This post first appeared on Wirkman Netizen, September 16, 2008:
The cure for statism is not more statism. And yet that seems to be the general approach of mainstream government policy.
What drives current government economic policy? Fear. Fear that letting a big institution fail would spiral everything out of control, leading, ineluctably, to chaos.
The problem with this fear-based policy is that it seems to so insulate the market-directed institutions from their normal feedback loops that such policy actually exacerbates the situation, only in a longer cycle. To prevent a near-term disaster, government bolsters up a particular company. Then, perceiving that responsibility has been undermined in the feedback system, market actors behave less responsibly, leading, down the road, to a bigger crisis than would otherwise have occurred.
I am thinking about the automobile industry and the mortgage industry, right now. Other industries provide evidence for this general perspective.
But always you have politicians intervening in the feedback systems, weakening those systems and making matters, in the long run, worse. The Rx in each case seems like only a slightly bigger dose than has gone on before, but its repercussions spread wider with each administration of the “cure.” The system becomes parasitic itself, dependent upon such cures being given at increasing doses and with increasing frequency.
It is not wise medicine. It is fear-based medicine. If people could just get over the fact that companies die just as individuals do, we would not have such nonsense. Indeed, the ruling fear of the day is fear of business death. The funny thing about this fear is that it is so amazingly inegalitarian. Some companies (big companies) are more important than others. Tens of thousands of small businesses die per year. But have one large company go, and politicians of both parties vie to save it, prop it up.
The belief that some companies are more important than others is a classic “pro-business” economic policy model. It is similar to the belief that some taxpayers are more important than others. (Democrats appear to appear to believe the broad wash of consumers are most important for “the economy”; Republicans believe that richer consumers, who invest, are more important.) What is interesting about the theory of company size importance is how bipartisan this theory is.
You can see the reasons for believing the theory. A big company goes down, and a whole bunch of people become unemployed. But you raise the minimum wage, and unemployment goes “unexpectedly” up. You raise taxes on businesses, and unemployment goes up. You increase regulation, and unemployment can go up, too. In all these other cases, though, the employers and employments are more widespread than when one single large business goes down. So, it is a matter of parallax. If you only notice the one kind of bad effect, but not the more common and widespread others, you consistently skew the system.
This sort of policy also increases the advantages that big companies have over small ones. In a freer market, smaller companies often outcompete big companies. But when you start subsidizing big companies when they fail, you basically foster a plutocratic system, since it is often the case that it is the big, wealthier companies who can afford to rent politicians at a rate that crowds out the input of smaller companies. You end up (not surprisingly) with higher concentrations of wealth.
This is rather like what Karl Marx predicted, only not free-market insolvencies in the business cycle spurring the wealth gap, but government doing so.
It is, of course, great for those people who ensconce themselves within the ranks of the big companies. Thus it is and was that Ivy Leaguers and the like keep their positions in society. The Old Boys keep their network, and keep their nodes operating, while, in the freer part of the market, the unsubsidized part, nodes pop in and out of prominence daily.
The policy of preferring big companies over small ones — of giving special treatment to the large in effect at the expense of the small — is an ancient way of conducting the state. It is not new. It is not sophisticated. It is based on systematic illusion and it is at one with how ancient empires were run, how mercantilist kingdoms were run.
It was common practice when leechcraft and bloodletting were all the rage.
It is laissez-faire that is new and sophisticated.
It is time for the advocates of laissez-faire to chuckle and rib the simpletons and their vain policies of favoritism. There is no reason for advocates of dirigisme to get away with any sort of intellectual high ground, or any cultural pre-eminence. They should be ridiculed in a similar manner that they have ridiculed laissez-faire, for over a century. And for every jibe, offer a bit of reason to show why the high ground is where it is, in freedom’s quarter.
Statecraft is leechcraft not merely for its game of draining the blood of the market order. Statecraft is leechcraft in that it is based on out-moded notions of what makes society healthy. Freedom makes it healthy. Statism cripples it, the better to feed the insatiable demands of partisans of the state.
twv
http://wirkman.net/wordpress/?p=415
N.B. A few alterations of the above post have been made in this re-posting, to fix typos and remove some infelicities of style. No new thoughts have been introduced.
This is just another hastily-made rehash of my basic views of government and society, something I still do on a fairly regular basis; I repost it here mostly because I like the title. And that one of the themes, of long-cycle instability, just does not get enough play in policy discussion. (Though now that Western civilization approaches crisis, this sort of thing is increasing, no?)
Wirkman Comment 