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Blind Faith in Government

Mises Daily: Tuesday, February 26, 2002 by

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Paul Krugman, prominent economic columnist of The New York Times and professor of Economics and International Affairs at Princeton University, tells us that:

"The conventional wisdom is that California has only itself to blame for its power crisis, that the debacle was the result of 'flawed deregulation.' This conventional wisdom has become conventional mainly because it fits so well with our era's enduring faith in markets. (And I mean faith: 'I believe in God and I believe in free markets,' Mr. Lay once declared.)" (New York Times, February 26, 2002)

It is this kind of throw-away remark that should help us appreciate how hostile so many prominent Americans are toward human freedom, especially in the realm of economics. To start with, where is this so-called conventional wisdom in evidence? Nowhere in his writing does Krugman give support for the claim that it is such wisdom; he simply asserts it.

Second, what on earth does it mean that "California has only itself to blame"? This makes it appear that California is some feudal order where some king makes decisions for everyone. Yet, that is nonsense--there is much diversity in California when it comes to how energy policy should be forged.

If, however, by "California," he means those bureaucrats and politicians misguidedly made responsible for energy policy, well who else is to be blamed for a ongoing crisis other than those who have taken on the job of managing it?

Then, also, just because Krugman could find some sound bite from Mr. Lay, it does not follow that all those who have confidence in human economic freedom--free trade, freedom to move goods and services, including labor, within domestic and international markets--embrace it as a faith. (Indeed, there are many who believe in God on a basis other than blind faith! Only a dogmatic agnostic or atheist thinks all religious folks accept God on the basis of ignorant, blind faith.)

Furthermore, if there are folks who may simply have a blind faith in freedom, there are zillions of others who have unending blind faith in government solutions. That faith rests on far shakier grounds than that of blind faith in freedom, considering the history of the relative success of free versus regimented economies.

It is difficult to examine the merits of Krugman's comments because, well, he gives no source or context for what he tells us. Who exactly said that about California's flawed deregulation, and why? What exactly is supposed to be the nature of flawed deregulation? And, most of all, what gives any evidence of "the era's enduring faith in markets"?

To the best of my knowledge, most public policy wonks and academics, apart from a few Austrians and "Chicago boys," favor a highly regulated marketplace and have zero faith in markets. But I guess a Princeton professor does not need even a little bit of support for his pronouncements--he can just put his remark out there, and it must then be taken as true!

There are some people, myself included, who think that leaving the setting of many of the terms of California's energy trade to politicians and bureaucrats constitutes a substantially regulated, not a deregulated, energy market. Just because there were some aspects of this trade that were removed from the province of California's government, it does not follow that the market was deregulated--meaning, set free.

A way to figure the difference between a regulated and deregulated market is to consider that, a year ago, California's bureaucrats signed contracts at the height of the energy crisis, only to find now that they could do so under much better terms. So, the state is suing to get those contracts voided.

Here is a clear case of doing violence to freedom and responsibility. Those with whom the contracts were signed did the signing in good faith, and to demand that the courts abrogate the contracts is to demand something that could ultimately unravel the very infrastructure that gives the USA an advantage over most other societies in matters of trade, investment, and commercial trust.

But that isn't going to deter the likes of  Krugman, who is a champion of fiat economics--let the academics call the shots, based on their fantastic visions of how economies should operate, never mind that this makes a mockery of, among other important things, the rule of law.

There are, of course, plenty of folks besides Krugman who would eagerly wrest energy decisions from the rightful parties, the traders themselves. To appreciate why such a suggestion can be advanced as a serious alternative to working within the framework of free-market economics--where contracts and property rights are the foundations for long-term mutual economic dependability--one must also realize that people like Mr. Krugman embrace the ideals of a purely pragmatic political economy.

Those ideals renounce all principles, regarding them as founded on nothing but blind faith. For the pragmatists, principles--including those of market economics--are fictions, inventions, mere ideology, rather than the stable rules that we have come to identify as such after centuries of studying human economic life. It is a bit like calling marital fidelity or respect for the right of consent in the realm of sex a mere blind faith, not sound principles produced by experience, learning, and reflection but simply cooked up by some stodgy, stubborn traditionalists.

The world, however, isn't accommodating to the pragmatists: reality is stable enough that we can come to learn some general principles, and among these, we may rank those that recommend that economic freedom is better than regimentation.

So, it is not wise to follow what Mr. Krugman says about markets--his own stubborn blind faith in the necessarily sound judgments of government bureaucrats and politicians is unbounded. Pace Krugman & Co., were there a bona fide free market in the energy industry--wherein contracts are honored, property rights are respected and protected (rather than violated whenever some environmentalist group demands it), and government is kept in the role of conflict adjudicator, nothing else--we could realize, in time, a very healthy energy policy for California, or any other region for that matter.

Why? Because using the force of the state to impose terms on people involved in the production and trade of energy is nearly a guarantee for mismanagement. It undermines the most important ingredient of economic wisdom--namely, that the sovereignty and independence of those involved in trade are far more likely to produce desirable results than are any government's coercive powers.


Tibor Machan, adjunct scholar of the Mises Institute, teaches at the Argyros School of Business and Economics at Chapman University. You may send him MAIL and view his Mises.org Articles Archive.