Sunday, June 19, 2011

It's not economy that's fragile; it's our freedom

Published in The Tennessean, Sunday, June 19, 2011

by Richard J. Grant

Is the economy made of glass? We keep hearing how “fragile” it is.

There has long been a tendency to think of the economy as an almost physical, machine-like entity. We still sometimes hear economists refer to “pump priming,” as if the government is needed to inject the initial income into the system to get it flowing. Or perhaps they see the economy as some kind of an organism that just can't rouse itself without some centrally directed “stimulus.”

We think of a machine as needing some kind of control panel or driver's seat. If it is an organism, then we want to put it on a leash. Someone must control it and direct it.

Such a vision of the world either ignores or downplays the role of real, autonomous people. Never mind that the real-world economy is an ever-changing network of a multitude of individuals, each seeking their own purposes. Never mind that these individuals will tend to prosper when they cooperate with one another and learn that conflict and power-seeking lead to relative decline. Such a vision cannot comprehend that a prosperous order can emerge spontaneously without a central planner at the economic control panel.

Earthly experience with attempts at such central planning has been unsatisfactory, to put it mildly. The concentration of power that is necessarily sought by the planners will be used to “do good” as the planners see it. But what is “good” for the planners is not necessarily good for everyone else. Even a benevolent despot cannot possibly know the needs and desires of millions of people, let alone act on such knowledge.

This is why the greatest nations in history have been those in which individuals and their close communities have found themselves relatively free to pursue their own livelihoods. People tend to work around any obstacles, including those imposed by other people. What we call “markets” have always emerged in some form, whether within or outside the laws that have been decreed.

In free countries – those with limited governments and the freest markets – the greatest value is found in voluntary production and cooperation. Political power is of little personal economic value to an individual or his supporters in a free country.

Rivalry for political power is most intense, and takes on its greatest personal economic significance, in those countries that are least-free or are moving in that direction. As the power of governmental leaders grows, the market for lobbyists and political influence grows as well. Increasingly, it pays to devote time and resources to acquiring wealth through political means rather than through productive private-market trade.

In a free country we would care little who the president is, provided that he conducts himself in a dignified manner, is a competent administrator, and can manage the national defense. The president would not have the power to “radically transform” the country, nor would he have the power to transfer wealth from one group arbitrarily to another. Donations to his election campaign would be commensurately small.

In a free country we would not suffer from the illusion that our economy is “fragile.” Our experience would show us that our economy is not a thing in itself but a very real reflection of our virtues and social relations. It is our freedom that is fragile.


Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: rjg@richardjgrant.com

Copyright © Richard J Grant 2011