Obama's Speech

Adam Smith

I, along with many others across the nation last week, introduced students to the marvels of the free market system.  We discussed how, by allowing individuals to act in their own self-interest, unprecedented wealth has been created over the past 250 years in the Western world and how many nations that had chosen a different economic system have seen the folly of their choice and are moving to the capitalistic, free market system.  Along the way, we mentioned Adam Smith and the Wealth of Nations - written prior to the industrial revolution but fully cognizant of the role of self interest and its influence on our founding fathers. We pointed out that the Wealth of Nations with its emphasis on economic freedom, was published in the same year, 1776, as Jefferson's  Declaration of Independence - the foundation of political freedom.

I like to go a step further with my class and think back, to say 1750, and suppose that we were able to get the 25 smartest people in the world in one room.  And suppose we pointed out that the world is on the verge of an industrial revolution - that it will be moving from an industrial society to one of factories, specialization, and unprecedented division of labor.  People will leave farms and move to the cities.  The smartest people would then be asked how best should economic activity be managed.

I think we can imagine that there would be considerable interest and excitement over this clearly very important problem.  I imagine that all sorts of plans would be forthcoming about setting up planning boards, how far plans have to go in the future, how to find the appropriate people for the jobs that need to be filled.  After all, how would the economy be assured that there are enough teachers, doctors, farmers, etc.?  What a great problem!

But wait...in the back of the room a hand is up.  "What if we just let the economy organize itself?  What if we just set the ground rules and then let individuals act in their own self interest?"

The response would likely have been incredulous.  How in the world could this possibly work?  For one thing, the brains of the world's smartest people wouldn't be needed.  Throw all the elaborate plans into the trash cans.  This would have been, undoubtedly, taken as an insult by many.

This, of course, is the debate raging today.  Many very smart people cannot fathom that the economy would be better off without their elaborate plans.  As a result, planning has increased to an unprecedented level.  Last night I saw a pundit ask how we (think "the government") can create demand, that is, the willing consumer?  Huh?  They discussed the president potentially proposing an infrastructure bank.  Other stimulus will be proposed in the president's speech on Thursday.

Interestingly, a comment was forcefully made, by the pundit planners, to the effect that our employment problems are the result of uncertainty holding back consumers and businesses.  I held my breath - would they get that their incessant schemes are what creates this uncertainty?  Didn't happen.

I, for one, would like to see the president say that the government is backing away from managing the economy--that it recognizes that prices are out of whack because of ill-advised programs, that the free market system needs room to breathe, and that the process, though painful, will lead to an adjustment that will legitimately create jobs and enable the economy to move forward in the  information age.  He should state unambiguously that artificially manipulating the economy hasn't worked and has run up an enormous bill that will be a drag for decades even under the best of outcomes.

There are a lot of problems in Washington - not just the nuts at the ideological extremes.

Maybe its time to listen to that voice in the back of the room.