Wednesday, November 12, 2008
Spontaneous Orders and Bailouts
The free market is a naturally-occurring spontaneous order, a self-organizing system that emerges out of the free exchange of the people in that economy. Outside interference in that system will always result in perverse incentives and unintended consequences. More, it results in a simplification of a complex system. And if you simplify a complex system, you get sickness and death -- consider what happens if you simplify a cell from a complex system to a simple pile of chemicals. More, when government interferes, it is typically trying to import something appropriate to that system into another system. It would be as though the economy were a rain forest and the government were the arctic, and the arctic government decided the rain forest economy needed polar bears. Neither the polar bears nor the rain forest would benefit. Or let's say that someone decided that what rain forests really needed was more cashew trees, so efforts were made to grow more cashews. naturally, that would push out other tree species, and reduce the biodiversity that makes the rain forest healthy. Environmentalists would object that we are trying to force a monoculture on the rain forest, which reduces biodiversity. Yet many of the same people (unfortunately) are more than willing to support policies that have the same effect in the economy. The phrase "too big to fail" is much like complaining that if we let a banana plantation revert back to the rain forest, we will harm the biodiversity of the rain forest itself. This is utter nonsense, which we can see in the ecological examples given, but which too many cannot seem to see with the economy. Perhaps this is because nobody understands that the economy too is a kind of ecosystem, or environment. Until we understand that, though, we will continue to make the mistake of thinking we can do better with our planning than the system itself can do naturally.