Here’s a letter to The Atlantic:
Sebastian Mallaby cogently summarizes Paul Romer’s vital contributions to the theory of economic growth – contributions that highlight the role, not of mechanistic additions to the stock of technology and capital goods, but, instead, of good ideas (“The Politically Incorrect Guide to Ending Poverty,” July/August).
According to Mallaby, “Romer began to emphasize that ‘ideas’ included more than just technologies and manufacturing processes. Ideas were also embodied in customs and institutions…. Without new technologies, an economy might grow slowly. But without decent rules, an economy cannot even make use of the technologies that already exist.”
Indeed so. And appreciation of this insight is never more vital than in times of crises, when panic fuels politicking that fuels panic. Consider, for example, today’s cries to nationalize oil companies or otherwise to dramatically alter the long-established rules under which private companies operate.
Such dramatic action is a very a bad idea, as history’s most important predecessor of Mr. Romer recognized. On page 61 of his 1973 book, Law, Legislation, and Liberty: Rules and Order, the late F.A. Hayek argued that “The preservation of a free system is so difficult because it requires a constant rejection of measures which appear to be required to secure particular results, on no stronger grounds than that they [expedient measures, such as nationalizing oil companies] conflict with a general rule [such as the importance of private property], and frequently without our knowing what will be the costs of not observing the rule in the particular instance…. Freedom will prevail only if it is accepted as a general principle whose application to particular instances requires no justification.”*
Is the BP Deepwater spill regrettable? No question. Does it justify curtailing private property rights and other rules and institutions that have given modern humans the greatest measure of freedom along with the largest quantum of material prosperity in history? Not on your life.
Donald J. Boudreaux
* An earlier essay by Hayek in which these very words appear is entitled “Principles and Expediency,” in Toward Liberty: Essays in Honor of Ludwig von Mises on the Occasion of his 90th Birthday, September 29, 1971, vol. 1, ed. F.A. Hayek, Henry Hazlitt, Leonard E. Read, Gustavo Velasco, and F.A. Harper (Menlo Park: Institute for Humane Studies, 1971).