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Economics and the Indeterminacy of Freedom
Continued from Economics and the Indeterminacy of Freedom (1), where I noted the seeming paradox that in a society where freedom reigns it is possible that, say, one half of the population feels freedom is absent (or seriously reduced or violated) while, quite to the contrary, the other half believes that freedom does prevail.
A certain regime of intervention or non-intervention into the economy may be regarded as adverse to freedom or, alternatively, a condition of freedom, depending on one's economics. Not to intervene may be regarded as forcing detrimental economic conditions on an entire population or perhaps some part of the population ("the poor", but not on another ("the rich"). Such coercion may be looked upon as arbitrary discrimination or arbitrary self-enrichment on a certain (perhaps very small) part of society at the expense of another part of society.
It would be quite interesting to further investigate what pro-interventionists see as the implications for freedom (especially her violation) of ignoring their policy advise.
Freedom Is a Poor Arbiter Concerning Correct Economics
Freedom is a framework that enables people to pursue by their actions different interests and values, being allowed to make different attempts at solving problems, including intellectual puzzles. Therefore, one should expect freedom to produce not only complementary and non-problematic parallel variety but also conflicting and incommensurable variety. Among the elements of conflicting and incommensurable elements of freedom-induced variety one is likely to find different views concerning economic priorities and consequences, alternative notions of how the economy works, what her purposes ought to be, what it means to deal with economic issues responsibly.
Therefore, we ought to be beware of looking to freedom as a phenomenon that demands of us a certain way of thinking about economics and the economy. True enough, robust conditions of freedom preclude certain types of economic organisation, such as a totalitarian command economy. But beyond such taboo zones, the margin for disagreement or creative divergence and competition relating to the economy is very wide.
I think, the contending camps ought to develop some sensibility to accommodate the circumstance that both laissez-faire and dirigism depend on one another, in that some of the explanantions of one of them support some of the thought of the other, and vice versa, and that they may be put in contact to each other in a cross-fertilising manner. Thus, insights into the working of a reasonably free economy importantly shed light on the basic power of a modern economy, its working conditions and need for protection. At the same time, dirigiste analyses show that laissez-faire is not pure, that politics, its legal determinations, and hence coercion, are a vital component of every free economy, and that the latter is not perfectly self-correcting, despite her powerful equilibrating capacities, but necessarily prone to cycles of macroeconomic instability.
Mutual Areas of Ignorance
While sharing common ideas concerning the economy (microeconomics) and complementing one another in other aspects of the economic picture (macroeconomics), laissez faire and dirigiste approaches also share mutual areas of ignorance.
Adam Smith's Invisible Hand
The laissez faire crowd openly admits that beyond a theory of general patterns, they do not know how the market "does it," in fact, they consider this inability to fully reconstruct the flows and effects of economic signalling that underlie the equilibrating tendencies of the market to be pointing to the ultimate advantage of the market system. It does a job we are incapable of doing, as the task's complexity overwhelms our minds.
This is the invisible hand of the laissez faire adherents: we follow our autonomous impulses, subject ourselves to a certain number of rules, and the ultimate outcome is a good order established as if from an invisible hand, a force that is sourced by our impulses but not directed by them in the sense of having the final outcome in mind. We pursue our interests and are forced by the rules to indirectly but powerfully serve the interests of others.
John Maynard Keynes's Invisible Hand
The dirigiste crowd may propose planned interventions in the economy, such as directing large sums of government funds to a particular project like sending humans to the moon. If the government envisions projects of this type, as its independent choice of an economic(ally relevant) target, in contradistinction to private choices of economic targets (producing a computer that everyone can afford), it acts in a way that may well correspond to a legitimate pattern as is instantiated when the government enforces certain coercive rules to make the free market work. It takes its decision, rather than leaving a particular issue requiring a decision to the discretion of anyone else. That is to say, such independent imposition may well have benign and generally welcome consequences. It is not necessarily detrimental and deserving of rejection. There is even the possibility of fair competition for impositions, by virtue of democratic competition for government sponsored projects. Mind you, such competition is no guarantee for the arrival at worthwhile projects. But democratic misspecification of government projects is a cost of freedom, and there is a large chance that the openness of a free society will eventually ensure correction, and/or be the basis of wealth creation sufficient to make errors affordable.
In intervening in the economy by dint of the visible hand of government, which is not as such incompatible with freedom, we may, however, advance into areas that are no more under our control, and cannot be fully reconstructed in terms of the precise sequences in the unfolding of consequences.
To put it bold and simple, if pouring government funds into a depressed economy is bound to jump start it at some level of infusion, and if the failure of a jump-start to have occurred as yet is met with confident calls for more pouring in of government funds, then clearly the proponents are relying on some sort of invisible hand. That is what I call Keynes' invisible hand. The exact way in which government intervention leads to economic recovery eventually is as little understood as are the complicated feedback loops by which Smith's invisible hand ensures the remarkable performance of a free economy.
Put differently, by way of reductio ad absurdum, if the dirigiste could tell us how exactly the pouring in of government funds brings about the reversal of a crisis, we would have solved a problem hitherto considered incapable of resolution: we would have the knowledge that is needed to conduct a planned economy as a rational and efficient enterprise. We should call for a command economy under the helmsmanship of the dirigistes.
Incidentally, here we have a case in point regarding the complementarity of the two approaches, laissez faire and dirigiste.
Evidently, the dirigistes of a Keynesian persuasion are not calling for a command economy. But why are they so restrained? What part, features and qualities of an uncommanded economy are they trying to protect and respect, and why, and how is this respect related to their view and appreciation of the "free" in a "free economy"?
Conclusion
Both approaches, laissez faire and dirigism, may be economically sound to a considerable degree, but at some point in the unfolding of their operational logic they advance into the mists of ignorance, only to confidently pass over the missing links by assuring us that matters are being taken care of in virtue of some form of invisible hand.
The laissez faire crowd has good reasons to carefully listen to the dirigistes, and the dirigistes have good reasons to carefully listen to the laissez faire crowd.
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