Over the last several months, we’ve had the privilege to work with Dr. Arthur Laffer, one of this generation’s top economic minds. He is terrific at helping his audiences – including that of this year’s Policy Orientation – understand that economics is fundamentally about human behavior, not calculus equations or X-Y graphs.
In the March Thinking Economically lesson, Laffer identifies the institutions required for a prosperous society. What jumped out to me was his justification for the free market (which he champions) over socialism.
“In a free market, anyone is free to start a business and risk his own (or borrowed) capital, and let the consumers be the ultimate arbiters,” he wrote. “This provides the best mechanism to harness the bits of knowledge and expertise that are dispersed throughout the economy.”
With socialism, “no group of planners – no matter how smart – can possibly amass all the information possessed by the whole of society,” he noted. “Consequently, the decisions of a socialist central board will always be more arbitrary and ignorant, even if the board is composed of the best and brightest (which, judging from history, seems highly unlikely).”
In short, when everyone holds a little bit of information and is empowered to act (and interact) freely with others holding their own little bits of information, the market naturally adjusts and generally produces optimal results. When one person tries to compile and analyze everything, the socialist system produces merchandise no one wants. And food shortages.
Hopefully that makes sense to you…because it often seems like an alien concept around Austin. Politicians and bureaucrats see a situation that they individually don’t like, pronounce that they know what is best for “the people,” and substitute their personal judgments for the rational decisions of the masses. In almost every public policy issue, government arrogance has led to government intervention, which has produced serious policy distortions – with real, negative effects on the people of Texas.
Our research always has one goal: advancing freedom. But putting this state on a more positive course is going to require more people to “think economically.”
– David Guenthner