Two Systems

We have two main systems for making collective decisions in our society: the free market, and the political system.  There is also the court system, but that is really subordinated to the political system.

In the free market, individuals make their own decisions, and enter into voluntary contracts with other individuals.  Individuals can also voluntarily band together into organizations, and organizations can make contracts with individuals or with other organizations.

In the political system, in our case a democracy, all the adults in the society band together and make collective decisions for the whole society.

Each of the two systems has its own sense of justice, and these two senses of justice conflict very deeply.  The free market is based on the idea of individual rights, but those rights do not include food, clothing, shelter, or medical care.  The political system, unless encumbered by a constitution, has no regard for individual rights.

The free market rewards people according to how much they have contributed to production, and if you can’t contribute much, you’re powerless and will receive almost nothing.

The political system rewards people according to how popular they are with those in power, and if you’re opposed to those in political power in a system without a constitution, you will fare very poorly indeed.  For example, I had a friend who was a South Vietnamese soldier in the Vietnam war.  After his side lost, the side that won put him in a “re-education” camp.  They generally didn’t give the prisoners enough food to survive.  He was awfully small, and he felt his proudest achievement in his life was that, unlike others, he was able to survive on the meager rations provided.

An extreme communist claims that the free market is completely pernicious, and that the political system should do 100% of the decision making in the society.  An extreme libertarian claims that the political system, government, is completely pernicious, and that the free market should do 100% of the decision making in the society.

Leftists tend to be obsessed with equality — such instincts are probably a throwback to pre-agricultural times, when humans were organized in small, leaderless, egalitarian tribes.  Such groups cannot hold together when they grow to more than about 150 people.  These instincts had to be suppressed in order for humans to organize themselves into larger groups with leaders.

Libertarian thinking has come to dominate a lot of the American Republican party.  Democrats are much more moderate than communists.  But generally Democrats tend to see government regulation of the marketplace as a panacea, while Republicans view it as the root of all evil.  It could have been predicted in 2006 that, if a financial catastrophe occurred, the Democrats would blame it on too little government regulation while the Republicans would blame it on too much government interference, and that’s how it played out.

It should be noted that both systems are vulnerable to stupidity.  With either decision making system, if most of the actors are behaving stupidly, there will be bad outcomes.  However, with the free market, if most of the actors are behaving stupidly, an individual who shuns the stupidity has some possibility of avoiding the bad outcome for themselves, to some extent.  With a democratic government, on the other hand, if most of the voters are voting stupidly, everybody will unavoidably suffer the bad outcome and can do nothing to save themselves.

In the free market, since everybody is making their own decisions, there is some possibility of the smartest people serving as role models for others, with a general improvement of outcomes as a result.  Unfortunately, the society can stratify, such that the people who are doing badly don’t come into much social contact with the people who are doing well, and the better habits fail to rub off on them.  Charles Murray, in his book “Coming Apart”, demonstrates that, in the US, many upper-class whites have no idea how trashy lower-class whites have become over the last 50 years.

There are many tasks society faces, and I feel that each of the two systems is the best suited for some of the tasks.  National defense and enforcement of laws & contracts are definitely best left to government.  Most production of material goods, including food, shelter, and clothing, is definitely best left to the free market.  The free market by definition does very little for the poor, and one thing we try to achieve with government is to place a floor under how badly off a person can become, achieved through redistribution.

Establishing that floor is difficult, because some people, such as alcoholics, drug addicts and otherwise really irresponsible people, are awfully hard to help.  Furthermore, the safety net in and of itself can encourage dysfunctional behavior — in the early sixties, for example, we had 5% births out of wedlock, then we established more generous welfare for single moms, and as a result we now have 40% births out of wedlock.

Communists have a very good understanding of politics, but a very poor understanding of economics.  They succeeded in acquiring power in many countries, and when they did, they maintained an absolute monopoly on power in those countries for a long time, in spite of the fact that they generally couldn’t run the economy worth beans. Their problems dealing with economic realities stem from two things: ignorance, but also, to the extent that they do understand free market economic principles, they find them morally repugnant.

Libertarians have a pretty good understanding of economics, but a poor understanding of politics.  As a result they rarely acquire much political power.  The US in the last 6 years has more libertarian thinking in its government than we may have seen at any point in any government in the history of the world.  But they’re very destructive, uncompromising and non-pragmatic, and it remains to be seen whether they will ever be able to acquire the executive branch, and whether it will be a total disaster if they do.