All Commentary
Tuesday, November 11, 2014

Humble Markets, Prideful Politics

Different virtues and vices emerge within different institutions

Spiritual writers have long praised the virtue of humility, contrasting it with pride and arrogance. Humility involves the willingness to admit error, grant the reality of failure, be magnanimous in the face of success, and maintain the constant desire to keep reaching for the goal. In contrast, pride means to carry a false sense of certainty, wield the presumption of full knowledge of both the problem and the answer, and be in denial about failure when things go wrong.

When you think of the market process in comparison to the legislative process, which attribute — humility or pride — would you assign to each?

It’s an interesting question that occurred to me a few days ago when I was investigating new entrepreneurial ventures in the digital space. I was struck by the humility of the entrepreneur and how it expressed an institutional trait associated with the market itself.

Jaron Lanier, a scholar at Microsoft and CEO of the new social site, is a good test case. He is a computer scientist and wonderful archetype of the kind of mind unleashed in free digital spaces. He coined the term and made the first-generation technology for “virtual reality,” has been a leader in new forms of music, and is now talking about his new social network. His enormous influence as an intellectual force is reinforced by his unusual look: long blond dreadlocks, a long chin beard, and T-shirts with eccentric slogans.

If anyone has a reason for feeling pride, it is Lanier. Instead, what struck me when listening to his interviews was his sense of constantly searching for answers. He sees problems in the digital world that he regards as unsustainable, such as the fact that Facebook makes its money entirely from users’ content and they get nothing in return. He proposes possible answers, but freely admits that he does not have the final answer. He likes trying things, is happy to be corrected by another competitor, and imagines a future in which this process of trial and error never ends.

This is the mind of a person who has lived richly in the digital world, the freest space on earth. This way of thinking is about making improvements at the margin, never attaining final answers. There is a humility that comes with this type of thinking, a humility absorbed from the ethos of the constantly changing market segment he is serving. Change is the watchword in the market: changing resources, changing consumer preferences, and changing technologies.

The newest version of an operating system, a smartphone, an application, or even a restaurant menu is never the last one, and everyone knows it. If something works, you keep it. If it doesn’t work, you throw it out. As an entrepreneur or manager or technician — anyone on the production side of the market economy — you are always moving forward based on whatever data you can extract from existing realities, knowing full well that whatever adjustments you make will be temporary.

No one has the final answers. Not even the biggest, smartest, and most highly capitalized market players know the guaranteed recipe for success. Major movie producers make far more losing films than winning ones. For every epic win by a company like Microsoft, there are 10 or 100 losing plays. A company like Facebook would seem to own the world, until one day it does not. You can never rest. You must always be attentive and always ready to change.

Everyone in the market knows this. To play as an entrepreneur, in an evolving market driven by consumer preference, is much like wandering around a dimly lit or even dark hallway looking for a light switch that is in no predictable place on the wall. You develop intuitions about where it might be based on past successes, but you can never know for sure. In the end, every reach is speculation. A capitalist who is sure of a sure thing will eventually be shown a fool.

This reality produces a humility that is embedded in the structure of markets themselves. Yes, there are capitalists who are full of bravado, entrepreneurs who are prideful and arrogant jerks, billionaires who are bullies who use their money to buy power. But in the end, what matters is that there is an unrelenting check on such attitudes. The market itself — working day and night in 7 billion different and unpredictable ways — is more and more powerful.

As I listened to one interview with Lanier, I thought of the contrast with countless scenes from the life of politics, particularly bill-signing ceremonies. Years of negotiations go by. Versions of bills appear again and again. They grow and grow, from 50 to 500 to 5,000 pages and longer. New items are added and added. Eventually, the bill comes of age, a version passes each house, and the effort to reconcile the two versions begins. As that process draws to a close, a final version emerges for the president’s signature.

Then the signing ceremony happens. All players gather around and the news media are all present. The great man’s signature is put on the bill, and it becomes law. It is done, the final answer realized and imposed. The politicians claim to have achieved a glorious triumph in the service of human progress, as if a new dawn has arrived. Then they hit the campaign trail and talk about their achievement.

Sometimes they build the possibility of failure into their rhetoric by warning that “this is not a panacea.” But by that, they intend to leave open the door for a repeat of this same process, extracting contributions, handing out favors, and otherwise manipulating the system for their own benefit once again.

President Obama provided a representative example of this process following the passage of the Affordable Care Act (ACA). “Like every major piece of legislation — from Social Security to Medicare — the law is not perfect. We’ve had to make adjustments along the way.” Humility? Not quite. “This law is doing what it’s supposed to do,” he assured his audience. “It’s working.” Further: “The debate over repealing this law is over. The Affordable Care Act is here to stay.”

To compare the Affordable Care Act with Medicare and Social Security is revealing, because those two programs have been catastrophic in terms of spending, and neither is sustainable as public policy. Social Security, set up to look like “insurance,” eventually became an confiscatory intergenerational transfer program, while Medicare has been a major driver of the high health care costs that the Affordable Care Act was imposed, in part, to correct.

If you can’t admit the failure of Medicare and Social Security, you surely can’t admit the failure of the ACA, which has failed much faster than either of these legacy entitlements. The ACA has mostly achieved only vast increases in insurance premiums due to increased mandates. And sure enough, Obama could not admit what a terrible failure the ACA has been in living up to its promise.

At no point in this process is there anything like humility. The necessary presumption is that the politicians know the fullness of the problem and have the best possible answer to fix it.

Where is the sincere follow-up? Where is the experimentation? Where are the necessary tweaking and molding? Where is the openness to the possibility of failure? Where is the mechanism that allows for response in light of failure?

None of these features is embedded in the legislative process. This whole process presumes knowledge that politicians do not and cannot have. To make sure that this fact is not revealed, there is no real follow-up to test results against promises. Nor is there a mechanism in place to rid ourselves of the law in case it doesn’t work out as planned. By the time Obamacare fails, the president will be on a book tour, or opening a presidential library.

There are countless examples of failed laws. Consider the Americans with Disabilities Act, passed some 25 years ago. The unemployment rate among the disabled population is higher now than it was before this act, which banned employment discrimination. Why isn’t this outcome considered a failure? And where is the policy response in light of it? Instead, the act passed and the deal was considered done, written into the law presumably forever.

Another example is the case of US wars in Iraq. A quarter century ago, the United States started a war with the stated aim of bringing freedom, democracy, and human rights to that country. All these years later, and after a long and brutal history of war and death, Iraq is a complete wreck and embroiled in a nonstop civil war. What do those responsible say? They say the answer is more of the same.

Both markets and politics are made up of human beings, and we are all made of the same essential material. Why is it that the state seems to extract the worst in us whereas the market tends toward curbing pride and humbling its entrepreneurial class?

F.A. Hayek speculated that in politics, the worst get on top because politics attracts people with certain sociopathic tendencies. That seems right. It also seems right that markets have a humbling effect on people because profits, much less permanent wins, can never be presumed. In order to be good at merchantcraft, you need first to be service minded and humble about what is and is not possible.

Still, this doesn’t get to the core explanation of why markets embody humility while politics embodies pride. The market relies on human volition. Everyone is free to choose. That means that persuasion is really the only way forward, and the test of reality is always there to inspire people to change their minds. Political rule, in contrast, is about coercion and compulsion, the use of force to impose results even if they contradict every desire of the ruled.

It makes sense, then, that every step away from the market is a step toward pride and arrogance, whereas every step toward the market is a move toward a gracious humility that is a bedrock of the good society. “Humiliating to human pride as it may be,” Hayek wrote, “we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.”