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Quotation of the Day…

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… is from page 10 of Roger Koppl’s 2018 book, Expert Failure [2]:

We should not think of the division of labor as driven somehow by a grand purpose. It embodies no unitary hierarchy of values. The division of labor has no purpose and serves no particular hierarchy of ends. It is, rather, the emergent and unplanned result of a variety of persons pursuing a variety of potentially inconsistent goals. We can get along, so many of us so well, precisely because we do not have to agree on values. Believers buy Bibles from atheists and the system bumps along tolerably well, all things considered.

DBx: This passage contains a great deal of important truth – truth typically unknown to, or cast aside by, so many people on the “Progressive” left, the nationalist conservative right, and, frankly, even by many perched in the ‘pragmatic’ center.

The economy as such has no purpose. A well-functioning economy enhances the prospects of each of its participants of fulfilling as many as possible of his or her individual purposes, whatever these might be. Implicit in this achievement of a well-functioning economy is the prohibition on any participant of fulfilling his or her purposes by violating the rules that enhance the prospects of as many as possible others fulfilling their purposes.

One key rule that enhances as many as possible individuals fulfilling as many as possible of their goals is what economists call “consumer sovereignty.” This term is short-hand for the economic rule that producers have no right to consumer patronage. If you earn income, you have a right to spend, save, and invest that income as you choose. Your having previously bought your groceries from Safeway does not give to Safeway a right to compel you to continue to buy your groceries from Safeway. Nor does it give to Safeway a right to obstruct – or to hire thugs to obstruct – your efforts to shop at Whole Foods or at Wegman’s.

When the rule of consumer sovereignty is obeyed, each of us must earn our incomes by meeting the demands that our fellow human beings express as consumers. As producers, each of us competes for consumer demand. (Of course, this competition typically is most effective when many individuals consciously cooperate with each other in productive efforts, most commonly by forming and working in firms.) Only success in such competition reveals which of the relatively few of the uncountably large number of possible ways [3] to ‘produce’ are actually productive – which of the ways actually create value for our fellow human beings rather than being a waste of human time, effort, and other resources.

Yet when government erects tariffs for the purpose of protecting existing jobs, particular individuals are excused from the rule of consumer sovereignty. These protected workers, as well as the owners of the protected firm, are excused from having to abide by an important rule of a market economy. These ‘protected’ individuals are given a right – a right to consumer patronage – that unprotected individuals do not have.

In large and dynamic economies, such as that of the United States, excusing relatively few individuals from the rule of consumer sovereignty does not bring the entire economy crashing down. The economically harmful consequences of such rule-breaking are masked by the larger churn and productive process of the economy. But as more and more people get to break this rule, the economic damage deepens and spreads.

Economically ignorant protectionists, from the likes of Bernie Sanders on the left to Donald Trump on the right, do not understand that, if the government attempted to excuse everyone from the rule of consumer sovereignty the economy would collapse. All producers would be guaranteed jobs and markets. Although there would also be an attempt to guarantee wages, this latter attempt would literally be impossible to carry out successfully. Producers, no longer having to compete for consumer patronage, would not only lose incentives to produce goods and services that satisfy consumers, they would also lose any ability to know what goods and services consumers most want. Prices in such an economy would become meaningless because no one would be allowed to change his or her spending.

Protectionism looks good to those who refuse to look at anyone other than the immediate receiver of income. To such a person a tariff appears to increase national well-being in the same way that to such a person armed robbery appears to increase national well-being: in both cases, some identifiable individuals’ incomes rise. End of story (or so protectionists insist). (Of course, protectionists deny the similarity of tariffs with armed robbery. Protectionists believe that because the people who are robbed by the tariff don’t actually see the weapons at the disposal of customs officers, these weapons – and the threats these weapons exist to enforce – are not real.)

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