Thursday, September 29, 2016

Two Visions of Economics

In watching the first Presidential Debate earlier this week, I was intrigued by the first half hour or so. The discussion, rather heated at times, focused on issues of economics: how we (government and/or society as a whole) can make the economy better, with more jobs, better wages, and rising prosperity for everyone.

What struck me about the candidates' exchange on this subject was not their policy differences. Truth be told, neither one offered much to actually answer the question, "How would you as President create more jobs?", and some time was spent actively evading questions like "How would you bring jobs back that have gone overseas?" If you were looking for solid policy proposals, it was not your night.

But what the candidates did say was quite revealing. While short on policy details, each candidate did make clear their views on how economics works. The contrast was remarkably stark.

In her opening answer to the first question, Clinton talked about cooperation and sharing - investing in workers, sharing profits, working together. The how wasn't there, but the basic idea was clear: economic progress comes from cooperation. Wealth is created by working together.

Trump's answer to the same question was all about competition. He talked about losing, about winning, about fighting. He framed the economy as us (the United States) against them (Mexico, China). He talked about jobs being stolen. In his view, the economy is a zero-sum game: either we win or they win. Whatever they gain, we lose. Jobs are a fixed commodity.

The thing about this contrast is that it isn't just a matter of differing philosophies or differing ideologies. Economics may be derided as "the dismal science", but a social science it is. Questions like, "what generates more wealth - cooperation or zero-sum competition?" are not philosophical quandaries, they are empirical puzzles with real-world answers.

In this case, in the broadest terms, the answer is clear. Zero-sum competition makes everybody poorer, both through lost opportunities ("opportunity costs", to economists) and through wasted and inefficient efforts. Cooperation, by contrast, generates wealth.

This is obvious from even a cursory glance at the history of human development. At every stage, wealth has increased where people have come together to cooperate in greater and greater numbers. If all we had was zero-sum competition, we'd still be living in small tribes throwing sticks at each other.

This is not to say that healthy competition doesn't have a role to play. But the vast majority of the interactions that drive our economy are cooperative ones. When we sell someone a good or a service, both sides come away better off - the provider gets money, the consumer gets something they need. That basic cooperation - the exchange of values - is the fundamental basis of the free-market system.

Economists disagree on many things, but this isn't one of them. There isn't a single economist anywhere who thinks that an economy based on the competition of all against all is a good idea. Indeed, the very notion of economic growth belies the possibility of zero-sum economics. How can we create new jobs and new wealth if all we're doing is passing the same jobs and the same wealth around?

On this issue, Trump is not merely misguided on policy, he's fundamentally wrong. He's like an astronomer trying to model the solar system with the earth at its center. The world just doesn't work that way.

This is one dimension of the presidential campaign that has both policy and moral dimensions. Policy driven by zero-sum economics will make everybody poorer. Insisting that the world is a dog-eat-dog place will make us morally poorer as well. Small wonder the world's markets regard a Trump presidency as a disaster of the first order.

1 comment:

  1. Terrific post. I love your ability to cut through to the heart of the matter on this.