… is from page 462 of Armen Alchian’s and William Allen’s Universal Economics (2018; Jerry L. Jordan, ed.); this volume is an updated version of Alchian’s and Allen’s magnificent earlier textbook, University Economics:
Unlimited numbers of jobs are available in this world of scarcity; only the highest-value jobs are filled, given present knowledge and resources. New inventions induce labor to seek and move to the best of other unfilled jobs. The total wealth of the community is increased. The displaced person has no assurance of realizing a net gain from the particular innovation which displaces his previous job; but he does gain from most other innovations that do not displace his job.
DBx: We have three, and only three, options.
Option 1: The government arranges for no one ever to lose a job to changing consumer preferences, to innovation, or to changing spending patterns (including to spending patterns that might change because of trade with foreigners). Everyone gets treated the same, with no special privileges.
Option 2: The government does not involve itself in trying to protect its citizens from losing jobs to changing consumer preferences, to innovation, or to changing spending patterns (including to spending patterns that might change because of trade with foreigners). Everyone gets treated equally, with no special privileges. Over time, even individuals who lose jobs to economic change (and, thus, suffer in the short run), gain in the long run. Enormously so.
Option 3: The government occasionally protects some individuals from losing jobs to changing consumer preferences, to innovation, or to changing spending patterns (including to spending patterns that might change because of trade with foreigners), but on other occasions does not dispense such protection. By the nature of his third option, different people are treated differently. Some individuals enjoy special privileges while others do not.
If given a choice among these three options, the deeply naive person might choose option one. It sounds so lovely! No one is ever pressed by economic circumstances to find new employment. No one is ever incited by the need to obtain another source of income to relocate to another town. Neighborhoods, communities, and the rich social ties that are (truly) very important to real-world human beings (although not to the bloodless homo economici who inhabit the models of neoliberal economists) are forever protected from the mindless and heartless forces of markets and greed.
You don’t have to ponder long the implications of option 1 to realize that, under it, everyone would be desperately poor and the victim of crushing authoritarianism. It would be hell on earth.
Option 2 is liberalism. Free markets. Free trade. Capitalism unprefixed – or as Deirdre McCloskey prefers to call it, innovism. Option 2 isn’t heaven on earth – nothing earthly can ever be such – but there is no doubt that option 2 is so far superior to option 1 that it is a categorically different kind of society. The liberal society is true society in which each of us assists not only our families and neighbors, but also countless strangers, to achieve their various ends, and each of us is so assisted not only by our families and neighbors, but also by countless strangers.
Option 3 is cronyism. It is somewhere between liberalism and option 1. Just where depends upon how much ‘protection’ the government dispenses. The more ‘protection’ dispensed against market forces, the closer is option 3 to option 1. Option 3 is what is proposed by proponents of industrial policy and by other protectionists. The more thoughtful of these proponents of option 3 might recognize that moving a bit away from option 2 toward option 1 imposes some real costs, but – these proponents insist – these costs are worthwhile. (How these proponents make this assessment is mysterious.) But what no proponent of option 3 will admit is that it is inherently inconsistent with equality of treatment and the rule of law, for the very essence of option 3 is to protect some individuals from market forces but not others.
Those persons who are not protected from market forces are denied a privilege granted to other persons. Those persons not protected from market forces, therefore, not only have to bear the costs of adjusting to whatever market forces remain in play, those persons also have to bear the costs of adjusting to the negative consequences of the privileges granted to others.
The above three options exhaust the possibilities. There is no option 3a or option 4.
Which option do you prefer?
