Political tinkering with the economy

I recently listened to a group of reasonably intelligent people each insisting that the federal government must do something about the “health care crisis”. Uninsured people, expensive plans, and pre-existing conditions all were mentioned. In a nutshell, their consensus was that the problem is big, that people are being hurt, and that government can fix it if it has the will to do so. Oh… and that voting for a “progressive” is the answer to getting it fixed.

After listening patiently for a while, I added some comments designed to make them think again… little things like the fact that, in less than a lifetime, group health insurance came into being and has become the center of this huge issue., creating an enormous group of workers who fear loss of group insurance coverage so much that they’re willing to work decades in jobs they hate.

It amazes me when people take for granted that government can fix anything, and that it is just a matter of “making it so”, but what really disturbs me is that few people have any appreciation for the opposite alternative… the incredible efficacy of a free market. What is most disturbing is that there are so many examples around of how a complex system works with little or no control, and even work in spite of controls.

One example that a lot of us interact with on a daily basis is rush-hour traffic. It sure isn’t fun, but it works astoundingly well much of the time. It’s an example of thousands of individuals each doing their best to get to their unique destination in a minimal amount of time. None of those drivers cares one whit about anyone else but themselves, and their own trip, yet there is cooperation in spades. Each driver knows all too well that any obtuse action on their part can foul up the works, so they drive hard but carefully. They also come to assume, and depend on, that most other rush-hour drivers have a similar attitude. The group traveling a particular route becomes coordinated, with no communication, and no reason to coordinate other than a realization that doing so will benefit all of them.

Now, toss in an occasional driver who is not part of that normal rush hour… who is not part of the coordinated group… and they, first of all, stand out like a weed in flowers. If they’re good drivers, they may blend in quickly. If they’re not, they can cause all sorts of problems. One bad driver can cause miles of stop-and-go traffic behind them, and it can take a long time to smooth out again.

For 40 years or so, pundits have been predicting gridlock on our highways. No matter how many highways there are, they typically get busier and busier. What happens then is another example of an unregulated system. People start making different choices. The most impatient people will act first. They take shortcuts, alternate routes, start traveling at a slightly different time, or even move to avoid that trip altogether. As more and more people make that impatient choice, the system stops getting more congested, and might even improve a bit. Those who chose an alternative route will check back to see if they should return to their original route. A complex system composed of individual choices never reaches gridlock. Because of the freedom to choose, it is a self-regulating system. It’s a good example of thousands of individuals each working in their own self-interest with a result that looks like it was coordinated. We all need to learn to understand how that can be, and to marvel at it. We also need to understand that nobody can control such a system, and to try to force it to behave in a certain way is sure to make it worse.

Because government thinks that it can just “make it so”, it inevitably tinkers and cause unintended consequences. They try to force some kind of action. Trying to convince people to share rides by offering lanes only open to vehicles with more than one occupant is one example. Typically, the lanes are essentially wasted. So-called metering stoplights on entrance ramps are, I’m still convinced, do nothing but waste a lot of time and fuel.

Tinkering with our economy is very similar. Every action forced by government causes ripples that change the rules of the road for anyone who is part of the economy. A free economy… a free market system is much like rush-hour traffic. Everyone involved is operating in his or her own self-interest, yet such an economy works as if it had some imperial guiding hand. It is also marvelously and quickly self-correcting because each participant is getting constant feedback and making choices. Nobody can afford to make stupid choices for long, because they will suffer the natural consequences. Because it is free and unregulated, people are free to get extremely creative, and to take risks that others might think foolish. Because it is free, others are free to choose to compete in any area, and even to create new markets.

No, a free market is not perfect. Lots of mistakes are possible in such a complex system, and mistakes do affect others, but mistakes are corrected very quickly. A free market is constantly changing, as new participants enter, and new ideas are implemented. Consumer attitudes change often, and a free market quickly adapts. No need that could be a source of profit goes unfulfilled for long… unless there are forced restrictions to keep it from being filled.

No government, no matter how large or controlling, can “control” such a system. To even attempt to do so will first slow down the reaction time to changes. Every attempt to force some result will help some, harm others, and confuse the system. Every attempt to force some result will eliminate smaller participants… those who simply cannot comply and still make their small profit. As regulations and restrictions pile up, more and more participants fall out the bottom. It’s happened over and over, in industries where government has tried to control. Huge firms now dominate the health care industry because government tinkered and has made it increasingly difficult for individual doctors and small clinics and hospitals to cope with the complexity government strangled them with.

We have to learn to trust ourselves to work together in a free market, with no interference from government. That also means no “favors” from government… no bailouts, no subsidies, no business welfare, for those are all interference as well. People working together, with no control or incentive other than their own individual self-interests… it works. We do it all the time, but have little appreciation for how well it works. Government, on the other hand, cripples that free system constantly, forcing participants to work around the changes, and that causes everything
bought or sold to go up in price.

We have to learn to accept the simple fact that government tinkering, no matter how minor, is destructive. We can only imagine how destructive a trillion-dollar financial bailout will be, but I suspect we won’t have long to wonder. Meanwhile, we listen to major-party candidates promising how they will "change things" and solve problems. We need to understand that the winner will have the power to interfere in huge ways, but will not be able to solve anything... only make it worse in the long run. We've watched it happen for several lifetimes. Unless we wise up, we'll watch it once again.