lot like that. Many people who are completely unaware of economics sometimes discover it the same way I discovered gravity, through some personal or national crash.
It’s true. Ignore it at your own peril. And yet, our government is full of people–Republicans, Democrats, and the occasional odd Independent–that do just that year in and year out. Even as the new year sees Washington, D.C. welcoming a new Congress full of newly elected Representatives and Senators determined to not make the mistakes in the past or, in the alternative, to undo the mistakes of the past, most, if not all of them, will fall trap to trying to make a difference. They’ll try, as was astutely noted by Kevin Williamson, to “to fix what’s broken in order to serve the public interest and the common good.” All of them will, regardless of party. It’s the Washington way, says Williamson.
And yet, they, just like the rest of us, are subject to the laws of economics. And when they make a mistake, very unlike the rest of us, the mistake becomes law and the law enters the next thing to immortality–the U.S. Code. That’s right. These politicians will pass laws, most about things they know little about, laws that will try to defy the laws of economics and provide for the public interest, laws that will attempt to increase social value in the public interest.
Unfortunately, social value is not very well produced or created by politicians. They just don’t know enough about it, or even what the public interest is, for that matter. No one person does. Again, Williamson:
But you have no real idea what the public interest is. Nobody really does. How could you? How would you find out? (No, not rhetorical.) You could take a poll and see what the public says it wants, but what the public saysit wants at any particular moment is not identical with the public interest. The public is made up of individuals, most of whom have no better idea what is in the best interest of people they have never met and know nothing about than you do — and practically all of whom will lie when asked what it is they really want: They’ll say they want opera broadcasts and educational programming and organic chard and more foreign news in the newspaper, but in real life their revealed preferences are pretty much classic rock, fantasy-football stats, and those heinous seven-layer burritos from Taco Bell.
Get it? No? Let me (or rather, Williamson) go on:
So Washington’s understanding of the public interest is a little hazy, inevitably. It’s hard to see the big picture, but you can sometimes get a look at a tiny slice of the public interest. Private enterprises, and businesses especially, usually do serve something that might deserve to be called the public interest or the common good, because they createsocial value. How do we know they create social value? Mostly because of this so-obvious-it’s-ingenious, but still kind of counterintuitive, idea that comes from economics: If people in society did not in fact value what these businesses were producing, they would not give them their money. Social value = the stuff society actually values. The counterintuitive part, at least for you guys who graduated near the top of your classes at very prestigious law schools and made a lot of money in litigation or bond-counsel work or whatever but have not spent a lot of time selling hotdogs or landscaping or painting houses, is this: Profits are evidence of the creation of social value, not deductions from the sum of the common good. Washington totally flubbed that one during the health-care debate. Enormous profits come from the creation of enormous social value. Exxon, for instance. Americans may not have cozy feelings toward Big Oil, but given a choice between free gas for a year from the local Exxon station or lunch with a bigfoot politician, most Americans would just pick up a Slim Jim on their way to fill up on gratis high-test and motor on down the road and take a rain check on the coq au vin with Senator Snout.
Not that there’s anything wrong with Senator Snout, but frankly, as my wife demonstrates season after insanely brain numbing season, American Idol and Dancing with the Stars is more interesting that talking about public policy at a Meet the Candidate night or a Townhall Meeting. Profit is a sign of social value, or, as Williamson put it, social value is the stuff that society wants.
And that, Mr. Congressman, is why the market is smarter than you. It knows what we want far better than you, or I, know what we want (and heaven help us if American Idol really is all we want…). When you decide you need to pass a law that regulates the economy, the economy gods laugh. They turn the thumbs on their invisible hands down, and stick it to you, as well as three hundred million Americans affected by your ill-considered attempt at controlling what you do not understand–the economy. And then that law is on the books. Maybe forever.
On the other hand, when the market is free to make the decision, the market is always right. It demonstrates what we want, and it lasts. It, Mr. Congressman, knows what social value is, and it is always right. (Not that the market is painless, but that’s a subject for another day…)
The article is “Welcome to the Machine” by Kevin Williamson. It’s an insightful, as well as a witty read, and I recommend you read it. You are subject to the laws of economics it describes, like it or not.
APROPOS: For a great read of what happens when people, including whole countries, try to defy “common sense” and evade the laws of economics, pick up a copy of “Aftershock” at the library or a local bookstore. Also, check out a short post on the book here.