Friday, May 18, 2012

Why Bad Economics Plagues New York City

The New York City Council recently passed a bill that restricts banks’ ability to foreclose on delinquent mortgages and forces them to expand lending to high risk borrowers. The New York Post correctly highlighted the economic destructiveness of these bills, noting that these very types of policies helped set the stage for the housing meltdown.

A couple of other bills would force employers to pay above market wages in some occupations. Here again, the Post correctly noted that this bill would kill jobs in the city.

The Post blasted the council members, saying they “by and large are economic illiterates…, while those few who do get it don’t care.”

I left the following brief comments:

Yes, the hacks that vote for this stuff are economic illiterates. But economics is not their concern. They believe what they’re doing is moral, because some people NEED higher wages, and some people NEED homes. They are altruists, and altruism holds that need is the moral standard, and all else—justice, contracts, the right of others to freely act on their own rational judgment--must be subordinated to it.

But this is morally perverse. The fact is, these bills are not just economically destructive, but IMMORAL, because they force bankers and employers to act against their own self-interest. The economically practical is also the moral.

If the pro-free market capitalist Right is bewildered about why it has such a hard time gaining traction despite overwhelming historical and theoretical evidence of the correctness of its cause, it is because it doesn't recognize that economic issues are not just about economics.

Anti-capitalists don’t care if overall prosperity is diminished or if the most ambitious and productive are hurt by their policies. To them, it’s all about “fairness,” and egalitarian “equality” at all costs is what’s “fair.”

Of course, the most productive and ambitious provide the opportunities that can lift everyone, so economic ignorance plays a role. But altruism clouds the facts, coloring the moral views of free markets, which are seen—correctly—as dominated by the pursuit of self-interest. This view leads many to brush aside the facts as morally irrelevant, which leads to bad economic policy that is seen as morally right.

To begin to turn the tide, the free market Right must promote its viewpoint as right. And what’s right is self-interest—or more precisely, rational self-interest. Spreading prosperity and opportunities for the poor and the young are not primary validations of free markets. They are consequences of the moral rightness of free markets.

[Afterword: There are deeper philosophical issues that underpin morality that must be grasped by the Right, however. For a good introduction into this broader field, I recommend a 42 minute lecture by Yaron Brook titled “Why Bad Economics Won’t Go Away,” and the 33 minute Q&A that follows.]

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