I’m a Free-market Guy, BUT…
Jim Babka on Oct 11th 2008
Frankly, I’m tired of it. I wish I had a couple bucks for every person I’ve heard over the last few weeks say something like, “I’m a free-market guy, but we need the government to step up and do something.” I could buy some put options or more gold, and really profit from this un-principled wavering.
There are all kinds of variations of the phrase. One can substitute “conservative,” “small government,” “libertarian,” or “capitalist” for “free-market.” I’ve heard all of them. And the “government stepping up” part has taken a bunch of different forms, as panic induced philosophies tend to do. Nearly everyone has a brilliant scheme to defy gravity.
Often, a “but” in a sentence means you can disregard what came before it, and this is one of those instances. You’re not really a free-market conservative capitalist if you believe the government should bail-out businesses that failed. Call yourself what you want, but, at best, you’re a sunshine or fair weather free-marketer, and you resent how supply, demand, prices, and risk work. You think some person or committee should engineer a solution. There are words to describe that belief. They are “socialist,” “corporatist,” “central planner,” and even the out-dated but still very real “communist.”
Equally dispiriting are the folks who pretend to be deep, open-minded intellectuals, who ferret out ideology when they see it.
Many of these folks say ridiculous things like, “I’m a free-market guy, but this is no time for ideology. There’s a crisis and we must come together.” (Sometimes, political-speak can be pornographic.)
Others say, “Oh, you’re just being ideological,” and they mean that pejoratively.
It’s trendy to pick on those of us who have an ideology. It might even sound good, but far from demonstrating depth of character, it exposes a person without moorings. If your principles are only good in sunshine, than they’re not very good principles. Or worse, if you merely hold those principles when its convenient, you are not a trustworthy person (at least, on the issue at question).
Right is right, and principles are most needed when fear creeps in and tries to overtake rationality. It’s been said that, “Hard cases make bad law.” Crisis-thinking is rarely one’s best thinking. Principles may be refined in the fire, but they need the cooling off period that reflection provides. Principles prepare us to respond, not the other way around.
Hardball delenda est. And the bailouts must end!
Filed in The Basement, The Boardroom, The Bureau
What happens when your principles are proven wrong?
Depends what you mean, Hathor. Care to elaborate?
At this point Hathor, your question remains hypothetical.
Firstly, mistakes happens in markets, even in the absence of market failure. Markets aren’t infallible, but they are self-correcting, if the state doesn’t interfere.
Secondly, this was a screw up by the private sector and the regulators, its hardly clear that in the case more regulation is what is called for just because the market made a mistake, that would be like arguing that since the government screwed up here that automatically means that less regulation is called for.
Finally, since regulators should have easily seen this coming and instead of heading it off actually made it worse there’s a government failure question here as well. Even if there is a regulation that could stop this, do you really trust the US government to work out what it is and then implement it?
Addendum:
I personally ignore what people say before using a but. What a person generally means by “I support x but …” is “I don’t really care about x, I just want to sound like I do”.
Jim Babka also defined the person has having no moorings, with out principles that would only exist in the light of day.
“It’s trendy to pick on those of us who have an ideology. It might even sound good, but far from demonstrating depth of character, it exposes a person without moorings. If your principles are only good in sunshine, than they’re not very good principles. Or worse, if you merely hold those principles when its convenient, you are not a trustworthy person (at least, on the issue at question).”
Does that persons character change if their principles were found to be wrong?
With regards to the markets I find that there are too many variables for one to define principles. Economics is not a science and the mathematics to define it, have found that they can not be true for all instances. Otherwise the brilliant types of financial instruments that were strictly statistically based that failed, would have a solution for recovery. It has nothing to do with government intervention or not.
Hathor asks the obvious question. I posted this AM, then got ready for my breakfast with co-blogger Ed Brayton. While getting ready, it occurred to me someone would ask this question. It didn’t take long.
Simply put, principles are provisional. But my argument is not that my principles, or anyone’s principles for that matter, are correct. Just that one cannot call themselves X when they specifically contradict X in their demands or behaviors.
Commenter James K gets it right in his “addendum.”
For example, your friend Dave says, “I am a vegetarian.” He goes on to explain that meat is toxic, and that killing animals for food is immoral. Then we have an expectation that Dave doesn’t eat meat, nor approve of those who do. But then, you run into Dave at a local steakhouse, and he has a half-eaten sirloin on the plate. And Dave tells you, “Well, I’m a vegetarians-vegetarian, a bona fide PETA member; but this is my mother-in-laws favorite restaurant, and she gets bitchy if I don’t eat meat in front of her.”
So this vegetarians’ principles wilt under the glare of his mother-in-law? Is he really much of a vegetarian? Obviously, not. And that was the point of this post.
Additionally, Hathor raises another question about who is right about the market.
As I’ve written recently in this forum, I don’t believe anyone is “right” about the market. Everything about the next second, and the seconds that follow, is a guess. Perhaps that guess is somewhat informed by training and experience. But a market is too big for any one person or committee to completely understand what happened in a single second. To make matters infinitely worse, those second pass, compounding the level of knowledge required.
The Great Conceit, which airs on cable news and business channels, is that someone knows about a past set of seconds well-enough to centrally plan the seconds to come. Ben Bernanke, we are told, is the foremost scholar on the Great Depression. He knows the lessons, and how to respond correctly this time. Except, he doesn’t. He’s almost certainly wrong.
I say that not because I know the right lessons either, but because I know that there’s so much complexity that no one can know them well enough to plan them.
That said, we can speculate that certain factors from the past — the prologue to the current crisis — led to the problem. None of us can prove our position with absolute certainty, but that neither denies us the right to a position, nor does it mean certainty is required to act. In fact, acting will happen regardless of our certainty — even not acting is a form of acting.
And how to act is why one has a philosophy. The principles that make up one’s political philosophy is what we call ideology. In my ideological perspective, government does more harm than good. Additionally, I believe that when you have a huge, wide-spread catastrophe, you look for a cause large enough to explain it. Our government is perhaps the only entity large enough to explain why so many people, of differing religions, gender, race, class, and so on, believed that, for example, credit was cheap and should be taken full advantage of, and then acted on those beliefs.
Today, everyone is getting blame, except the politicians and the Fed Chairman.
Some are calling it greed. That is hardly helpful. Humans are greedy. Give me a Nobel Prize for announcing this novel concept.
All of our more base inclinations are countered by natural laws. Our recognition of these laws results in virtuous behavior. One saves because he hopes for a better tomorrow. One is true to their partner because they want to preserve their relationship (and keep their stuff).
But if for a moment, one believes they can get away with something, the temptation becomes vastly greater. Look at the house you can buy with this no-interest, adjustable rate loan. Don’t worry, by the time the rate adjusts, the house will go up in value, as will your salary, and you’ll be able to refinance. Why wait? Buy it now!
Why did people suddenly believe that? Government policy, particularly from the Federal Reserve, had convinced people that debt was so cheap you’d be a fool to pass it up. And the rest, as they say, was history.
And that’s what I believe, so obviously, I don’t want government to do more of it. I don’t want the Bernanke inflation or the Paulson bailouts. I am neither a sunshine libertarian nor a fair-weather free-marketer (a.k.a., socialists, et al). I’m the 24 carat gold version of government downsizer, and I’m not ashamed of my ideology.
Oh please, economics is a science (see Mises/Hoppe/Martin Hollis.) Just not of the positivist sort. It’s time people re-defined their notion of science and gave up on the ridiculously high demands set by the positivists. It has nothing to do with one’s principles being potentially wrong and everything to do with utter intellectual cowardice.
To expand on what I said one must not confuse a knowledge of particulars on the ever-changing market with general knowledge of the market’s principles, which is certainly possible. Finance is not economics and economics is not the science of what prices will be, but of what prices are and how they function.
Inquisitor makes a good point that undermines what I take (hopefully not mistakenly) as Hathor’s position. Inquisitor points out the difference between understanding the principles by which markets work, and knowing the particular facts of a given market at a given time. The first is possible, while knowing anything more than a small part of the latter is impossible.
So I would suggest to Hathor that no generally agreed upon set of economic principles has been disproven here. Every economist that I know of accepts the principle that the market is not stable, but subject to swings.
Another economic principle is that when you subsidize risk, you get riskier behavior. That happened as well.
But the principle that I think people now believe is disproven is the principle that markets always go up and up and up. Not that those who think it’s disproven ever believed it, but I think they were under the impression that economists believed it. And that’s just not true–that principle, if anyone actually held it–has been disproven. But I’m not sure you’ll find any person holding a Ph.D. in economics who held that principle.
Here’s one free market answer to your black & white analysis:
If we had a perfectly free system, it might be perfectly fair to let banks fair. But we don’t, and _never have_. Given that, you cannot reduce this to some sort of razor that separates the true blue free marketers than those who aren’t.
So, the question should be posed this way: “Provided that we have a banking system whose excesses have been allowed to run rampant by a badly mistaken central bank, and given that investors were falsely lead to believe that regulation of this central banking system would be enforced, what is the best free market solution to this problem?” As much as I dislike it, I think that government, having been part of the problem, is required to be part of the solution.
If I can indulge in the sin of analogy-making, this would be a lot like watching a hurricane destroy a major US city, then announce, ‘As an advocate of the free market and libertarian ideals, I believe that FEMA should do nothing and simply return its budget to the taxpayers.’ That’s great and all, but it ignores the reality of the situation — people, markets, and cities, have structured their lives around a system built on government regulation. If you pull the plug on same willy-nilly, you could end up causing far more destruction.
Inquisitor,
I was responding to the post and then to Jason.
I think it wistful thinking to think economics is a science. There is no experiment that repeats itself. Just how many premises can one have for all to be true in all instances as it is the case in economics. Something generally happening in some unknown time frame or sequence just doesn’t cut it for me. Science is not a notion. If so, why not teach creationism as a science.
Economics being an area of study, does not make it science. It may have been derived from philosophy, just as mathematics and physics, but the standards of science are higher than in philosophy, otherwise there would only be one philosophy.
Hathor –
There are indeed repeatable experiments in economics. Establish a price ceiling; print new money; outlaw a product or service. And the results will broadly speaking be the same, virtually anywhere they are tried: There will be a shortage, or inflation, or a localized price increase combined with violence. These aren’t open for debate. They happen all the time, all but inevitably. Exceptions can be explained only by considering countervailing economic factors at work at the same time and place.
Economics arose to explain phenomena like these, among others. It posits that there are laws of human action, and that, provided that other factors remain constant, changing a given attribute of the economic situation will result in predictable changes to other aspects as well. Print more money, and prices rise because money has no intrinsic value, but is worth only the proportion of goods that it can purchase in the economy. Adding money doesn’t add wealth; it simply draws more lines on the ruler. And so forth.
In a sense, however, you’re right: Much of economics stands in relation to first economic principles as engineering stands in relation to the physical sciences. Quantitative economics always involves some educated guesses, some assumptions that may turn out to be true or false. The principles don’t change and aren’t even up for debate, once they are properly understood. but figuring out how to apply them in the real world, and to model that world quantitatively is a challenge, and and inexact science.
Sure, Jake. I mean, if we could elect just the right politicians and enact just the right laws, the world would be so wonderful. If only God would step in and run things. Why don’t we pray about it?
Seriously, to expect the government to clean up the mess the government caused is just wishful thinking. People use the government to take things that don’t belong to them - both property and free choice. To use the government to try to clean up the mess is to leave the criminals in charge. The free market will take some time and it won’t ever be perfect, but it’s the most practical and moral solution to the problem. The free market works better than government because in a free market no one has any legitimate right to rule over anyone else. The free market gives everyone equality of authority.
I think you just countered Naomi Klein’s argument that free marketers want to use crisis to prescribe policies =) But I agree with you on the rest =)
Perhaps they could stick to conservative, because actually, that covers the sunshine part =)