Wednesday, July 28

Pragmatism must recognize reality

Any editorial that starts with “Karl Marx was right about at least one thing …” deserves close examination, especially when it appears in Kansas’ largest newspaper and is written by that newspaper’s former editor. The thrust of Davis Merritt’s article is that the theory of free markets hasn’t worked: “We’re painfully experiencing right now the unraveling of neat free-market theory.” (“Pragmatism needs to trump ideology,” November 18, 2008 Wichita Eagle.)

Here’s the first problem with Mr. Merritt’s argument: what we live in is anything but a free market society. George Reisman details just how far removed we are from anything resembling free markets in The Myth that Laissez Faire Is Responsible for Our Present Crisis.

Then, Mr. Merritt warns that free market theory is doomed to fail because “perfect theories require perfect people.” I don’t know precisely who he refers to as not perfect, but judging from the tone of the article, I think he’s condemning greedy businesspeople who are the cause of the present financial crisis. In particular, investment bankers. Demonizing these people on general grounds doesn’t help. Instead: Did they steal from their shareholders? Did they commit fraud when they issued sub-prime loans? These acts are illegal, and to the extent they were committed, let’s prosecute them.

Greed — human self-interest — is a constant factor. It’s what drives people to expend tremendous effort to accomplish great things for the betterment of mankind. It can also drive people to accept a sub-prime mortgage loan that they can’t repay in order to buy a house they can’t afford — but, greedily, want nonetheless. It works both ways. So we need good rules that prevent people from using theft, force, and fraud to unjustly enrich themselves. These good rules are easier to create and enforce, and more reliable, than a false hope the people will start behaving “good.”

Besides, couldn’t we also say that good government requires good politicians, bureaucrats, and administrators? I’m surprised that an editor of a newspaper — someone who must have experienced the political process close-up — would have such confidence in government instead of people.

Mr. Merritt cites the “hands-off, no-regulation attitude of the current administration” as bad for people and economic welfare. If we had been experiencing a period of reductions in regulation, we might have evidence for this claim. The Heritage Foundation report Red Tape Rising: Regulatory Trends in the Bush Years debunks the myth that regulation has decreased during the presidency of George W. Bush: “Far from shrinking to dangerously low levels, regulation has actually grown substantially during the Bush years. By almost every measure, regulatory burdens are up.”

Mr. Merritt’s editorial, if its advice is taken, will lead us towards more regulation and reliance on government. That’s not what we need.

Wichita Eagle, The (KS) – November 18, 2008
Edition: opinSection: OPINIONPage: 7AColumn: Davis MerrittReadability: 11-12 grade level (Lexile: 1220)
Karl Marx was right about at least one thing: Capitalism sows the seeds of its own destruction.

But, of course, so does capitalism’s polar opposite, communism.

And, for that matter, so does any other pure economic or social ideology, as all of modern history demonstrates.

That’s because all pure ideologies — that is, tightly wound theories of how the world could or ought to work — by their nature do not allow for the vagaries of human impulse, including greed and self-indulgence.

We’re painfully experiencing right now the unraveling of neat free-market theory. Financial markets free of outside (read: government) interference might indeed be the best engine of wealth and social good, provided they did not depend upon people to execute them. But, of course, they do. Perfect theories require perfect people, and unlike horseshoes, close doesn’t count when it comes to human perfection.

So let’s get on, wisely and cautiously, with the business of figuring out how to balance what’s good for the majority of people and what works in the real economy and not a theoretical one.

Clearly the hands-off, no-regulation attitude of the current administration was not best for either the majority of people or the nation’s economic welfare. It was very, very good indeed for the people whom the administration and free-market theory deliberately left alone, at least in the sense that they became ultrarich. That would have been tolerable if, in the process, they had at some level improved the lot of their shareholders and the general economy.

But it didn’t work that way. Instead, the barons of investment banking took very good care of themselves and their key employees with scant regard for the bulk of their investors or the rest of the country. They have left millions of shareholders poorer and millions of homeowners in peril, thus destroying the confidence of people in the system and inviting a backlash of overregulation.

So it was hopeful to hear President-elect Barack Obama in a “60 Minutes” interview Sunday night set a primary goal to “restore a sense of trust, transparency, openness in our financial system.”

And the way to do that, he said, is “not heavy-handed regulations” but “to restore a sense of balance.”

The free-market principle is one that “we’ve gotta hold to,” but “what I don’t want to do is get bottled up in a lot of ideology and (whether an approach) is conservative or liberal. My interest is finding something that works. And whether it’s coming from FDR or it’s coming from Ronald Reagan, if the idea is right for the times then we’re gonna apply it. And things that don’t work, we’re gonna get rid of.”

Obama claimed that a consensus exists among liberal and conservative economists that “we have to do whatever it takes to get this economy moving again,” and whatever that is may not fit neatly into any ideological framework.

It’s clearly the time for pragmatism and the time to avoid quarrels about labels. We cannot ignore the reality of narrow human impulses, but we can insist that they operate in the broad public interest.

Davis Merritt is a former editor of The Eagle. Reach him at dmerritt [email protected]