Tuesday, July 28, 2009

Economic thoughts

Excerpts from an interview with economist Guy Sorman:
Economics is always a matter of trade-offs: higher taxes will slow growth, but they can increase equality through wealth redistribution. This has been the dominant European model. If the U.S. opts for more wealth redistribution, we will get less growth. We can’t have it both ways, because resources are scarce.
So do the poor benefit more from the redistribution of wealth or from overall economic growth? Comparing the poor of today with the poor of previous generations, it's easy to see that today's poor are better off. They live longer, have better health care, and typically own cars, color televisions, VCRs, microwaves, cell phones, and a host of other devices yesterday's rich could only imagine.

It's also clear that today's poor owe their much improved circumstances not to having been given rich people's money, but to the innovations and technologies created and developed by those rich people. The rich, who are so often scorned in our society, should instead be celebrated. They are the heroes who -- albeit for selfish reasons -- have made available the many items which improve our lives at prices that even the poor can afford.
Obama’s success has been not to follow the most radical suggestions of liberal economists like Paul Krugman: advocating even more public spending, more nationalization of industries, and more regulation. All of Obama’s decisions, though, are half-baked: as a consequence, the U.S. may not be turning socialist, but it is becoming unpredictable.
Unpredictability kills growth. People are hesitant to spend and invest and expand when they don't have a sense of what's to come. They delay decisions, tighten up, and wait to see what develops. They only real way to climb out of a recession is to grow the economy, which means the increased uncertainty Obama has introduced into an already bad economy will only make things worse. And the poor get hit the hardest, since economic growth is the engine which drives the things which improve their lot.
The intelligentsia does not usually like the free market for two reasons. First, it is not an ideal system: intellectuals prefer utopia. Second: intellectuals are paid less than entrepreneurs. As a consequence, they see capitalism as unfair. In former socialist regimes, intellectuals were well treated when they toed the party line. If they didn’t, they were jailed.
Letting the perfect be the enemy of the good is one of the key flaws in modern liberal thinking. Capitalism is imperfect. Charter schools are imperfect. The free market is imperfect. It's easy to find flaws in any of these policies, but the evidence shows that these flawed policies work better than the alternatives. Shouldn't we be asking ourselves what works best rather than rejecting ideas simply because they aren't perfect?

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