Lets admit it: most policies that have been tried to fend off the remnants of the crisis have failed miserably: global growth is slow, market confidence is shaky and expectations are hovering around zero. Why is it taking us so much time to realize that a drastic shift in perspective is needed? The reason behind this unresolved puzzle of lack of economic revival is the, religiously fanatic, concentration of policy makers and self-proclaimed gurus of the economy on the “method” rather than the “issues”.
A nice example of this is mental state is given by the campaigning for the next presidency of the United States. There are some issues on the debate, no doubt about that, but what is actually being debated with strength and determination is an, ideologically charged, version of the “truth about the method” on economic growth. On the one side we have the crusade for higher wages, to boost demand and an ever-present, ever-growing welfare state; on the other side we have another crusade for an anti-immigration, protectionist regime – another form of a welfare state, maybe a more concentrated one. On the one side we have had calls for higher taxes and more regulation and on the other side calls for higher sector protection, which sector does not really matter, and of course more regulation to protect some and not all of the constituents. Whether this additional regulation is needed or whether there have been past examples of failure of increased regulation is not debated, the method with which this regulation will be imposed is. This “regulatory storm” that is getting ever more violent is one of the main characteristics of the post-crisis times. We are trying to correct the mistakes of the past by imposing untried, socially and ideologically charged regulation, in a panicky attempt to make sure that some of the old structures and bureaucracies remain intact, along with those that extract huge corporate and public rents from controlling them.
The main issue at stake on the coming US elections, which will also reflect on the implications of Brexit and the future of Europe and global growth, should have been and still is this: freedom of choice. We are moving fast to a highly controlled world where the false impression of freedom of individual choice quickly dies after you create an email account and make your profile in social media; beyond them is the wall of regulation, the mountain of bureaucracy, an ocean of rules made by committees with the least understanding but with huge experience in “allocating” public funds. Freedom of choice is under attack on all sides, be that on a personal level or a state level. This is the notable problem of our times, which policy makers have no incentive to fix: in a completely rent- seeking fashion they are increasing regulation in all areas and are promoting policies that maintain monopolistic competition as the cornerstone of economic development. The many conventions about enterpreneuship or innovation, en vogue a decade ago, now sound like religious gatherings where groups of aspiring monopolists end up playing nice board games or computer simulations.
Take the case for “higher wages to increase demand”. You would usually assume that higher wages should reflect something, increased skills, increased productivity, a new idea, some form of in- equality in thinking, implementing, producing. However, the case for higher wages is not stated under these terms but rather in terms of a broader, ill-defined, case of increasing equality horizontally without reference to how is to be achieved and without reference where the funds for higher wages would be obtained from – well, higher taxes for all is currently en vogue for doing this (the case of lower taxes to increase investment and consumption has, strangely, escaped the attention of policy makers on this side of the spectrum). So freedom of choice becomes, as an issue, obsolete under these terms. Why should I try harder if someone else can potentially take care of my needs? Note that this same problem will be faced by any attempts to impose an ill-defined economic protectionist regime – those that will be in the favored sector would defend their new priviliges without reference or any kind of moral or social understanding for the needs and choices of the rest of the society.
To deflect the importance of the issue of freedom of choice, which by necessity requires less state intervention in conducting business and running the economy but more state intervention to reduce corporate and public rent seeking, protecting competition and promoting job growth and not wage stagnation, the current policy making regimes are prone to more regulation, more complicated laws, more committees and more cronyism. Most of all, they are crying ever louder “trust us, we know better”. Well, maybe you don't! The result is that individual freedom of choice, or state freedom of choice, is thus constrained in the worst way possible and with no desired social effect: have you been observing any impact on economic inequality at the aftermath of the crisis? The problem of the obsession with the “method” rather than the “issues” is that it is a politically very convenient way of maintaining rather than changing the status quo, both in the economy and in the society. Furthermore, with increasing threats outside the economic realm we see that regulation is all engulfing for our own protection – but then it can become ingrained to all that without regulation the world can be a dangerous place to live, travel and work.
The reduction of regulatory burdens requires both carefull consideration and time to be implemented correctly to benefit freedom of choice. Will the US be a leader in this direction or it will consolidate the power of the regulatory/welfare/protecting state? Will the new US administration focus more on protecting the individual freedom rights, those rights that promote free thinking, free thinkers and healthy competition? Or, instead, we are going to end up with a central planner, of possibly good intentions but poor future economic and social performance?