As George Mason’s David Levy has shown, it was the economists’ hard-headed calculation of the costs of slavery that led Thomas Carlyle to attack the nascent science of economics. In what can only be described as a racist tract, Carlyle condemned this reduction of the matter to “supply and demand” as “dreary, desolate, and indeed quite abject and distressing . . . the dismal science.”
There is a cognitive bias in how we evaluate capitalism. The bias is that we see all the failures in the capitalist economy because we are allowed to see them. It is precisely because capitalism allows ventures to fail that we see these flamboyant crack-ups as they crumble to nothing.
By contrast, under the alternatives to capitalism—various forms of state-managed economy—failed programs continue for years or decades and are constantly being propped up. Back in the 1990s, for example, philanthropist Walter Annenberg raised a billion dollars, half from his own foundation, for a massive effort to improve public schools. It didn’t make a dent, but the chairman of its futile $50 million Chicago effort, an up-and-coming young politician named Barack Obama, failed upward to the presidency.
Or take California’s high-speed rail boondoggle, which was slated to take $128 billion to connect Los Angeles to San Francisco. When political interference and mismanagement made that goal unfeasible, the whole project wasn’t allowed to crash to nothing. Instead, the state is still planning to spend $35 billion to build a rail line from Merced to Bakersfield. If you have no idea where those two cities are, and I don’t see why you should, that tells you what a monumental waste this is.
The increasing arbitrariness of regulation is part of the process. I find myself nostalgic for the good old days of the Administrative Procedures Act, public comment, cost benefit analysis, and formal rule making. Now regulators just write letters or take legal action, which even if unsuccessful can bankrupt a company. Using administrative courts, the regulators are prosecutor, judge, jury, and executioner all rolled in to one.