Monday, June 25, 2012

McCloskey Wisdom

I recommend a gorgeous essay by Deirdre McCloskey, "Factual Free Market Fairness" (hat tip, Kyle N's comment on Sunday's post "Legal News").  Some choice bits:
I’m from economics and history, and I’m here to help you... The High-Liberal political philosophers... rely...on a factual story which they take to be so obvious as to not require defense.  I claim that on the contrary their master narrative is mistaken, as anthropology or economics or history.
The story is, in a few brief mottos to stand for a rich intellectual tradition since the 1880s:  Modern life is complicated, and so we need government to regulate.  Government can do so well, and will not be regularly corrupted.  Since markets fail very frequently the government should step in to fix them.  Without a big government we cannot do certain noble things (Hoover Dam, the Interstates, NASA).  Antitrust works.  Businesses will exploit workers if government regulation and union contracts do not intervene.  Unions got us the 40-hour week.  Poor people are better off chiefly because of big government and unions.  The USA was never laissez faire.  Internal improvements were a good idea, and governmental from the start.  Profit is not a good guide.  Consumers are usually misled.  Advertising is bad. ....

No.  The master narrative of High Liberalism is mistaken factually.  Externalities do not imply that a government can do better.  Publicity does better than inspectors in restraining the alleged desire of businesspeople to poison their customers.  Efficiency is not the chief merit of a market economy: innovation is.  Rules arose in merchant courts and Quaker fixed prices long before governments started enforcing them.

How do I know that my narrative is better than yours?  The experiments of the 20th century told me so.  ...anyone who after the 20th century still thinks that thoroughgoing socialism, nationalism, imperialism, mobilization, central planning, regulation, zoning, price controls, tax policy, labor unions, business cartels, government spending, intrusive policing, adventurism in foreign policy, faith in entangling religion and politics, or most of the other thoroughgoing 19th-century proposals for governmental action are still neat, harmless ideas for improving our lives is not paying attention.

In the 19th and 20th centuries ordinary Europeans were hurt, not helped, by their colonial empires.  Economic growth in Russia was slowed, not accelerated, by Soviet central planning.  American Progressive regulation and its European anticipations protected monopolies of transportation like railways and protected monopolies of retailing like High-Street shops and protected monopolies of professional services like medicine, not the consumers.  “Protective” legislation in the United States and “family-wage” legislation in Europe subordinated women.  State-armed psychiatrists in America jailed homosexuals, and in Russia jailed democrats.  Some of the New Deal prevented rather than aided America’s recovery from the Great Depression.

Unions raised wages for plumbers and auto workers but reduced wages for the non-unionized.  Minimum wages protected union jobs but made the poor unemployable.  [JC: In both cases, I would add, minorities were especially hurt.] Building codes sometimes kept buildings from falling or burning down but always gave steady work to well-connected carpenters and electricians and made housing more expensive for the poor.  Zoning and planning permission has protected rich landlords rather than helping the poor.  Rent control makes the poor and the mentally ill unhousable, because no one will build inexpensive housing when it is forced by law to be expensive.  The sane and the already-rich get the rent-controlled apartments and the fancy townhouses in once-poor neighborhoods.

Regulation of electricity hurt householders by raising electricity costs, as did the ban on nuclear power.  The Securities Exchange Commission did not help small investors.  Federal deposit insurance made banks careless with depositors’ money. The conservation movement in the Western U. S. enriched ranchers who used federal lands for grazing and enriched lumber companies who used federal lands for clear cutting.  American and other attempts at prohibiting trade in recreational drugs resulted in higher drug consumption and the destruction of inner cities and the incarcerations of millions of young men.  Governments have outlawed needle exchanges and condom advertising, and denied the existence of AIDS.....
It goes on like this. There's no need for me to keep quoting. Just go bask in the whole original.

The case for free markets, and social freedom, is practical. It need not be ideological. It's based on the clear lessons of history. We all have the same stated goals. It's not about who cares more. It's about what works.

Admire McCloskey's post also for the writing. The author of "The Rhetoric of Economics" (Article and  Book -- an absolute must-read for every young economist) knows what she's doing! Rather than write an article expanding on one of these points, or a three-volume encyclopedia explaining the factual basis of all of them, she make the withering case by stating each point just once, but layering all of them in one place.