Sunday, March 01, 2009

On Recessions and the Future Economy

The current economy is going through a transition state. It is moving from one kind of economy to another. That is what happens during recessions. As changes accumulate in a stable economy, it becomes unstable, a shift occurs, and the economy leaps into a new stable order. The economist Joseph Schumpeter called this process “creative destruction,” and it is a key feature of free market economies.

During recessions, the “destruction” part becomes all too apparent. Still, it is necessary if the “creative” part is to occur at all. Recessions can be compared to an arborist cleaning up a bush. The deadwood has to be cleaned out to allow new growth to occur. When that deadwood is removed, the bush will look worse for a while, full of holes, drooping here and there – but after a while, new growth fills in everywhere, and the bush is stronger than before.

From this perspective, it seems odd to want to keep the growth-stunting deadwood around. Which is, after all, what the bailouts, started by Bush and being continued by Obama, are doing, and were intended to do. This kind of bailout of industries whose timely end has come is thus conservative in the truest sense of the word: it is intended to conserve the status quo. Unfortunately, such measures are made at the expense of what is now succeeding, slowing that success and, thus, delaying economic recovery. Worse, those who made bad decisions, who are failing, are being rewarded for their bad decisions and failures at the expense of those making good decisions and succeeding.

The consequence of all this is a delay of the next phase in our economy and, thus, of our economic recovery. At the same time, many elements of the new economy, such as health care and education, are in danger of stagnation precisely because of the dominance – and increasing dominance – of the government in those very areas. The drop in educational outcomes coincided wit the creation of the federal Dept. of Education, and has gotten worse the more we have funded it. This should make us at least question the value of federal involvement in serves and the economy. I am convinced that the arts, too, will become increasingly important, but the same people who rightly complain that our schools are driving out the arts are begging for the creation of a Secretary of the Arts. They do not realize it is the very people they want to put in charge who do not think the arts are a valuable part of education. Therein lies the problem. In a free market economy, you can make choices based on your values; the more the government becomes involved, the more you have to submit your values to the values of others. Such dominating ideology does not have a proper place in the marketplace, where people are freely exchanging value for value.

The real danger for our economy thus lies not so much in conservative efforts to prevent change, but in the fact that the federal government already controls so much of what will become the basis of the future economy: health care, education, and the arts. The places where true creativity, innovation, and growth will occur will be those places where there is little to no government presence. The best hospitals are private hospitals, not V.A. hospitals. Inexpensive health care is being provided to the poor in many places by clinics that refuse government-mandated insurance, Medicare, and Medicaid and deal only in cash. Our best schools are our private schools, not our public schools. The best, most innovative art and performances are found in private galleries and playhouses, not in those receiving government subsidies. Indeed, we are fortunate the arts receive so little federal support – it is why we have such a vibrant arts scene, in comparison to places like Europe, where the arts receive much greater subsidies. Subsidized art creates two dangers: art by committee, and the funding of those who play at being artists because it’s better than working for a living. True artists are in fact some of the world’s hardest workers. Subsidized artists are some of its laziest. The last thing we need to do to the burgeoning arts economy is to treat it as we do the farm economy, paying people to grow crops nobody wants, or to not grow anything at all.

The good news is that the “stimulus” package just passed by Congress has so little to do with the current economy that it will likely have little effect on it. The bad news is that it federalizes much of what was likely to have become the new economy. If history is any guide, that does not bode well for the economy over the long term.

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