SEPTEMBER 1, 2019 – After a two-week hiatus from the news, I dared to take a peek. My glance prompted two thoughts: 1. People’s world views are determined primarily by people’s perceptions of how their bread is buttered; and accordingly, 2. A considerable degree of government regulation is a necessity.
“Bread” is financial well-being. “Butter” is the advantage that a person, enterprise, or industry enjoys from acting in concert with schemes of other players in the economy.
No matter how a player talks, it’s how the player behaves financially that is “real” in any economic sense. What proponents of laissez-faire capitalism argue is that economic players behave according to their best self-interests. If players are left to their own devices, the collective, self-interested decisions will produce the greatest amount of wealth for everyone. The political corollary is that with less government interference, aggregate self-interested behavior will optimize overall wealth. Life in a society of little government and big economic freedom will be better than in any alternative arrangement.
For three reasons I take issue with the unrestrained free-marketers.
First, a unified definition of “self-interest” is elusive. Example: if I spend a hundred hard-earned dollars on junk food at the State Fair, I’ll satisfy my “self-interest” as defined by my eyes and taste buds. However, I’ll have acted against the ”self-interest” of my digestive system and financial security. A less simple example: I can produce enormous wealth by producing plastic straws and selling them to millions of food establishments but at an incalculable total environmental cost—imposed on everyone, including those who don’t use my straws.
Second, as Daniel Kahneman, Nobel Laureate in Economics, revealed in his acclaimed book, Thinking Fast, Thinking Slow, we often don’t act in our best self-interests. Sure, we almost always behave as we think will produce the most profitable outcome, but all too often what we think is just plain empirically wrong. If you haven’t read Kahneman’s skull-cracker, you should.
Third, in a laissez-faire system, just as in a communist one, all economic actors are equal, but soon some are more equal than others. Competition often produces higher, faster, stronger results—in nature, at the Olympics and in an economy. However, “higher, faster, stronger,” isn’t always “best.” An example is the dirty fossil fuel industry vs. clean renewable energy, at least in the nascent phase of the latter. Many economic players enjoy such dominance that to protect their turf, they exert undue influence over the playing field. Only with government regulation and often subsidy can the “best” achieve sufficient breathing space to grow and compete.
Thus far in the game we have invented too few private arbiters with too little power to regulate sufficiently a laissez-faire system. Civil liability and private insurance are a form of private regulation, but they have inadequate power vis-à-vis the size of the challenge.
All of which argues for, not against, the role of government as referee in what otherwise becomes a food-fight of buttered bread.
© 2019 Eric Nilsson
