Anti-Stimulus Trifecta

Its no secret that I think that all of the various economic stimulus plans are simply a bad idea. None will work, and in my opinion will make any recession or depression longer and deeper, not shorter.

Over at the Foundation for Economic Education (FEE), they have 3 excellent pieces that do an excellent job at refuting the "Stimulus Madness!" that has gripped governments not only on both sides of the border, but around the world:

1. My friend Sheldon Richman's The Goal is Freedom: Smoot and Hawley Return shows how the infamous "Buy American" portion of the package is merely a repeat of Herbert Hoover's ill-fated Smoot-Hawley Tariff, widely accepted as one of the causes of the speed and depth of the great depression.

"When laws prohibit or limit the purchase imports, foreigners have fewer dollars and therefore fewer opportunities to buy American exports or to invest. The Americans who would have benefitted from those transactions lose out. So while protectionism is defended as a way to help the American economy (at the expense of foreigners), in fact it is special-interest legislation that helps only a small well-defined interest group at the expense of many other Americans. If people generally understood this, they would not fall for protectionist appeals."

Its odd that for all the daily comparisons to the depression we are seeing, no one seems to have noticed that the US Congress and President Obama are acting more like Hoover than FDR (not that acting like FDR would be much better).

2. William Anderson questions the very idea of government spending - especially bailing out failing companies and industries - to create jobs in his Not So Fast!: The Fallacy of Production for its Own Sake:

"...jobs simply are a means to the end of consumption; they are not ends in themselves. People become confused because they fail to recognize the connection between production and consumption. Yes, jobs produce income for individuals, but they can provide real income only if the job contributes to the production of goods people are willing to purchase."

So simple an idea, yet something that few people get.

3. And to shore it all up, FEE links to an article first published in 1957 (warning: PDF), an excerpt from economist Frederic Bastiat's classic 1850 Pamphlet That which is seen and that which is not seen.

"From all the benefits attributed to public spending we must deduct all the harm caused by preventing private spending—at least if we are not to go so far as to say that James Goodfellow would have done nothing with the five-franc pieces he had fairly earned and that the tax took away from him; an absurd assertion, for if he went to the trouble of earning them, it was because he hoped to have the satisfaction of using them. He would have had his garden fenced and can no longer do so; this is what is not seen. He would have had his field marled and can no longer do so: this is what is not seen. He would have added to his tools and can no longer do so: this is what is not seen. He would be better fed, better clothed; he would have had his sons better educated; he would have increased the dowry of his daughter, and he can no longer do so: this is what is not seen. He would have joined a mutual-aid society and can no longer do so: this is what is not seen. On the one hand, the satisfactions that have been taken away from him and the means of action that have been destroyed in his hands; on the other hand, the work of the ditchdigger, the carpenter, the blacksmith, the tailor, and the schoolmaster of his village which he would have encouraged and which is now nonexistent: this is still what is not seen."

I'm quite sure my stance will not make me popular with my progressive friends, but I cannot support an orgy of spending, a return to long, deep deficits - no matter how well intentioned - when the effect will be the opposite of what is wanted. Sometimes, perhaps, we should rely on sound economics rather than wishful thinking to help people.

Right now, the road to economic hell is being paved with gold by the very governments trying not to.

Evolution and Economics

A few weeks ago, I posted the following on my other blog, theConverted:

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Dr. Michael Shermer, of the Skeptics Society, has a fascinating article at Scientific American entitled 'Evonomics'. He postulates that evolution and economics are both part and parcel of the same phenomenon - complex adaptive systems.

In biological evolution, nature selects from the variation produced by random genetic mutations and the mixing of parental genes. Out of that process of cumulative selection emerges complexity and diversity. In economic evolution, our material economy proceeds through the production and selection of numerous permutations of countless products.

Quoting both Mises ("Socialism") and Basitat, Shermer shows that top-down government "design" of the economy is a ludicrous as "design" in evolution.

As with living organisms and ecosystems, the economy looks designed—so just as humans naturally deduce the existence of a top-down intelligent designer, humans also (understandably) infer that a top-down government designer is needed in nearly every aspect of the economy. But just as living organisms are shaped from the bottom up by natural selection, the economy is molded from the bottom up by the invisible hand. [emphasis mine]

He still thinks (sadly) some interference is necessary to ensure "free and fair trade", but he is, at least headed in the right direction.

But what this really points to is yet another example of hypocrisy that seems to plague both the 'left' and the 'right', both so-called liberals and conservatives. Each has their own cognitive dissonance here. The conservative right, staunchly defends the idea (for the most part) that the economy is molded "from the bottom up by the invisible hand" of the market, while denying the identical process that occurs in biology. Of course, the liberal left seems to have the opposite problem - while rightly defending the process of evolution and natural selection, they fail to see this exact same process in the field of economics and claim that the government is needed to manage the market.

One cannot support true free market economics and deny evolution nor can one deny the power of the true free market while vehemently supporting evolution. Interference in the market causes unexpected distortions and unintended consequences just as interfering with evolution does.

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Since then, Dr. Shermer has appeared on Skepticality and on ReasonTV, explaining in greater detail his thesis outlined above.

In that time I have also bought and read the book The Mind of the Market. It is, of course, brilliant. Dr. Shermer also takes his thesis one step further, in explaining how a free market has an evolutionary basis, how a truly free market and truly free trade are the best ways to foster both peace and human happiness. He touches on the evolutionary basis of morality, as well as good and evil. In his chapter on it and through ongoing discussion, Dr. Shermer points to the evolution-driven biological basis for "folk economics" - why people want the egalitarian, fairness and cooperative model of society as well as the accumulation and consumer based market society; why they hate the rich but also strive to be them. And in dispelling the myth that evolution is about "survival of the fittest" and "red in tooth and claw", he not only demonstrates that cooperation and altruism are the dominant, most effective strategy for the survival of one's genes, but that this is not incompatible with a free market.

He does not, thankfully, fall into the "vulgar libertarian mode". He does not become an apologist for corporate greed. His chapter entitled "Don't be evil" dissects all that was wrong with Enron (no transperancy, destruction of team work, micromanagement, divide and conquer mentality - sound familiar CPC supporters?) and all that is right with Google (the opposite of everything that is wrong with Enron). He rightly identifies the kind of KBR-Haliburton-Enron kind of capitalism as properly corporatism and mercantilism, not true free market capitalism that Adam Smith envisioned.

All in all, he makes an excellent arguement in favour of actual freed markets and trade, based on evolution-driven human nature and behaviour. The science is solid, and Dr. Shermer provides copious endnotes to primary sources, so you can check it out for yourself.

So here is the challenge, to both those on the left and the right. Read the article, listen to the podcast, watch the video and read the book. Discuss the ideas, but keep an open mind and try to reconcile how you can believe in a bottom-up, emergent system in one area, but not in another, nearly identical area.

Consider new approaches and different solutions with these ideas in mind.