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Why
People Ignorant of Economics Hate and Fear the Free Enterprise System
DIGG THIS
This
column is dedicated to the memory of Loyola political science senior
Anthony Torres who on August 28, 2007 died in a traffic accident,
and to all other members of our Loyola community who make up our
tragic national highway fatality statistics.
For zillions
of years, the human race lived in small groups of 25–50 people
or so. We became hard wired to appreciate explicit cooperation:
I scratch your back, you scratch mine; I'll feed you when you're
hungry and/or sick; you reciprocate. Those who wouldn’t or couldn't
do this didn't tend to leave their genes to the next generation.
That is one of the reasons why the family is even today such a powerful
institution.
However, in
an economy of 6 billion, we can't all cooperate this way. Rather,
we can only cooperate through markets. That is, implicitly, not
explicitly.
To illustrate
this point, take the recent history of New Orleans. When Katrina
struck, prices of oil, gas, milk, water, orange juice, batteries,
candles and other such items catapulted. This was implicit cooperation
in action. How so? Higher prices means that those first in line
at the grocery don't get everything on the shelves. Elevated prices
have a rationing function; at normal costs, people would tend to
stock up; if the prices are very much higher, they will in effect
if not by benevolent intention leave something for others This is
part and parcel of Adam Smith’s "Invisible Hand" at work.
Also, higher prices in post Katrina New Orleans would encourage,
through greater profit margins, businessmen from outside of the
struck area to bring these goods to those here who needed them the
most. This embodies yet another aspect of Adam Smith’s "Invisible
Hand."
But were people
in NO satisfied with these salutary rising prices? Did they understand
their economic function? To ask this is to answer it: they were
not happy campers. Flesh and blood politicians also biased against
markets by their biology, sensed this; they lambasted entrepreneurs
as price gougers, and threatened stiff legal penalties
Charging higher
prices during emergencies is good implicit cooperation. But we're
not hard wired, biologically, to accept any such thing. Unless we
know a bit of economics, we recoil in horror from such goings on.
We characterize them as ruthless, uncaring, selfish, callous, etc.
We are not biologically situated in a way so as to welcome such
behavior. Rather, we, in our gut, expect our fellow creatures to
cooperate with us explicitly, the way family members treat each
other.
Appreciation
of the finer points of economic cooperation simply conferred no
biological advantage all those zillions of years ago. Nor are university
students and even faculty members exempt from these irrational (in
the modern context) feelings. Unless you are reasonably cognizant
of economic theory, higher prices in such situations will seem like
greed run amuck.
Let us consider
another example. Some 40,000 people die on our nation’s roadways
each year. Most people – innocent of economic reasoning – think
this is ordained by some Higher Power if they think about this at
all. Or, they attribute it to things like speed, drunkenness, vehicle
malfunction or other driver error.
But these
are merely proximate causes; the ultimate cause is of course poor
roadway management. And who is in overall charge of vehicular
traffic? Why, government, of course. The problem is that in this
sector of the economy, there is no automatic negative feedback mechanism.
Those responsible for not satisfactorily dealing with the proximate
causes of our dying like flies on the highways continue in business.
Ditto for the Army Corps of Engineers, FEMA, the post office, the
FDA, indeed, all government agencies.
 In
sharp contrast, the reason we have no national crises concerning
pizza, rubber bands, computers, Disney World, WalMart etc., is that
these enterprises are in the private sector. There, fail to satisfy
consumers, and you are history.
 The
obvious solution to massive highway deaths is to privatize this
amenity. But such a turn away from highway socialism will appear
anathema to most of us, who are victimized by our biology, and simply
unable to appreciate the rather subtle economic reasoning underlying
such a proposal.
September
10, 2007
Dr.
Block [send him mail] is a
professor of economics at Loyola University New Orleans, and a senior
fellow of the Ludwig von Mises Institute. He is the author of Defending
the Undefendable.
Copyright
© 2007 LewRockwell.com
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