The Good Life and Its Discontents
The self-appointed mission of modern economics to regulate and sanitize growth—desirable in the abstract—foundered on the erratic and usually spontaneous nature of the economic process. We talk of 'the economy' as if it were a coherent whole, when the phrase is actually a convenient simplification. What we call the economy is merely the collective consequence of how millions of individuals and enterprises behave. It is the amalgam of all the institutions, ideas, customs, and attitudes that influence the production and distribution of wealth. And these, of course, are constantly changing under the pressure of new technologies, evolving commercial and governmental practices and policies, shifting public moods, and different international conditions. The essence of a market economy is its disorder. Its genius is its self-regulating mechanisms, which, in the face of all this disorder, maintain a fair amount of stability. The exaggerated promise of postwar economics has been that, through the rational manipulation of government policies, the disorder might be better understood and ultimately suppressed. The result has been to foster the illusion that economic growth emanates from government itself.
In America, this is not true and, except for wars, has never been true. Government is critical to growth but only loosely controlling of it. Through laws, regulations, and taxes, government establishes a climate in which growth will—or won't—occur and can affect individual industries and regions. But production and wealth flow mainly from personal and institutional ambitions and talents that drive work, investment, and risk taking. The chancy and uncertain quest for growth is one enduring reason that our economy has, up until now at least, exhibited periodic instability. People and companies miscalculate. They make mistakes, and mistakes cumulate into cycles of expansion and decline. The bad news about this is that such cycles (and all the adverse social consequences they cause) appear inevitable, because no one has perfect foresight. The good news is that the economy appears to have powerful self-correcting mechanisms (shifts in prices, wages, interest rates) that limit the adverse consequences. Government policies sometimes abet and sometimes compound the instability just as they affect selected industries. But they are not, as yet, powerful enough to eliminate it, in part because government is no more clairvoyant than anyone else.
The effort to make government more important (and the popular belief that it is more important) represents a logical culmination of modern economic thought. Economics labors under the pejorative label of the 'dismal science,' when it actually aspires to be the 'cheery science.' Since Adam Smith, economic philosophers have dared to imagine ways in which ordinary life might be made more tolerable and even enjoyable. Theirs has been a secular religion, an alternative to traditional religion that sought to reconcile people to their earthly (and often miserable) lots by promising a better afterlife. Smith argued that free markets, as opposed to those constricted by government, would best promote material well-being. Karl Marx believed that the economic system was evolving toward a higher and more enlightened stage of collective ownership and production. Keynes thought that deep depressions, with all their obvious suffering, might be avoided through a keener understanding of what causes total spending to rise and fall. But all these giants of economics were ultimately concerned with humanity.'
What separates our era from earlier periods is that economic ideas, having been aggressively incorporated into governmental policies, have risen beyond mere musings and have powerfully influenced the daily course of events. The Keynesians played the decisive role in this transformation, because they first conditioned the public, in the 1960s, to visualize the economy as a massive machine (Kennedy's exact analogy) that ought to be watched and, if not running properly, should be fixed and made to purr by government. In effect, sustained economic growth was converted into a mass entitlement: something that government was expected to deliver. It followed, then, that if one band of economic mechanics couldn't do the job, new mechanics should be summoned. When Keynesianism failed, other economists naturally promoted their doctrines, also with flawed results. Monetarism—the idea that steady increases in the money supply would maximize the economy's stability—proved unworkable. Subsequently, 'supply-side economics' made wildly unrealistic claims about how tax cuts might raise economic growth. All these ideas were oversimplified and overpromoted. The transformation of economic performance into an entitlement ultimately debased popular economic discourse, because economic doctrines were increasingly merchandised as panaceas to popular anxieties.