Producers are far less harmful than meddling politicians

James Peron, president of the Moorfield Storey Institute and author of several books, including Exploding Population Myths and The Liberal Tide, is a contributing author for the Free Market Foundation.James Peron, president of the Moorfield Storey Institute and author of several books, including Exploding Population Myths and The Liberal Tide, is a contributing author for the Free Market Foundation.

Life is an endless series of problems, all of them offering competing, imperfect solutions. But not all solutions are actually solutions; some are mistakes. I know of no system or individual that hasn’t made mistakes.

The usual wisdom passed on in this matter is that one should learn from mistakes — that the intelligent learn from their errors and correct them. That certainly is something one should do. But the truly intelligent also learn from the mistakes of others.

This is true in several ways. I had relatives who smoked and drank copious amounts of alcohol. What I witnessed as a child made it clear that both habits are detrimental to the individual doing them. So I’ve done neither, not because I think it sinful but because I think it ultimately self-destructive.

This is true in the realm of economic development and public policy as well. British writer and philosopher GK Chesterton once jested: “The whole modern world has divided itself into conservatives and progressives. The business of progressives is to go on making mistakes. The business of the conservatives is to prevent the mistakes from being corrected.”

Like all good humour there is a nugget of truth in Chesterton’s comment. Progressives may share some principles with liberals, but they also share solutions with conservatives. Both tend to think centralised planning by superior individuals is needed to structure a society that is either “fair” (for the progressives) or “moral” for the conservatives. And both make mistakes.

The progressive rushes in with top-down solutions that often end up not working, at great cost to the entire society. Conservatives, ever anxious to cling to the past — even a past that didn’t work — want to preserve it. What puts these two at odds with market liberalism is the liberal tends to shun top-down solutions and prefers bottom-up ones. That is precisely what depoliticised markets are: bottom-up systems to try to solve problems.

But didn’t I say everyone makes mistakes? Entrepreneurs err, and so do politicians. If we are all error prone then what makes markets preferable to political planning and manipulation? There are also some major differences that tend to lean in favour of market-based solutions over political ones.

Markets mean millions of actors making economic decisions. It means competition, and that is a step-up over political planning. When government pushes a solution and mistakes are made, everyone pays the price. When entrepreneurs promote a new solution in error they, and their investors, pay the price, not the rest of us. Not only does that limit the damage they may do, it gives them a strong incentive to be as careful with their choices as possible.

The entrepreneur is using his own money or money voluntarily made available to him by investors, while the political planner is generally dipping into the public purse. If he makes a huge mistake others pay the price. The private sector therefore has a greater incentive to get it right. If they are on target they benefit, if they are way off the mark they pay the price. That dramatically changes how they make choices.

Imagine that you could eat anything you wanted and engage in any vices you found tempting and someone else would pay the price. You are likely to be far more reckless in your choices.

In politics the politician’s actions can harm the public in general while benefiting special interest groups. The politician tends to deal with the special interests who benefit from his interference, but not with the members of the general public who are left paying the price.

Producers and politicians have different incentives, but so do consumers and voters. The consumer buys a product and knows the price they are paying. They can’t leave the store without knowing. In politics voters tend not to know which politicians are responsible for what.

And, unlike private purchases, the cost of political planning is all lumped together. The cost of any one bad policy is thus hidden. With a can of beans you see the price on display. With bad policies it’s all lumped together in one large tax bill.

Yes, both producers and politicians make mistakes, but the incentives each face are vastly different and the result is producers make fewer mistakes, and these have a negative effect on fewer consumers, all at lower prices.