Tuesday, August 14, 2012

Communists are evil, capitalists are good?

I'm always intrigued by reading what Austrians have to say; that's Austrian economists, also commonly referred to as libertarians. Here's a great example of this: Ethel Rosenberg: Born Bad?, David Henderson | EconLog | Library of Economics and Liberty

The thing that intrigues me most is how their economics is infused with morality - questioning whether communists (socialists in American speak) are bad (evil), and hence by implication, libertarians and capitalists are good.

I was discussing this overlaying of economics with morality with a friend over the weekend; as economists we do attempt to conduct positive analysis, or value-free economics. It's once we add values that we end up on the right of left of the political spectrum - positive economics simply states how things are, and attempts to model (understand) them.

Hayek is generally associated with having stated that to add any kind of morality to economics (e.g. "that outcome isn't fair!") is unnecessary and unhelpful, and thus it's quite odd that a libertarian in David Henderson (and Bryan Caplan) is essentially doing just that in ascribing evil to particular economic outcomes and those that promote them.

I sense there's also some kind of contradiction going on. Henderson points out that some communist sympathisers in the US on strike stopped others from going to work, interfering with their right to do so, and that that was evil, or bad. Now the justification I'm sure that the communists would bring up for that is that by restricting the rights of the few (the black legs), they increased the lot of the majority of workers being exploited in that particular situation. Hence they'd appeal to a bigger picture.

Which is what libertarians do all the time in essence. When someone complains about a specific market outcome, a libertarian will usually jump upon them, pointing out the bigger picture - as economists we know that under certain circumstances, the market will provide the optimal allocation of resources. In asserting there should be a free market outcome rather than any kind of intervention, libertarians in effect deny the rights of exploited workers for the benefit of the many (whoever the many actually is).

In not inclined to believe this. Essentially, to take any side in this is to elevate the rights of some group of market participants above the others. It's to deny the idea that all people can be evil, including the owners of businesses who can deny workers safe working conditions and other things we take for granted, because they can appeal to something that will always exist, regardless of how much libertarians wish it didn't: The government. While government exists it will always be lobbied by company owners, and always be persuadable.

The appropriate way around this difficulty is to design mechanisms such that it is harder for governments to be lobbied. Yet it is precisely mechanism design that libertarians reject out of hand, claiming that there is no way that a single entity in a market could possibly have all the necessary information to design such a system. The point I believe they have missed is that in designing such a system, the designers need not know all the information that exists spread around the marketplace, they simply need design a system such that it is always in the interests of firms not to lobby government, and government not to favour particular firms. I don't know what form that mechanism would take, but I'm not about to rule out ever finding such a mechanism.