Thinking Economically

  • Jay F. Hein
  • Jun 9, 2011
  • News
  • Fiscal Policy

Originally published in the Indianapolis Star on June 9th, 2011.

“Greed is good.”  These words by Gordon Gekko in the movie Wall Street perfectly symbolized the hyper-materialistic 1980s.  It then became an iconic slogan tarnishing the free market system even while capitalism was prevailing over communism at the end of the Cold War. 

More recently, free enterprise itself has come under attack.  Thanks to Gekko-like investors, irresponsible personal borrowing and ineffective government oversight, retirees lost their nest eggs and many families their homes. 

Washington’s response has been aggressive.  The federal government bailed out Wall Street and took over Detroit.  At one point, Uncle Sam owned the nation’s largest bank, insurer and automaker.  This takeover combined with the so-called jobless recovery led merely 53% of Americans to cite capitalism as superior to socialism in a recent national poll. 

The new class of state executives has taken a different course than the Obama administration.  Freshly elected governors from Florida, Ohio, Michigan and Kansas join stalwarts such as New Jersey’s Chris Christie in forcing government to live within its means.  The subsequent politics have been fascinating.  Indiana’s Mitch Daniels’ parsimony earned his state its first-ever AAA bond rating and inspired the GOP elite to draft him for a presidential campaign.  Similar moves by Wisconsin Governor Scott Walker resulted in a recall campaign merely months after he took office. 

Even with the re-emergence of Russia and rapidly increasing Chinese footprint on the global economy, the fundamental question has not returned to capitalism versus communism or even socialism.  But a couple meaningful battle lines are worth paying attention to: statists versus the Tea Party and conservatives amongst themselves. 

The front for this war is being played out in the Obama era between big government elites and the grassroots Tea Party activists across America.  One side thinks public intervention is necessary to calibrate the free market while the other side believes in the private sector and individual action to make necessary course corrections.

 The second tussle takes place on the political right between conservatives and libertarians.  Conservatives tend to argue that the free market cannot survive without adherence to certain virtues governing human behavior.  They remind us that capitalism’s guide star, Adam Smith, was actually a moral philosopher who emphasized morality and markets in a book called The Theory of Moral Sentiments

Libertarians, for their part, persuasively argue that the central aspect of the free market is freedom. In a seminal book called Human Action, Austrian economist Ludvig von Mises explains that life is about a series of individual decisions made toward progress.  Society should therefore create conditions for reasonable behavior and incentivize productivity over dependence. 

This contemporary debate between right-leaning leaders provokes a historical anecdote worth recalling.  During a recent speech to Hillsdale College, my former White House colleague Bill McGurn explained that it was the unlikely coalition of British evangelicals and economists who fought for the abolition of slavery.  Whereas the oppressors such as Thomas Carlyle believed that blacks left to the laws of supply and demand would be doomed to a life of misery, the liberators fused economics and values to convey that ordinary men and women can rise through hard work and enterprise. 

Interestingly, it was an essay by Carlyle during this time that coined economics as the “dismal science.”  This unfortunate moniker causes too many of us to think economics is an arcane study reserved for those who took linear algebra and understand the Nash equilibrium.  On the contrary, economics is less about math and more about logic. 

The traditional definition of economics is a study of the allocation of scarce resources among competing uses.  In other words, it really is about making choices and understanding cost and benefit.  If we are focused more on the bigger home (benefit) than our ability to pay the adjustable mortgage (cost), the foreclosure crisis is predictable. 

This practical application means we should be highly invested in a renaissance of economics education.  Nothing can place a child in a low income community on more equal footing than to understand the difference between wise and unwise choices.  Government budgets will be balanced when constituents demand policymakers understand the concept of scarcity.  More important, nothing will lead to a more just society than consensus formed around the dignity of every individual and the unlimited human potential of its citizenry. 

Indiana Wesleyan University will do its part to ignite deliberation on such things when their National Conversations series convenes in London later this month.  They will consider the nature and purpose of wealth, including how it is acquired, sustained and deployed.  They won’t seek definite conclusions but they will equip citizens to think more seriously and to act more economically.

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