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Friday, November 7, 2008

Humility or Hubris

Sheldon Richman is the editor of The Freeman and “In brief,” and author of “Fascism” in The Concise Encyclopedia of Economics. TGIF appears Fridays. Comments welcome.

Another presidential election has come and gone, only this time the results are astoundingly and, yes, satisfyingly historic. In light of our racial history and leaving aside political philosophy, I am overjoyed at what Barack Obama’s election means. I cannot put it better than Will Wilkinson did at The Fly Bottle, “It means something profound that a black man was elected to the most visible, high-status position our society offers. The mere fact that Obama won truly does make our society a better place.” I also share Wilkinson’s reservations. In a truly free society, the presidency would not be the most visible high-status position our society offers. That designation would be reserved for a variety of private-sector roles. Unfortunately, however, the presidency does have that status today, and Obama’s election must be appreciated from that perspective. Relatedly, I am uneasy about, though understanding of, the public displays that followed John McCain’s concession Tuesday night. Again, Wilkinson: “[F]rankly, I hope never to see again streets thronging with people chanting the victorious leader’s name.” Amen.

President-elect Obama’s many supporters and well-wishers have great confidence in his ability to solve the economic problems that vex American society. That ability is said to lie in his cool judgment, his good intentions, and his eloquence. Let us grant that he possesses all three. Valuable as they are, they will be useless if he attempts to solve our economic problems directly by an exercise of power. That’s because there is something he does not have — something no man or woman can have: the power to repeal the laws of economics.

Until about 200 years ago hardly anyone understood that there are implacable laws of economics, or human action. This ignorance permitted rulers to believe they could impose their will more or less efficiently. If something went wrong, the fault lay in the flaws of others. Then, in the late eighteenth century, something changed.  As Ludwig von Mises wrote in Epistemological Problems of Economics: :

When men realized that the phenomena of the market conform to laws, they began to develop catallactics and the theory of exchange, which constitutes the heart of economics. After the theory of the division of labor was elaborated, Ricardo’s law of association enabled men to grasp its nature and significance, and thereby the nature and significance of the formation of society. The development of economics and rationalistic sociology from Cantillon and Hume to Bentham and Ricardo did more to transform human thinking than any other scientific theory before or since. Up to that time it had been believed that no bounds other than those drawn by the laws of nature circumscribed the path of acting man. It was not known that there is still something more that sets a limit to political power beyond which it cannot go. Now it was learned that in the social realm too there is something operative which power and force are unable to alter and to which they must adjust themselves if they hope to achieve success, in precisely the same way as they must take into account the laws of nature. This realization had enormous significance for men’s action. It led to the program and policies of liberalism and thus unleashed human powers that, under capitalism, have transformed the world.  [Emphasis added.]

Not that rulers and state-worshipers embraced economics and liberalism. But they sensed that the liberal economists had identified the natural limits of power. Finding that knowledge threatening, those enamored with power had no choice but to attack and deny economics as a scientific discipline. Yet economics survived.

Lesson Unlearned

Somewhere along the line the fundamental lesson taught by the economists was unlearned. Political “leaders” lost whatever humility liberalism had instilled in them and assumed a pre-modern hubris in which they believed that nothing but lack of will could keep them from accomplishing their goals. This hubris was described by Mises in “Social Science and Natural Science”: “[T]he belief prevailed that in the field of human action no other criterion could be used than that of good and bad. If a policy did not attain its end, its failure was ascribed to the moral insufficiency of man or to the weakness of the government. With good men and strong governments everything was considered feasible.” (Emphasis added.)

Sound familiar? Today’s political leaders, regardless of party and including, alas, Barack Obama, operate with this pre-modern mentality. We saw it throughout the presidential campaign, and heard its words when Obama said, “There is nothing we can’t do, nothing we can’t accomplish if we are unified.”

This is opposite of the classical-liberal insight, which can be summed up with this bumper-sticker slogan: Economics. It’s not just a good idea. It’s the law.

Because there are economic laws, there are limits to what “we” can do and how we can do it. (By we, of course, Obama doesn’t mean the spontaneous social order; he means the state and deliberate planning.) We cannot raise wages or create jobs or eliminate poverty or make medical care cheap and widely available — or do any of the other things politicians promise — by decree. But we can move toward those goals by freeing the market, the undesigned yet orderly process that distills the knowledge and wisdom of the people and rewards entrepreneurs for solving problems.

Government cannot do those things directly. If it tries, it will fail and make us worse off. The key to understanding this lies in the nature of human action. We live in a world of scarcity, and the list of scarce resources includes time and knowledge. At any moment demand exceeds supply. Under these conditions, we adapt means to achieve chosen ends. We face opportunity costs and make tradeoffs according to our subjective preferences. The perception of costs prevents us from achieving lesser values at the expense of greater values. Respect for other people and their property, backed by law, prevents us from shifting costs to them without their consent. The result is the market — that emergent order which serves the general welfare and encourages personal responsibility as each person pursues his or her private interests.

If government, which, recall, is force not eloquence, intervenes — to raise or lower costs, to increase or reduce rewards, to tamper with prices or interest rates — we will modify our behavior, knocking self-interest and the general welfare out of alignment. A subsidy for medical insurance will increase the demand for services and raise prices. A price ceiling will make those services less available. A floor under wages will make jobs for unskilled workers more scarce, as employers find it a losing proposition to hire them. A tax on production will mean less produced. A subsidy to production will mean too much produced relative to something else consumers want. A trade restriction will lower living standards at home and abroad.

The Road to Serfdom?

All the good will and all the unity in the world won’t change the laws that make these things happen. Government might try to overcome the “recalcitrant” market by issuing more and wider decrees and by firmly demanding compliance. But it would be for naught. We’ve seen this sort of thing fail time after time in systems no American would want to embrace. F.A. Hayek’s The Road to Serfdom demonstrates that the democratic process is not necessarily a barrier to the creeping despotism of a government intent on having its commands obeyed and its utopia carried out. I am not suggesting that this is where Obama wants to take us. But if he insists on using political means to achieve his ends, that is where logic will take him.

It’s the law.

True, government can take the more subtle route of manipulating incentives through the tax system. But this amounts to having politicians and bureaucrats substitute their preferences for ours. Moreover, taxation is force and all such programs have unintended consequences.

Intentions do not build their own bridges to results. We know this from our own day-to-day actions. It is even more true in the political world. No bridge can be built in defiance of economic logic.

The difference between accepting and rejecting this truth is the difference between humility and hubris. We shall see which describes the Obama administration. Let us hope he chooses wisely.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.