Posted on 01/25/2024 5:15:11 AM PST by FarCenter
The free market is falling apart. That we all know. Lamentations on the current state of affairs abound. The free market has immiserated the middle class. The free market has created oligarchs. The free market has de-industrialized the Western world. The free market has been gamed by China.
Industrial policy is now in the air. “You started it” fingers are being pointed. Industries are being ring-fenced. Tariffs and subsidies are being threatened and implemented. How did it come to this? Was Marx right? How did the free market fail us so badly? Where did it all go wrong? How right was Marx?
Sorcerers have crawled out from under rocks to explain the free market’s demise through witchcraft and incantations like multiple equilibria, crowd psychology, behavior economics and, horror of horrors, reflexivity.
And it’s not just markets, it’s the entire neoliberal scaffolding! Populist parties with angry “burn it all down” wings are surfacing across the democratic world. The youth are carrying around dog-eared copies of Das Kapital. And, as if to rub it all in, China just sent its largest delegation in years to Davos.
The biggest error the West can possibly make at this point is to overreact – to throw out the baby with the bathwater. The free market is failing because the West, after the Soviet Union fell apart, consecrated it with undeserved theological reverence.
The market was never an infallible god at whose altar anyone should ever have worshipped. It is a dirty, messy, imperfect, friction-filled contraption that will grind up fingers and spit out dead bodies if not carefully attended. Well-tended, markets can deliver a 40-fold increase in GDP in four decades, wipe out poverty, put Taikonauts into space and still fail to produce a competent football team.
In 1956, Richard Lipsey and Kelvin Lancaster published a paper titled The General Theory of Second Best. In elegant simplicity, the paper laid out how, given simple constraints, free markets can deliver outcomes far from optimal. Lipsey and Lancaster managed to flip the tables on neoliberal economics well within the boundaries established by Ricardo, Smith, Mill and Hayek. There was no need to conjure “irrational” black magic behavior or summon treacherous political ideologies.
The theory of second best states that when even one of the conditions required for the optimal outcome is constrained (an uncorrectable market failure), the next best outcome may require a set of conditions wholly different from (and possibly antithetical to) those required to achieve the first best outcome. And in fact, attempting to keep remaining conditions when just one is constrained may result in very suboptimal outcomes.
For example, while the neighborhood pub may be the optimal Friday night restaurant choice – IPA for Dad, salad for Mom and burgers for the kids – it can become highly suboptimal given a simple constraint. If the pub runs out of IPA on draft and only has bottles, Dad – who hates pub food – is going to be one cranky patron no matter how much mom likes her salad and the kids like their burgers. A completely different restaurant like the pizzeria across the street may become the new optimal – if all concerned get to enjoy themselves – if slightly less so than the pub.
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The most famous American cadre-driven undertaking is either the Manhattan project or the Apollo program – it‘s a tossup between them. Both of these endeavors were assigned to doers – Leslie Groves, Robert Oppenheimer, Abe Silverstein, James Webb – and both succeeded spectacularly.
There have been various others like DARPA or Sematech but, over the years, cadre-style active management in the US has fallen to the wayside as The End of History zeitgeist decided that passive noninterference espoused by the Washington Consensus would surely produce superior results.
This pits America’s entrepreneurs against China’s entrepreneurs and its cadres.
As superhuman as Elon Musk may be, Tesla’s profitability was questionable until it built its gigafactory in Shanghai. China’s cadres moved heaven and earth to install 1.8 million EV charging stations across the country versus 128,000 in the US. In 2023, China accounted for 58% of global EV sales compared with 12% in the US. And, as of the fourth quarter of 2023, BYD surpassed Tesla as the world’s largest producer of fully electric vehicles under the leadership of its equally superhuman but far less obnoxious founder, Wang Chuanfu.
It has always been a second-best world and the US will be operating with a handicap if it continues to cling to End of History fantasies. America’s entrepreneurs are no match for China’s entrepreneur/cadre partnership. Gina Raimondo and her bureaucrats at the Department of Commerce may be a start but, so far, they are still bureaucrats and not cadres and Huawei’s running circles around them.
Bringing back American cadres like Leslie Groves, Robert Oppenheimer, Abe Silverstein and James Webb may be necessary if the US wants a shot at remaining first-best in a second-best world.
Or alternatively, the US could short circuit China’s cadre strategy by slapping big huge honkin’ tariffs on China.
Yes. And there are many American pundits and progressive types who think DC central-planning is the proper response to China's central planning.
Lenin realized that communism could not produce needed resources, so he instituted the New Economic Policy, the NEP, a limited capitalism. Stalin ended it, which starved millions. Mao’s land reform tried the same thing, but it did not work because the peasants had no idea how to manage farms. Millions starved to death.
Central planning fails partly because power corrupts, and attracts corruptible people.
I believe that the current CCP is not going to reimplement agricultural communes.
I believe the new China Socialism will be based on the vast array of manufacturing entities that are in fact corporations of a sort controlled by the CCP. The New China will be based on industrial communes
We’ll see. Big government control rarely works, which encourages bigger government, which doesn’t work.
Diversity isn’t the problem. The problem is Biden is attempting to sink the ship by giving us more people than can be assimilated. By the time the ‘elties’ figure out what’s happening it’ll be too late. God please help Trump regain power and save the country.
Back in the day I used to be in the cable TV business.
Your comment is very interesting.
As you say in the old days our installers were great guys—hard working and honest to a fault.
The construction teams tended to be a little rough around the edges—my favorite story was when a bunch of them got too hot while building out Phoenix and jumped into a swimming pool.
The pool owner read us the riot act.
Lol.
Good one cgbg....
It’s happening right now with the hidden regulatory push for EV’s in a short timeframe by the EPA.
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