Monday, July 26, 2010

Is the Economy a Machine or an Ecosystem?

Much of what is missing from the current debate over economic policy is a fundamental question over what our nation's economy most closely resembles - a sophisticated machine that can be fine tuned by special people with IQ's several standard deviations greater than us common folk, or an ecosystem that selects the most relatively fit participants for success, while punishing poor decision makers with lower standards of living.

If our economy resembles a machine, then the Keynesians in Washington are correct that managed health care; near $1 trillion stimulus packages; targeted subsidies and bailouts; quasi-ownership of banking and automotive concerns; green initiatives and much more can be successfully carried out by elected officials whom we entrusted in the voting booth. Let's face it, we have been told over and over again that under the era of deregulation (presumably referring to Reagan, Clinton & Bush), led to the chaos that destroyed the American economy and, deservedly, our faith in capitalism. Unfettered capitalism, we have been told must be restrained by intelligent, diligent political officials and judges so that we can all be spared the ravages of another Great Depression.
On the other hand, what if an economy is not unlike the wilderness and the ecosystem that exists in the wilderness? Think about this proposition for a moment. Out in the wilds of nature, the regulating forces that guide the "decisions" of plants and animals is simply the extent to which the ecosystem selects for success, or failure, the behavior of its participants. Life is a random walk where sometimes there is just enough rain, food, sunlight and lack of disease to allow living beings that are best suited for current ecological circumstances to thrive. Other times, naturally occuring ecological "recessions", i.e. drought, floods, plagues, etc. cause participants that are ill-suited for the conditions that exist to face a greater probability of struggling, or even dying.

The "market" for resources is unregulated but ultimately faces regulation. The regulation in this case stems from diverse life forms using only those resources needed to maximize chances for survival. There is also no punishment imposed for those living things that have the best genes, the greatest strength, or the luckiest location at any given time.

Harsh as it may sound, what if we simply allowed our economy to copy what is "natural" to our condition? Human beings have a greater capacity to work together, a greater desire to share wealth and a deeper understanding of how to organize resources than animals and plants do. Government, one could argue, imposes unnatural regulations, taxes and laws that inhibit human being from maximizing the opportunities our economy (our ecosystem) has presented to us. Whether it is progressive individual and corporate income taxes; crony capitalism for businesses with the best lobbyists, but not the best products; or welfare and health care benefits for voters who would rather use a ballot to get money than a job to do the same, the examples are endless where unnatural, and unproductive decisions are rewarded all because government can use force.

I would like to suggest that the more we encourage our fellow man to look to nature rather than government for guidance on how to structure economic policy the better off we will be in the long run. This would not mean the absence of help for the down-trodden. Far from it. What it would mean is that in the future, participants in our biological economy would not build nests that they cannot afford; would not eat enough food to become a strain to their neighbors' wallet and would not use their businesses to invest in resources that are too risky.
Remember, if we think our economy is a machine, it means that in the long run we must face a reality where more and more experts get to design and control the part of the machine that each of us helps support. I am not sure I want a future that the Soviet Union decided to leave behind.