Thursday, November 27, 2008

Brilliant Gem, But a Bit of Dross Too

Professor Mark J. Perry, a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan, writes Carpe Diem ('Professor Mark J. Perry’s Blog for Economics and Finance') and today’s post includes a gem and a dud (in the midst of a lively article, the overwhelming large part of which is excellent, but the dud bit tarnishes it).

First, here is yesterday’s gem, untarnished in its amusing brilliance, quoted by from The National Review, 22 January, by Bennett Owen:

And Grandpa provides yet another piece of political humor - the six miracles of socialism:
- There is no unemployment, but no one works.
- No one works, but everyone gets paid.
- Everyone gets paid, but there's nothing to buy with the money.
- No one can buy anything, but everyone owns everything.
- Everyone owns everything, but no one is satisfied.
- No one is satisfied, but 99 per cent of the people vote for the system

I like that. Fifty-nine words worth more than a picture could paint or a thousand words could possible improve upon!

But now for the tarnished dud in the post:

Giving Thanks for Capitalism, The Invisible Hand, the Miracle of the Free Market and No Turkey Czar”, HERE:

"You probably didn't call your local supermarket ahead of time and order your Thanksgiving turkey this year, did you? Why not? Because you automatically assumed that a turkey would be there when you showed up, and it probably was there when you showed up "unannounced" at the grocery store to select your bird.

And the reason your Thanksgiving turkey was waiting for you? Because of "spontaneous order," "self-interest," and the "invisible hand" of the free market - "the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many." Even if turkeys appear in grocery stores every Thanksgiving only because of the "selfish greed" or "corporate greed" of turkey farmers and/or supermarkets, it sure works for me.

In a 2003 Boston Globe column titled "Giving Thanks for Capitalism" (available only in the paid archives) Jeff Jacoby explains below why he is thankful for the miracle of the invisible hand that makes turkeys automatically available so efficiently at Thanksgiving:

“No turkey czar sat in a command post somewhere, consulting a master plan and issuing orders. No one forced people to cooperate for your benefit. And yet they did cooperate. When you arrived at the supermarket, your turkey was there. You didn't have to do anything but show up to buy it. If that isn't a miracle, what should we call it?

Adam Smith called it "the invisible hand" -- the mysterious power that leads innumerable people, each working for his own gain, to promote ends that benefit many. Out of the seeming chaos of millions of uncoordinated private transactions emerges the spontaneous order of the market. Free human beings freely interact, and the result is an array of goods and services more immense than the human mind can comprehend. No dictator, no bureaucracy, no supercomputer plans it in advance. Indeed, the more an economy *is* planned, the more it is plagued by shortages, dislocation, and failure."

It is commonplace to speak of seeing God's signature in the intricacy of a spider's web or the animation of a beehive. But they pale in comparison to the kaleidoscopic energy and productivity of the free market. If it is a blessing from Heaven when seeds are transformed into grain, how much more of a blessing is it when our private, voluntary exchanges are transformed - without our ever intending it - into prosperity, innovation, and growth?

As economist Steven Landsburg wrote in "Armchair Economics" about the invisible hand: "It is something of a miracle that individual selfish decisions lead to collectively efficient outcomes

Apart from Adam Smith not ascribing the metaphor of ‘an invisible hand’ to markets, used only once in Wealth Of Nations in Book IV, but not at all when discussing how markets in commercial societies worked in Book I and II.

See my downloadable paper, “Adam Smith and the Invisible Hand: from metaphor to myth” (see Lost Legacy’s Home Page and follow the instructions).

The ascribing to ‘Heaven’ or God’s (is that the Judeo-Christian or the Muslim God?) direct intervention in procuring turkey dinners to a ‘miracle’, is pure nonsense (and, no doubt is offensive to those who buy drugs instead of turkeys and end up in the earthly version of hell).

Adam Smith did not call it "the invisible hand"; it may be a commonplace among some individuals “to speak of seeing God's signature in” markets by analogy with spider’s webs, but it is not a scientific explanation of what makes turkey farmers get up each morning and go to work of producing turkeys for Thanksgiving.

From the sublime to the avaricious, Professor Perry leaps to "selfish and corporate greed" as the explanation for turkeys turning up on the shelves for sale, and absolves those afflicted with these vices with the blessings of doing God’s business to “promote ends that benefit many”. There is no vice in seeking to buy what your family need for Thanksgiving from people willing to sell the means, so that they can feed and cloth their own families. Self-interest is not selfishness nor greed. It is a virtue.

But what a theological mess the introduction of God, heaven and miracles causes if the society requires selfishness and greed!

But the economist need not burden herself with this mumbo jumbo. Markets do not work on miracles – a flimsy force for sustainable food security – and an ahistorical perspective to boot.

Early humans, sitting around a small fire and in hunger, looked up when they heard the scavengers and gatherers returning to camp, bringing with them arms full of nutritious meat and marrow bones, plants, leaves and berries, and, in their pusillanimous superstition and credulity, they may have praised their stone or wooden sacred gods in their ‘thanksgiving’; but there was nothing sacred, or miraculous, about their good fortune.

The same processes which sent the scavengers and the gatherers out that morning and (may have) resulted in the successful search for food, are the same which sets the turkey farmers to work – if they don’t work, they don’t eat (or today, earn what enables them to do so).

Economists who resort to miracles, hand of god, and heavenly-providence type of non-explanations for markets, pander to their own smugness of keepiogn the truth to themselves, because without doubt, Professor Perry, and the many others who do so, are quite aware of how markets work (as did Adam Smith in Books I and II of Wealth Of Nations).

I think it better – and more respectful – if we economists tell ’em how it is, and not indulge in pandering to their credulity about pseudo-babble.

However, for reminding us about the six 'miracles' of socialism, Professor Perry is forgiven...

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