Lies My Economist Told Me

There’s this weird feature in life where if people say things often enough, they become common knowledge and people stop questioning them.  The world of economics has raised the art of creating truths like this to its pinnacle.  We all know that governments are no good at picking winners.  We all know that regulation hurts business.  We all know that markets are good at solving problems.  And we all know that businesses have a duty to provide shareholder value.  If we stopped to question these supposed truisms, it would be obvious that they are all lies.

When it comes to picking winners, the government isn’t half bad.  The critics of governments, the fans of free markets, always like to point out the failures.  They love Solyndra and corn ethanol.  Now, I’m not saying that it was a good idea to back Solyndra with public money or that corn ethanol is a good idea.  But, since when is not being perfect enough to get labeled as bad?  The simple fact is that the government backed the internet, the telephone, electricity and the light bulb, the automobile, public education, airplanes and vaccinations among many other things.  Most of the technology we have today is directly because the government supported it and threw money at it.  NASA, the military and public universities are the three biggest sources of innovation and they are all supported by the government.  Private universities probably come next, but they still get a hefty chuck of their money from government backed grants, scholarships and loans.  Large companies spread this particular lie.  Google, GM, Exxon, Monsanto, etc. don’t want the government to pick a future competitor, so they pretend that they aren’t the product of government picks.

Regulation is necessary for markets to even exist.  Without markets, there would be no real business.  This is another case of size causing amnesia.  Where would Google be if the government hadn’t invoked anti-trust regulations against Microsoft?  How about Apple?   Where would Fox be without the Government protecting their copyrights?  Once a company is a dominant player, they find the regulations annoying so they lie and say that regulation is bad for business.  The fact is, without regulation we would either be stuck with a handful of monopolies or crime would be rampant (even more so than it is now).  Either of those situations would be far worse for business than any regulation.

There is one big reason why markets are terrible at solving problems and that is they can’t recognize actual problems.  Probably the most famous example of a market based solution to a problem is Bush’s cap and trade scheme to stop acid rain.  The thing is, it was a government solution.  The power companies didn’t say, “Wow, this pollution is causing acid rain and acid rain is bad for business so we better do something about it.”  The government said, “Hey, acid rain is a problem and you are causing it.”  The power companies accepted cap and trade to avoid something more onerous.  Calling it a market based solution is a lie to make the polluters look better.

Shareholder value is code for money.  Any company that says that they are trying to improve shareholder value is really saying that they want to make more money.  By itself, that isn’t so much a lie as it is politically correct.  It sounds bad to say, “I want to make lots and lots and lots of money because I’m greedy.”  So, they say, “I want to give back by increasing shareholder value.”  Where it becomes a lie is when shareholder value becomes the reason for doing business.  It’s kind of like those utility trucks that say, “Safety is our job.”  Clearly, if safety is your job, you are doing something wrong by climbing into a cherry picker on a busy street and messing with electrical wires.  Keeping the electricity flowing is your job, you just hope to be safe while doing it.  Any company that talks about shareholder value is saying that so long as they make money, we can go screw ourselves.  But, they know that actually saying that would make it harder to make money, so they lie.

It’s about time people start calling out these lies.  The range of economic opinions that are taken seriously right now is from libertarian to right of center. If these ideas worked, if they made life better, why all the deception?  I admit that it could just be stupidity.  A huge number of economists still model based on rational decision makers after all.  But it feels more like I’m being lied to.  And I wish it bothered everyone else as much as it bothers me.

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