Saturday, March 3, 2007

Ponderings Regarding Choice and Economic Systems

While pondering further some of the issues about which I have recently posted (e.g., Banning McDonald's, Choices and Wealth, Thoughts Regarding Wal-Mart in India, etc.), I began thinking about an interesting difference in the way that various socio-economic systems and schools of thought consider and treat free choice.

For instance, I am a staunch believer in the idea that free markets are the best socio-economic structure for the purpose of rewarding what I consider to be good choices on the parts of individuals. By "good choice", I mean here a choice that was beneficial not only to the individual but also to society or at least not detrimental to society in general or any other portion of it (and I would probably have to admit that this would need to be restricted to the material realm in order to hold water). I also consider it to be a very effective form of punishing bad choice (by which I mean the inverse of "good choice") insofar as, not only does a bad choice generate bad effects, but it deters similar bad choices in the future.

Inversely, I also consider various socialistic institutions, e.g., welfare, as mostly (if not completely) detrimental to society because, despite the best intentions in the world, they tend to have the opposite effect of what they intended - they create incentives for people to make bad economic choices, or, at the very least, remove the deterrents to making bad choices, including, but not limited to, not striving to lift oneself above one's current socio-economic condition. They also remove most (if not all) of the incentives for making good choices.

It struck me, then, that, as I define good and bad choices, there is a very interesting inverse proportion going on in certain economic systems: (free market) capitalism seems to be, to the extent to which it is free, a system that tends the vast majority of the time to reward good choices and punish bad ones. On the other hand, socialism (and it's various flavors), to the extent to which they are not free, tends the vast majority of the time to reward bad choices and punish good ones.

One wonders, then, about the underlying philosophical tenets of the various systems, whether consciously held or not. It would seem that capitalism, in principle, holds individuals in much higher esteem - it is their responsibility to make choices and the system trusts them to do so both because they are capable of making good choices and because the system will correct them if/when they make bad choices. Capitalism relies heavily on the decisions (choices) made by individuals (or, at least, private parties) to keep the whole system working - it's analogous to a mechanical system where each part is responsible for its own upkeep and performance, rather than a centralized mechanism handling all maintenance and performance monitoring for the system. It would also be analogous to distributed computing where each unit contributes what is best for itself to give at any one moment, thus optimizing the balance between its native tasks and its portion of the general task.

Furthermore, capitalism seems to assume the same general ideas of what constitute "good" and "bad" decisions/effects, namely beneficial not only to the individual but also to society (at least, materially speaking).

Less free systems, though, seem to hold individuals (and other private parties) in much lower esteem. They are predicated on the idea that society and individuals will benefit more from varying degrees of centralized planning and a lack of individual freedom in matters of personal property (assuming there is personal property) and the like than they will from making decisions on their own.

What I consider to be an obvious flaw in this idea is this: what is good for one person/private party or family is not necessarily what is good for another. In fact, due to circumstances, personal tastes, etc., what is good for one might be harmful for another. Furthermore, even with a very small number of people, a centralized planning official/agency/mechanism would have a very hard time easily and quickly knowing one from the other without being directly told by the parties involved. When the number of people in a society reaches any meaningful level, the task would become so enormous that the planning mechanism would have to devour so many resources simply to operate well that any benefit it might actually have to society would be more than offset by the amount of resources it requires. The other alternative, which is what seems to be the case in all historical examples of which I am aware, is that the centralized planning mechanism, because it cannot requisition the necessary resources to operate well, operates badly. People not only lack what they want, they usually lack what they need (one need think only of the bread lines in Soviet Russia or the current food shortages in Venezuela for an example of this).

More socialistic socio-economic systems also seem to presuppose that my definitions of good and bad are reversed. A choice that is good insofar as it profits the one making it is bad, according to these systems. I mean this is both a philosophical and substantive sense. Philosophically, the system holds this premise because it is predicated on the idea of a zero-sum game where transactions between individuals will always result in one party "losing." The apparent solution to this problem is simply to do away with inter-party transactions and let the central planning mechanism do it instead (although, this really doesn't change anything; to borrow a phrase from one of my favorite undergrad professors, "that just moves the problem over one," i.e., it just means that the private parties aren't the ones executing the transaction even though they is still a transaction going on and they are the ones involved).

Substantively, socialistic systems tend to punish what I would consider good economic choices because (a) those choices result (or would) in a material benefit for the party doing the choosing and (b) the systems are heavily imbibed with the idea that, when a party benefits materially, they must be exploiting other portions of society in someway. (I'll save the discussion of egalitarianism for another day).

Thus, there seem to be two things going on in my supposed inverse proportion between more and less free socio-economic systems:

  1. A fundamental disagreement on what are "good" choices and what are "bad" choices. I believe this stems from a disagreement regarding whether the "game" of socio-economics in the real world is a zero-sum game (win-lose) or a positive sum game (win-win).

  2. A fundamental disagreement over who/what is best equipped to make choices for individuals. I believe that this is more of a pragmatic difference: capitalistic systems tend to experience "spontaneous order" on account of all of the pieces of the machine aligning into the most efficient form possible due precisely to the fact that what is good for the part is good for the whole and vice versa. This spontaneous order has been extremely effective and one doesn't fix what isn't broken.

    On the other hand, socialistic systems seem to require centralized planning and administration in order to stop people from making choices since the system considers the choices private parties make to be inherently contradictory to the common good (because it is a zero-sum game, the party can be counted on to act in its own best interests, and the party can be counted on (at least enough of the time) to act effectively towards its own interests). Even if this weren't the case, socialistic economies would seem to require centralized planning and administration because they do not trust individuals to make good choices. Even if the system did trust private parties to make good decisions, it would still have to disallow it since all decisions would have to be made at the very highest level in order to ensure that it benefited as much of the society as possible - which would require vast amounts of data and resources unavailable to private parties.


Template Designed by Douglas Bowman - Updated to Beta by: Blogger Team
Modified for 3-Column Layout by Hoctro