Reading Peter Foster’s book Why We Bite the Invisible Hand, I found myself reminded again and again of that most humble of tidal pool creatures: the starfish.
More specifically, I was reminded of that parable-like story of a man throwing starfish back into the ocean, saving the few while the many die, a symbolic act of futility.
I think Foster would understand. Many times in his book he explains that the human brain has a hard time comprehending complex and abstract systems, and often finds refuge in simple moralities. We like our economics raw or burnt, red or black. We like our starfish dead or alive, and we like to think we know exactly which action causes either result.
According to Foster this preference is a consequence of our long evolutionary history as hunter-gatherers, compared to our extremely recent (relatively) transition to civilized society. We understand the concepts of sharing, trade, negotiation and sacrifice intuitively, but we do so in the context of the very limited resources of ‘the tribe’. We engaged in “carcass economics,” the idea that available wealth is finite and fixed and must be divided up between us like so much meat. Anyone who claims too much of the carcass is starving someone else, and consequently hurting the tribe, since the greater the wealth disparity amidst the comparatively scarce resources of hunter-gatherers, the greater strain upon the group as a whole.
These concepts, according to Foster, are based in our evolutionary heritage, and have a huge impact upon our human understanding of wealth, economics, and government policy. To this day, we still find it very difficult to believe that one can obtain wealth without being selfish, greedy, or cruel, or that one person’s riches aren’t directly responsible for another person’s poverty. We still inherently believe in a rigidly fixed number of resources, whether regionally or globally, that must be divided (hopefully fairly) between all the members of the tribe. These notions are partially responsible for why we often find the idea of planned economies hypothetically attractive, and capitalism morally repugnant.
Many conservatives would argue that people think this way because they don’t understand capitalism, just as many liberals might argue that it’s because we understand capitalism too well. Foster argues that condemnation is caused by a mix of incomprehension and political encouragement, and stems from the conflict between the ideas of two classic economists: Adam Smith and John Meynard Keynes.
I first heard both those names about the same time I was exposed to the starfish story, in early high school. The starfish came up in church as a sermon illustration, while ‘Smith’ and ‘Keynes’ were words uttered by my basketball-coach-turned-socials-instructor during our coverage of the Great Depression. During that informative class I learned that FDR stimulated the American economy back to life by building the Empire State Building and giving fireside chats, both ideas allegedly inspired by Keynes. Apparently Smith had caused the Depression in the first place by writing The Wealth of Nations and creating the kind of unregulated laissez-fair market that allowed “robber barons” to thrive and soot-covered British proletariats to develop cruel and unusual diseases.
Both Foster and my basketball coach argued that the basis of Keynesian economics is a government responsibility to proactively intervene in the market, saving during the bountiful times and spending during the stagnant ones. What the two disagreed about was how well this strategy translated into reality, or, more specifically, the ability of government to stick to Keynesian ideas. Are politicians the Platonic “philosopher kings” that Keynes hoped for, able to act always for the good of the people? Or are they fundamentally self-interested, knowing that spending is always more popular than saving in the struggle for re-election? Do governments actually save during bull markets when the revenues flow in…or do they simply expand?
Foster also argues that Keynesian policy has been proven bankrupt many times since the Depression, and yet keeps being revived. Why? Because Keynes offers an image of the market as a complex machine with dials and buttons and cranks that can be pushed or pulled to create change (and an economic instruction manual to accompany it). This is a profoundly comforting idea during times of economic crisis, and a potential source of power for those with their hands on the dials, buttons, and cranks (government). Never mind that artificial market manipulation has a long and sordid history of failure, often doing further harm to stagnant economies. What does matter is that Keynesian economics give government a clear mandate for instituting economic control, and the moral high ground to do so.
Of course, not everyone is thrilled with the idea of politicians with political interests trying to manipulate markets they obviously do not understand, or taking money from those who’ve been successful in the markets to finance their own agendas. Foster credits journalist Henry Hazlitt’s 1959 book The Failure of the “New Economics” with the following satirical explanation:
“The people who have earned money are too shortsighted, hysterical, rapacious, and idiotic to be trusted to invest it themselves. The money must be seized from them by politicians, who will invest it with almost perfect foresight and complete disinterestedness (as illustrated, for example, by the economic planners of Soviet Russia). For people who are risking their own money will of course risk it foolishly and recklessly, whereas politicians and bureaucrats who are risking other people’s money will do so only with the greatest care and after long and profound study. Naturally the businessmen who have earned money have shown that they have no foresight; but the politicians who haven’t earned the money will exhibit almost perfect foresight. The businessmen who are seeking to make cheaper and better than their competitors the goods that consumers wish, and whose success depends upon the degree to which they satisfy consumers, will of course have no concern for “the general social advantage”; but the politicians who keep themselves in power by conciliating pressure groups will of course have only concern for “the general social advantage.”
Hazlitt isn’t just talking about taxes. Almost all government intervention, from Canada’s incessant quest to find a fourth player in the mobile communication market to corporate bailouts, are funded involuntarily by participants in the market. What Hazlitt is arguing against is the assumption that it is perfectly natural and moral for governments to intervene in economies, along with the assumption that politicians understand and correctly anticipate the results of their intervention better than anyone else.
I agree with this argument, at least partially. I emailed Foster and asked him to address some of my concerns, but the last, I believe, was a little beyond the scope of his book.
There are many interventions that artificially inflate or deflate the market, loading strain on the economic organism until it (inevitably) regains equilibrium. One of the most controversial of these interventions is philanthropy, which pulls money from one place and pumps it into another without any exchange of good or services. Historically, aid spending has artificially inflated prices, destroyed local industries, indirectly funded warlords, propped up corrupt regimes, created cycles of dependency, destroyed cultures…
And saved many lives.
There is an explosive arrogance to assuming that one can walk into a situation half a world a way and solve all the problems with the crude application of money. According to Foster the philanthropic instinct is good, but the application is almost always bad. In the developed world, aid is an industry, exploited by organizations who are often in the business of using aid money to raise awareness to get more aid money, all in the name of charity. While Smithian economics does not disapprove of charity (like the Ayn Rand school of economics) it does require a strong division between private charity and aid intervention from the corporate or government level. Foster proposes, with compelling evidence, that such public intervention often does more harm than good.
Yet I’m a Mennonite and a Christian, part of a community that has practiced and celebrated aid work for more than a century through organizations such as MCC (Mennonite Central Committee) and MEDA (Mennonite Economic Development Agency). These organizations have worked tirelessly to feed the hungry and save the lives of the vulnerable around the world, suffering occasional failures but also many successes. Both MCC and MEDA are constantly adapting their tactics to better meet the needs of the world while reducing the negative imprint of their intervention, and I would hope their work does far more good than harm.
They are in the business of throwing starfish back into the sea, and I know that their work makes a difference to every starfish they touch.
I suspect that, theoretically, Foster is right. The market may be artificially manipulated by policy, regulation, and politics in the short term, but it always finds a way to “bite back” in time. I suspect that, were I able to find a way to throw all the starfish back into the sea it would upset the balance, and possibly cause something even more catastrophic to occur. But I can’t abstain from saving one life, one starfish, just because of the possibility of future consequences. The market is a wonderful tool to generate wealth, but it is not, and should not be, a determiner of ethics.
P.S. The pencil of capitalism. A good read if you want to understand classic Smithian economics.