Robust Political Economy: Classical Liberalism and the Future of Public Policy (New Thinking in Political Economy Series) [Paperback]

This book, by professor Mark Pennington, makes very clear what causes the fundamental conflict between classical liberalism and today's anti-market egalitarians and communtarians. The former begin with a realistic assessment of the flawed nature of human beings. Any society that hopes to succeed in providing freedom and affluence to its citizens must deal with what author Pennington refers to as the "two human imperfections" that make any community fragile: First, is our all too human "limited rationality" that renders decision-making so problematic, and the second failing is our "limited benevolence," which asserts a recurring self-interest in each of us that works against optimum social cooperation.

The basic error in thinking of the anti-market people, who advocate central government planning, is that an elite at the top can correct for the two human failings by making all decisions for the citizenry and redistributing the wealth that the selfish individuals want to keep for themselves. Thus today's liberals seek to maintain a parent-child relation with the people of the country with themselves as parents dictating massive regulations and rules of behavior. Obviously, this denies freedom to most everyone and runs counter to American traditions of liberty.

The chasm that separates these two factions is that one side takes an abstract concept--a perfectly ordered world-and sets it up as a goal. Then, in looking at the real world, imperfections from that ideal world are obvious, so the need for government to correct things becomes in their minds an essential and noble goal. What they miss is that human nature must be dealt with, and no perfect society may ever be designed. It is the old utopian-idealist's dream world versus the practical reality of what is possible. It is the "Conflict of Vision" that Thomas Sowell writes about.

What distinguishes this book is that the author explains why a free market system works best in dealing with the two flaws in human nature. First, the free market allows a maximum degree of trial-and-error learning which overcomes the recurring nature of bad decision making. The wide dispersal of actors in the manufacturing and financial realm allow a conpetition of ideas which weeds out the failures. Quite differently, a centralized government planning process mandates widespread policies which when counter-productive, are difficult to reverse. And recent history shows just how inflexible and determined our governing elites are in continuing massive government programs even in the face of constant failure to achieve their desired ends.

The other human failure that Pennington addresses, the limited benevolence of all of us, raises the question of how do we moderate the all to human desire to exploit opportunistic behavior so that abuses do not hurt the society. Historically, Americans have adopted laws that minimize monopolies, restrict usurious interest charges, inspect food and drugs for safety, and maintained court systems to enforce contracts and protect private property. Thus, by maintaing a level playing field, competition has been restrained so certain rules of fairness apply and limit excess self enrichment from unethical conduct. That fair competition lies at the hneart of effective capitalism.

That need to maintain fairness may be the best illustration of why a free market is better than a centrally controlled environment. In 1933, for example, the sins of finaciers on Wall Street led to rules that separated stock brokers from underwiters, two occupations where the conflict of interest between the two was apparent. That worked faily well until the 1990's when those geniuses in Washington, supposedly managing things "perfectly" from the top, decided to allow the banking world to consolidate so that individual Wall Street firms could earn fees from assembling worthless securities AND then earn even more from selling the junk to their customers. Then, to leave no doubt about how the frailty of an elite surpasses the aggregate frailty of the entire remaining citizenry, the Washington insiders bailed out the Wall Street security dealers who got stuck with some of their own worthless securities! We already had 70 years of evidence within the Soviet Communist heirarchy as evidence that, when it comes to maintaing a level playing field, central planning elites have the most "limited benevolence" of all. In any centrally controlled system you get the foxes guarding the hen house.

Professor Pennington lays out with good academic thoroughness how we must recognize the underlying nature of human behavior in order to evaluate the best system of government. He warns that we must not be tricked into expecting a perfect standard when limited information and limited rationality render all decision-making uncertain. It is only by creating the straw horse of a perfect world that today's leftists can criticize the operation of free markets, and even then, they fail to show why an expert cadre at the top will somehow be immune to making the same errors of judgment that they find fault with.