Economic Realities and the Free Market

There was a time when the grandest thing a person could say was, “Civus Romanus sum.”  I am a Roman citizen.  That time is gone.  There was a time when the sun never set upon the British flag.  That time is gone.  Right now, the United States of America is the strongest, wealthiest and wisest world power on the planet.  According to Nobel Prize winning economist Michael Spence, that time also will pass.  Unlike most of the people interviewed on network television or running for Congress this man actually can get his intellectual flag all the way up the pole.   

I have a master’s degree in economic education and put my daughters through college by teaching economics at night at the local community college.  So, while I am certainly not eating at the same table as Michael Spence, I can still read his menu.   Let me say that I have tremendous respect for Mr. Spence, which extends to admiring this work, while not agreeing with all of it.  I do not dispute any of the carefully constructed science behind his economics; I simply fold in a different philosophical point of view.  In 2001, Spence, together with George Akerlof and Joseph Stiglitz, won the Nobel Prize in Economics for contributions to the analysis of markets with asymmetrical information.  In plain speak this means that in any economic negotiation, the concept of “perfect knowledge” (a desired characteristic of the free market economy) seldom exists.  In a textbook example, let’s say you want to borrow money from a bank.  You know more than the bank about your repayment ability.  The more you signal them that you are a good risk the more likely they are to lend.  The better they are at interpreting your signals (education, employment, debt load, payment history) the better they can lend intelligently.

In Spence’s new book, The Next Convergence, he analyzes the emerging markets of China, India and other Asian nations.  He predicts that the United States will eventually lose its position as the most powerful economy in the world, but will become a leader in innovation.   Spence is particularly concerned with the limitations of, “laissez faire” economics.  He tends to favor governmental regulation over free market corrections.  As I said, I don’t dispute Dr. Spence’s veracity, just his spin. 

The economic role of the United States is intrinsically connected with our frontier thinking and character.   We are, by nature, a people who seek answers to problems.  We tend to question more than acquiesce.  We challenge more than we capitulate.  We like to win.  It is part of our exploratory nature to move ahead and leave the status quo behind. 

There is no doubt that there were times when that tendency has led to excess.  But, sooner or later, our better nature or good sense and humanity have caught up with our baser selves.  We have even institutionalized much of that concern for running rough shod over others and that is what makes us a slow-growth economy while China, using virtually none of our humanitarian legislation, is surging ahead as an economic powerhouse.  Essentially, many of the emerging economies are where we were during the industrial revolution.  Sweat shops, child labor, no safe guards against exploitation of people or the environment. 

I don’t want to go back to those good old days.  I am simply saying that there is a reason why carelessly run emerging nations are forging to the lead.  These horses are running with no weight on their back while we are putting air bags around the jockey. 

Kiss a capitalist and keep the faith.