• Max Stearns

Ideological Blindspots (part I)

We live in terribly contentious times. No great insight there. This past election cycle has generated such a deep distrust across ideological lines that each side tends to discredit entirely those on the other side. Donald Trump's Republican party is particularly problematic because its leader fails to embrace, perhaps also to understand, longstanding ideological values that for decades held that party together. Trump's Republican party is not the party of Lincoln; it is also not the party of Reagan, Bush I, or Bush II. Although I say this is as a life-long registered Democrat, I am also not the sort of Democrat who believes his party is always right. I sometimes embrace policy positions that more closely align with those of my conservative friends. I recognize that each of the dominant political parties has blindspots. This post will focus on a couple of blindspots, and although it has implications for present policy debates, I write to make a more general point.

Republicans generally place confidence in markets as the engine for economic growth. They adhere to the belief that markets alone improve social welfare in the sense of creating wealth, and they tend to distrust government not only because they fear that regulatory interventions risk inhibiting wealth, but also because they distrust politicians and bureaucrats to serve the public interest, as opposed to their personal aspirations, once they gain power.

Among the core set of Republican beliefs is the intuition that government can redistribute wealth, but it cannot produce it. Instead, wealth is generated in either of two ways. First, markets create wealth by producing goods or services. Entrepreneurs combine inputs, or "factors of production," whose value elsewhere (or opportunity cost) is lower, generating end products that the marketplace more highly values. Second, markets create wealth through exchange, namely the endless stream of voluntary transactions in which we all routinely engage. As I tell my students, when I go to Starbucks to buy a cappuccino for $4, it means I value the coffee more than the money and that Starbucks values the money more than the coffee. (As I show in my separate post, you can do better making your own cappuccino!) Assuming such transaction don't adversely affect others (meaning no "externalities"), voluntary market transactions are presumed to improve social welfare and create wealth.

Democrats are generally concerned with fairness. They tend to focus on society's often-egregious uneven allocations of resources, and thus they place great confidence in governmental policies that promise to provide greater access through benign regulatory interventions and through the redistribution of goods and services. Democrats are particularly concerned about the incidence of extreme wealth among elites, and the pervasive and persistent poverty afflicting poor communities. This is often especially true for communities of color. Democrats are deeply concerned with longstanding patterns of entrenched poverty, which combine to make the "American dream" seem a remote fantasy rather than a realistic prospect for those locked for generations into communities without access to quality schools, that are distant from healthful food and recreation, and that are too often unsafe both as a result of environmental challenges and crime.

Those whose world view is heavily dominated by fairness concerns, not surprisingly, place little confidence in the promise of markets to not only create wealth, but also to filter it down to those most in need. Liberals tend to discredit "supply side" notions that as the wealthy become wealthier, they will apply their resources in ways that ultimately benefit everyone, including those who are economically distressed.

Who's right? Both, or neither. Each side has a blindspot. Conservatives have faith that robust markets, capable of generating wealth, will produce meaningful opportunities for those most in need, rather than simply exacerbating societal wealth disparities. Liberals have faith that governmental policies can effectively ensure the flow of resources and opportunities to our poorest communities, without running the risk that the government itself might be captured, producing policies that fail to target those most in need.

Both sides should agree that societal wealth is not an end in itself; it is the means through which we achieve comfort and enjoyment. This certainly includes rewarding those motivated to produce wealth by taking entrepreneurial risk. It also has to include recognizing the critical needs of those lacking access to educational and market opportunities, and whose present basic needs are so often unmet. With some exceptions, it is simply true that markets, not government, are the engines that create wealth. The exceptions involve a limited category known as "public goods," those that private markets are unable to provide because entrepreneurs lack an incentive to do so. (I'll later post separately on public goods). Society needs robust markets that generate wealth. Otherwise, we have fewer goods and services to enjoy, and yes, we also also have fewer resources available to distribute to those in need.

A tragedy in Election 2016 is that as a result of the dynamics of the primary/caucus cycle, the candidates were discouraged from converging even modestly toward more moderate positions in the general election cycle. Whatever your personal ideological priors, our system vitally depends on a substantial degree of policy convergence, and thus on meaningful compromise. Certainly this is not the only ideological division between Democrats and Republicans, and I'll point out other blindspots in future posts, but it is among the most important. We need robust markets as the vehicle for wealth creation, but we also need to recognize the inadequacy of markets to satisfy those in the greatest need. This implies that both sides, liberal and conservative, are apt to be frustrated with eventual political outcomes: protecting markets more than liberals would like, yet allowing greater regulatory intervention, including redistributive policies, than conservatives would like. Neither side ever "wins" by securing a total victory, one that purely matches either side's ideological priors. Everyone ends up frustrated. This does not mean that the system if failing; it means the system is succeeding. As individuals, we might not always see the blinkers, but a properly functioning political system helps us to avoid the crash.

#ideologicalblindspots #wealthdisparities #wealthproduction

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