Liberal economics – a first take

If I were to look for any kind of bright spot to come out of the recent economic turmoil, it would be that just about every economic assumption of the past century has been questioned, debated, and defended in just the last few months. It’s been quite something to read and watch libertarians all the way to socialists argue for their economic point of view. I don’t think this kind of discussion would have ever happened in such a broad way without the crises.

Economics has always been a keen interest of mine, but I’ve always been a bit fuzzy on exactly where I stood on economic issues. For example, I knew I had sympathies for both social programs and balanced budgets, but I didn’t see a place where that kind of perspective fit into the usual economic political rhetoric.

Well, I’ve spent the last few months taking the time I would have spent on blogging and using it to figure where I stand. What follows in this post is my first crack at it – what I call (and probably others before me have called) “liberal economics.” Here I go:

First, some basic ideas:

  • Markets are important and useful, but imperfect, tools for determining what to produce in a society and how to distribute them.
  • Democratic government has an important and legitimate role to play in creating and ordering markets (courts, crimes, and property rights enforcement; transparency; financial system stability; monetary stability), correcting their deficiencies (public goods, lack of perfectly rational actors, etc.), and fulfilling social goals (like collective security through the military and safety nets). It must be recognized that government is vulnerable to capture by special interests that might lead to harmful economic outcomes, particularly because of the government’s power to coerce compliance. (But, really, this is an argument for better government, not against government itself.)
  • Civil society plays an important role in providing for the proper functioning of market economics (morality and ethics , valuing education, value of reason, truth, saving propensity, etc.).

At the center of the liberal economic vision, though, is responsibility – both individual responsibility for oneself and collective responsibility for one another. We have a moral responsibility to take care of ourselves – as an element of self-worth – but also as a component of being responsible to and for others. We do our best to ensure our own lot in life in order to lead a full, productive, and valuable life, but also to reduce the burden on others. And we are also prepared to step into aid those who, due to the vagaries of life, have been deprived of sufficient economic security (decent educational opportunities, health care, housing, food, water, clothing, and wages).

Sufficient economic security is viewed as a vital and necessary complement to the political liberties that we hold dear. “Life, liberty, and pursuit of happiness” can only be lived in their full measure by people who have sufficient economic means to enjoy them. Few, I think, would seriously argue that a wealthy man has the same or less economic freedom than a poorer man.

In terms of economic policy, liberals – as expressed above – believe that government has a legitimate and important role to play in the economy. However, the design of that role will be subject to reason, evidence, and empiricism.

Ultimately, liberals hope to foster fully functioning, empowered individuals that can hold their own as autonomous, engaged actors in the market economic system.

Let’s contrast this with conservatives for a moment. Conservatives like to engage in a utopian vision, in which they believe that markets produce perfectly just outcomes. Basically you get out of the “free” market system exactly what you deserve according to your effort and talents. Also, conservatives would say that markets are always perfectly self-correcting.

However, liberals realize that neither of these is necessarily the case.

First, there is the role of sheer dumb luck (the birth lottery) in determining what talents people are thrown into the world with and what they get to develop. Also, fortune doesn’t necessarily smile on everyone in the same way throughout life (timing of economic cycles; the right-time, right-place phenomenon). Also, connections matter for a lot in success in life. Not everyone achieves the same level or quality of connections – sometimes through lack of effort, sometimes through lack of social graces (either poorly cultured or lacking the capability), and sometimes through just sheer dumb luck of who people run into.

As for markets, I’ll grant that they are probably self-correcting for the most part in the long run. But that doesn’t get us around that markets can generate a lot suffering in the short- and medium-runs.

Now, given all of these arguments, liberals do not believe that everyone is entitled to equal outcomes. Differences in talents and efforts should be rewarded. However, given the vagaries of life, all people are entitled to high-quality basics of life – both as a moral issue and in service of greater individual freedom.

As for the policies to get people the basics of life, these can be much debated, tried, and tested. However, nothing should stop liberals from pursuing both proper morals and freedom.

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