I sometimes think that economic issues ought to be a little bit more straightforward than other issues. After all, these questions are not normative philosophical questions, so it seems unlikely that there could exist fundamental economic disagreements that couldn’t be cleared up with some well-made charts and intellectual honesty. Doesn’t the fact that these are empirical questions mean that we should just be able to look at some data and then unanimously agree on the economic theory that matches it best? Isn’t there a fact of the matter? The fact of the matter seems to be that the economy is a very complicated phenomenon that probably no one fully understands, and that very few people seem to even largely understand. And yet, anyone who belongs to a political party seems to have an opinion on the issue.
Let’s mentally prepare ourselves for tomorrow’s debate by examining the broad narrative outlines given by both the Republicans and the Democrats about the economy, and attempt to determine whether a person with no substantive background economic knowledge could be justified in holding either position. Before I start, I just want to state as a caveat that I’m painting with extremely broad strokes here. One should not see either position as being a completely truthful summation of the most sophisticated views given by either party.
Let’s start with the Republican view, since the Democrat view in some ways seems to just be a more souped-up version. Republicans generally argue for ‘free-markets’ or ‘laissez-faire’ economics. While the educated view is much more filled with detail, nuance, and theory, the basic idea is that the market will naturally deliver to consumers the lowest price possible for any good or service. That the selfish desires of individuals will, through the magic of the invisible hand, ultimately benefit society as a whole. That by leaving the market unregulated, the unrestrained free market will lead to technological innovation and economic growth. Good ideas will be rewarded, and bad ideas will be corrected. Any problems that exist in a society will be addressed by intelligent entrepreneurs who see fortune in discovering a solution. The economy will incentivize the best and brightest to pursue the jobs that will benefit society the most. Since most Republicans will admit that truly free markets are mere ideals, unattainable in practice, many will claim that the government has a necessary but limited role in regulating the economy. They should use reasonable regulation to ensure a level playing field, but should not use their powers to favor one group over another. However, Republicans worry that government’s natural tendency is to attempt to move beyond its proper place by creating policies with the intention of directly ‘helping’ society. Since government is not subject to the rules of the market, government policies tend not to self-correct, lead to negative unintended consequences, and generally prevent the market from efficiently setting prices and determining value. For this reason, one ought to always be very suspicious of government interference in the economy.
Democrats accept many of the free-market premises given above, but argue that the logical consequences of an unfettered free market are injustice and inequality. A system where some succeed and others fail creates a deleterious social situation that can only be corrected if the underdogs are helped. Because businesses are essentially self-interested, this help has to come from the government. Democrats worry that big businesses, if left to their own devices, will take advantage of their consumers and employees, create products that are harmful to society, and take cost-cutting measures that are destructive of the environment. Democrats believe that the government can have a positive role on the economy that goes beyond merely ‘ensuring a level playing field’, that through well-crafted policy, it can help to make the outcomes fair as well. Democrats claim that through smart policy-making, government can reduce poverty, unemployment, and inequality, and provide public goods (such as museums and national parks) that would disappear or become exclusive if left to the private sphere.
Democrats argue that society will be most prosperous if the government claims a greater responsibility for society’s ills. Republicans argue that in allowing the government this role, the economy suffers, and so does the prosperity of society. Now to return to my original question, is a person with low economic knowledge justified in taking either side? My position is the following: one cannot be justified in claiming that they know one way or the other without sufficient economic knowledge. However, one can be justified in placing their trust in one party over the other, so long as they admit uncertainty.
Here’s an argument for why a person should trust the Republican narrative: most people are wrong about most things and the economy is a very complicated phenomenon. Given that people are so fallible, it would be unwise to allow well-meaning but probably ignorant policy-makers to mess around with the economic machinery that gives society its vitality. We have good reason to think that the ‘invisible hand’ is a somewhat accurate description of market behavior, and that a more unfettered economy will mostly be good for society in the long-run.
Here’s an argument for the Democrat’s narrative: there are economists who have dedicated their whole lives to studying the economy and they believe that certain economic policies can make society better without harming (and even potentially increasing) the efficiency of the market. These economists may be able to help correct the harms that inevitably occur within capitalist societies. We should give them a chance, especially since the alternative seems to be settling for the status quo (Keynes’s rebuttal to Libertarian appeals to the long-run: “in the long run we’re all dead”). Whether or not this improves/damages the status quo is irrelevant because things can’t get much worse than they already are, but they could get better. At the very least, the economists’ policies will allow us to learn more about the economy so that we can get better at manipulating it in the future.
I realize that there are a lot of nuances to these issues that I left out, but I expect we’ll be hearing echoes of what I’ve written here during tomorrow’s debates. Thoughts?