The "Siren's Song of Stability," European Version

Steven Horwitz

Back in the heady days of September of 2008, I had an entry here that made the following point:

One of the things market capitalism does best is enable us to peer through the fog of uncertainty that surrounds human action.   Prices provide signals for capitalists to interpret to try to provide the goods and services people will want in the future.  Profits tell them they've done well at it, losses tell them they haven't.  The competitive process is how we learn what it is people want and how best to produce it - and who is best at doing so.  Competition is, in Hayek's words, a "discovery procedure."  Competition sucks if you're one of the competitors.  It makes you have to constantly be on your toes, watching for new entrants, new innovations, and changes in the relevant variables.  How much easier life would be in a more stable and predictable world where capitalists didn't have to serve the fickle consumer!  If we cut short this discovery process, and especially the mechanism of profit and loss, the benefits to the capitalists will not come from behaving in ways that benefit the rest of us.

"The Market" (which, as Heyne, Boettke, and Prychitko note, is a particularly bad metaphor for millions of individual decisions) rallied late last week as the bailout plan was conceived and publicized.  Today, as the plan has got some pushback (though not always for the right reasons), "The Market" has taken another dive.  The explanation, I think, is that capitalists prefer the stability and predictability of the known over anything unknown, especially when it promises to socialize their losses on the rest of us.  Capitalists have long despised the uncertainty and unpredictability of a truly free market and have frequently succeeded at using the state to reduce that uncertainty (see also Gabriel Kolko and other historians of the Progressive Era).  Of course this has benefited them, but it has harmed the economy and the citizenry in the process.

This is precisely why those of us concerned with preserving whatever bits of capitalism we have left should be largely ignoring "The Market's" response to the various bailout plans.  What's good for GM or the financial sector is not necessarily what's good for America.  In fact what's good for America, might be very, very bad for the financial sector.  The desire for stability and predictability has been the calling card of dirigisme regimes since the dawn of capitalism, whether they called themselves "socialist", "fascist", or just plain "interventionist."  It is but a thinly disguised power grab by those who own the means of production, and who will profit at our expense, rather than profiting by serving us better.  "Stability" is a siren song that we must do our best to ignore, lest we enable them to make an even bigger mess than they already have.

As we see the market rally this morning on news of the near-trillion dollar European bailout, we should keep this point in mind.  What's good for capitalists is often NOT what's good for capitalism, not to mention the long-term well-being of most of the citizenry.  Yes, I'm happy my TIAA-CREF will be doing better, but I'm far more concerned that we continue to bailout the short-sighted, immature behavior of our European counterparts.  At the current rate, it may be only a matter of time before we see the Greece scenario play out in individual states or at the federal level here.

The desire for "stability" is indeed the siren's song of the end of freedom.

Comments

[Roger Koppl]

Right on! Apparently Lloyd Blankfein has said, "What's good for Goldman Sachs is good for America"
http://www.nytimes.com/2010/04/27/opinion/27mclean.html
or words to that effect.
http://curiouscapitalist.blogs.time.com/2009/10/16/lloyd-blankfein-whats-good-for-goldman-sachs-is-good-for-america/

Three cheers for crony capitalism.

[Angel Martín]

Just to add an idea to your great post/previous article. What's going on these days in Europe, particularly in Spain (the stock market is being much more extreme in Spain than in other countries of Europe these days), reminds me of the idea of the Big Players. Investors are waiting on the politicians decisions in order to buy or sell. Markets are being destabilised by those rumors, actions and decisions.

Roger Koppl did explain something along similar lines in the context of the Obama bailout in 2008: http://austrianeconomists.typepad.com/weblog/2008/10/roger-koppl-on.html

[Troy Camplin]

Actually, it's a funny thing about complex systems. They always have stability and instability in balance.

A living cell, for example, maintains stability only so long as there is constatnt turnover of the molecules which make up the cell. When the molecules reach stability -- equilibrium -- the cell dies.

The economy is the same way. If we have instability among the players in an economy, the economy itself is stable. But when the players are able to achieve stability for themselves, the economy becomes unstable. It's basic complex systems theory.

[topills.com review]

That has not been stable for the last several decades - it has steadily declined and it has recently gone negative.