Recently, famed Wharton professor Adam Grant wrote a blog post provocatively titled “Does Studying Economics Breed Greed?” Grant believes, citing research by Robert Frank, that the profession of economics squashes “cooperation and generosity” because economics teaches the value of self-interest.
No doubt, Grant’s belief is popular and shared by many others. What if that belief, however widespread, is false?
Many who support a larger role for government do so because they believe that profit-seeking entrepreneurs are greedy; they are too self-interested to serve the public. Government on the other hand, they believe, consists of those who are more interested in serving the public because they are not constrained by the goal of making a profit.
If you are acquainted with anybody is who is not self-interested, please let me know. To inhabit a body means to be self-interested. We have bodily and emotional needs that occupy many of our thoughts throughout the day. The question is not are we self-interested; we are. The question is whether we allow our unavoidable self-interest to run amok and become destructive.
In our personal lives when we are too self-interested we lose friends, ruin marriages, and betray ourselves. We betray ourselves when our self-interested ego runs wild. Why? Simply, our true nature is much more than a selfish body dedicated to fulfilling its desires by getting more of this and that. Absorbed in personal, self-interested thinking, we are unable to listen to the quieter voice within—the voice that speaks for our True Self.
But, what about in the marketplace? Doesn’t government act as a check against self-interested businesspeople who chose not to listen to the needs of the public?
It is true that in a free market, firms seek to profit from producing and exchanging goods and services. But a free market exchange is voluntary; buyers are free not to purchase, and firms profit only when they provide goods and services that buyers value. When exchange is voluntary, self-interest is an incentive to produce goods and services that satisfy the most urgent needs of consumers.
Indeed, “profits,” George Gilder writes, “is an index of the altruism of the producer—a measure of the extent to which an investment reflects an accurate understanding of the needs of others and a suppression of the immediate needs and desires of the producer.”
Serving the needs of others places firms in uncontrollable, vulnerable positions. As Paul Poirot explains, “In the market economy, every owner is continuously obliged to justify, through service, his right to retain control of the resources he claims. Otherwise, consumers peacefully transfer the ownership and control into more capable, more productive, more serviceable hands.”
Some producers do not like being subject to the continuous ballot box of a free marketplace; they prefer to win favors through political processes. Through political processes they seek to gain something that they could not gain through production and exchange. All political processes are ultimately based on coercion which means that exchange is not voluntary and profits can be made without satisfying the needs of consumers. In the absence of voluntary exchange, political processes create incentives for self-interest to run wild.
In his seminal book The Law, Frédéric Bastiat wrote, “A man may live and satisfy his wants by seizing and consuming the products of the labor of others. This process is the origin of plunder.”
Bastiat was a keen observer of the human condition. He saw that consumers can be fickle and hard to please and to labor to create value for others is hard work. Given the opportunity, men will turn to government to “plunder” others.
For example, do you want ethanol in your car’s gasoline? Government mandates that gasoline contains ethanol and ethanol producers depend on taxpayers’ subsidies. Thus, ethanol producers, aided and abetted by government, are poster children for selfishness. The production of ethanol helps to destroy Midwest farmland, drain Midwest aquifers, and push food prices up for the world’s poor. Self-interest is destructive when the government plunders others on behalf of producers and suppliers.
In contrast, in the free market, your local supermarket competes with other supermarkets, each seeking to find the combination of product mix and prices that meet your needs and win your loyalty. They must listen to consumers. If they fail to listen they go out of business, no matter how big they once were. If you doubt that, ask former shareholders of A&P.
Continuing with our supermarket analogy, how are the supermarket shelves fully stocked every day? Planned economies have never been able to keep supermarket shelves stocked. Why does this miracle occur only when exchange is voluntary and people are free to be self-interested?
No one orders a farmer to grow the food. They do so out of self-interest. Farmers love their families; they take satisfaction in feeding others; but maintaining the quality and quantity of their output depends upon their self-interest.
Similarly, no one orders a trucking company to ship the farmer’s broccoli from the West Coast to the East Coast. The trucker may take satisfaction of an essential job well done, but it is self-interest that causes him to serve the farmer. They “listen” to where food is needed.
I could go on and on. But even a cursory observation demonstrates that to stock a supermarket requires the cooperation and self-interest of many known and unknown individuals.
Now let’s turn back to government bureaucrats and politicians who are “untainted” by the profit motive. If your favorite online site couldn’t handle all the traffic coming its way, would the problem be solved by offering you a virtual waiting room? Of course not. Only a commissar, because they were not motivated by earning profits, could envision a website with a virtual waiting room. Yet our new Obamacare commissars thought a virtual waiting room was a good idea. How good were their listening skills?
Or consider this small example. The Sunday after Thanksgiving my kids flew back to college. The government owned transit authority in Washington, DC, runs an express bus from the airport to the Maryland suburbs. Although that Sunday was among the busiest travel days of the year, the first bus arrived at the airport at the same time it always does, 9:40 AM. By that time huge crowds were waiting, some for hours, to board the bus. Not everyone could get on the bus; many were stranded. This lack of listening occurred despite a bus fare of four times the normal price for a “premium service.”
I imagined the same sorry scene playing out year after year, with no adjustments being made. I am sure that many good people work for the transit authority, but their self-interest doesn’t depend upon their ability to listen, and so they don’t.
In our personal lives we have incentives to learn how to listen better. When we don’t learn to listen, life gets hard.
Firms, who do not use government’s power to coerce, have incentives to learn to listen better. Those that don’t learn to listen go out of business.
Only government has the legal power to coerce, and thus politicians and bureaucrats and the producers and suppliers they subsidize can remain hard of hearing for a very long time.