Tuesday, September 22, 2015

Three poles, not two

We owe our prosperity to non-zero sum behavior and the institutions and cultures that encourage it. We get NZSB in markets functioning under the rule of law. (Don Boudreaux points us to James Pethokoukis who points us to Deirdre McCloskey for some explanations.) With Pope Francis here for a few days and political campaigns everywhere heating up, this is all worth recalling.

Binary distinctions get us into trouble. Many critics seemingly (unwittingly?) equate markets with crony capitalism. But try a three-way distinction: markets under the rule of law vs crony capitalism vs collectivism. The third has at long last been discredited but the critics are not able to distinguish between the first two. They see just one type of capitalism and many don't like what they see. That's a serious error.

Is it a tax? Is it a mandate? The Supreme Court says it's whatever the ruling party wants it to be. Not exactly the rule of law.

I am reminded of all this in reading Yuval Noah Harari's excellent Sapiens, A Brief History of Humankind. The author is very smart and an engagingly clear writer. He covers a lot, including history, biology, anthropology and economics -- and much more. He excels at discussions of how we have learned to tell ourselves stories, e.g. "imagined orders" -- all the isms -- to create the grounds for large-group cooperation.

Some of Harari's best chapters link credit, trust and economic growth. He gets it about economic freedom and prosperity. Strangely the book is also riddled with shots at markets. Harari sees ill-gotten gains all around. It's as though crony capitalism were the only kind. And he wants more supervision to fix things.  But supervision by which clan of wise men and wise women? Would not that mean more crony capitalism and a move in the wrong direction?

In one paragraph (page 328), he writes, "But in its extreme form, the belief in the free market is as naive as belief in Santa Claus. There simply is no such thing  as a market free of political bias." And "When kings fail to do their jobs and regulate markets properly, it leads to loss of trust, dwindling credit and economic depression."  I have no idea how he squares that circle. Nevertheless, it's a great book