False idols

Today's New York Times contains a well-written piece that dissects the fantasies of free-market extremists quite handily. The author is Peter Goodman, one of my favorite reporters at the Times.

As we move into the year ahead, the tension between proponents of the so-called "invisible hand" and those of us who prefer to deal with reality will escalate, and the divisions will sharpen, especially around health care issues, where the "invisible hand" mostly picks taxpayers' pockets so the money can be transferred to the corporate elite.

But now the invisible hand is being asked to account for what it has wrought. In this country, many economic complaints — from the widening gap between rich and poor to the expense of higher education — are being dusted for its fingerprints.

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“We’re revisiting the question of market flows with a deservedly wary eye,” said Jared Bernstein, senior economist at the liberal Economic Policy Institute in Washington. “For decades, economists and political elites have argued that any time you regulate any aspect of the economy, you’re slipping the handcuffs on the invisible hand. That’s demonstrably wrong in lots of ways.”

But if markets can inflict pain, the harm from trying to tame them is often worse, argue those who would let the invisible hand carry on. The new regulatory tilt threatens to tie up innovation in a straitjacket of bureaucratic nannying while slowing the global economy, they say.

“Every regulation reduces people’s freedom,” said David R. Henderson, a libertarian economist at Stanford University’s Hoover Institution. “The more regulation we get, the worse we do.” Mr. Henderson is critical of the Bush administration’s effort to freeze mortgage rates, and the new rules proposed by the Fed intended to curb nefarious lending. They undermine the sanctity of contracts, he said, while making mortgages harder to gain for everyone.

“The way they justify it is that you’ve got to protect the stupid people who can’t read a contract,” Mr. Henderson said. “But they’re treating everyone as stupid.”

Ah yes. The stupid people. If it weren't for them, all would be right with the world. But at the same time, don't we have to ask what would we do without all the stupid people? Don't they actually exist to be exploited? Isn't that the truest maxim of free-market extremism? How else can we fund the North Carolina Education Lottery? How else will the United States Army recruiters meet their goals? How else will Smithfield Foods keep bringing home the bacon? Who would be left to buy Belly Burners without them? Who would North Carolina send to Congress?

Back to the article in the Times . . .

Some argue that the push back against market forces is a momentary pause in a steady march toward unfettered capitalism. The libertarian Cato Institute recently issued a report in which it found that economic freedom — shorthand for smaller government and fewer regulations — has never been greater.

“Global economic growth significantly increases with the growth of the world’s economic freedom,” said Ian Vásquez, director of Cato’s center for global liberty and prosperity.

Few policymakers have a beef with that characterization as a generality. But when things go wrong, demands grow for the government to step in and make them right. “Untethered market forces lead to bad things,” said Mr. Bernstein of the Economic Policy Institute. “You simply can’t run an economy as complicated as ours on ideology alone.”

I don't agree with Mr. Bernstein that the underlying variable of interest is complexity in the economy. To end the discussion there accepts the principle that economic growth is the only measure that matters. And when you accept that as the over-arching principle, anything activity, no matter how heinous, can be made to seem acceptable.

From where I sit, the invisible hand looks like it belongs to a wealthy, white Republican man.

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Mother Jones magazine also has an excellent article by James Galbraith likens belief in the "invisible hand" to belief in "intelligent design."

Adam Smith was a deist; he believed in a world governed by a benevolent system of natural law. Consider this familiar passage from Wealth of Nations, published in 1776, with its now mostly forgotten anti-globalization flavor:

"By preferring the support of domestic to that of foreign industry [every individual] intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention…. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

Smith's Creator did not interfere. He simply wrote the laws and left them for events to demonstrate and man to discover. The greatest American economist, Thorstein Veblen, observed that "the guidance of…the invisible hand takes place … through a comprehensive scheme of contrivances established from the beginning."

What is this if not Intelligent Design?

That pretty much explains all you need to know about free-market extremism, and why the flat-earth, anti-planning, climate change deniers at the John Locke Puppetshow embrace it so readily.