LIberals and Economics

I read an article today in the Wall Street Journal about a study done regarding how well people from various political parties understand basic economic principles. The study seemed somewhat biased, but has a fairly accurate, and predictable outcome. By biased, I mean it uses a couple liberal buzz words, and does an agree or disagree format, rather than a right or wrong format.

So thoughts,

Liberals aren't out to destroy the economy. Rather, they are trying to create controls. Pure capitalistic economies are boom (when actors are following their rational self interest) and bust (when actors are acting irrationally). This, depending on the foresight of the actors to understand at the time they are acting what is rational and irrational, leads to overall higher production and efficiency. However, that does not mean it is a perfect system. Markets aggressively self correct, and in a very real way, harm people. They distribute resources to those who are the best, and leave out the rest. Liberals want to control markets, harnessing the power of capitalism, while removing the negatives. This would lower the highs, but avoid some of the lows, while having a weakening effect on the overall economy.

Here is the problem. To achieve this purpose, they need two things. First, they need political clout. To get this, they have turned market economics into buzz words, and attached emotional ideas to them. The example is monopolies are bad. This is not accurate. Monopolies do some things well, such as using economies of scale to lower costs, and some things poorly, innovation. When Standard Oil was still a monopoly, the consumer price index was declining, and Rockefeller made more money after it was broken up than he did while it was a monopoly. However, understanding fairly complex micro economic principles, let alone macro economics (neither of which I claim to understand) is counter to the political economic goals of the Left. No one from either party wants the population to do overall economic analysis; they want us to stop with the reaction of either "unions are bad" or "monopolies are bad."

The second problem is the big one. To remove the negatives of capitalism, while keeping the positives, you need to understand what is the correct move at all times. Hindsight is 20/20, foresight is the bitch. The saving grace of capitalism is that if something is not working people are free to change. The down side is that when something is working, people are free to change. However, regulations minimize this effect. If the government decides you need to do something, and its a good choice, great! But if it a bad choice, you have to suffer while the political process figures that out (if they ever do).

In the end, its not about which works better; its what your goals are. Most modern liberals want economies to produce "fair" results, meaning similar pay for all. Purely capitalistic economies don't do that, they produce efficient markets. If the market isn't doing what you want it to do, than you consider it broken, and want to fix it. The problem is that while heavy regulation would mitigate some of the lows, it would also temper the highs, and remove the ability of people to adjust to changing circumstances. The free market is always working, whether we want it to, or not.