Thursday, April 09, 2009

Chaos and Order

A common idea in science fiction and fantasy is that the world is divided between chaos and order. Usually, but not always, the hero is a champion of order.

Over the last few years politics have reordered themselves into a similar grouping. The leaders of the Democratic Party including the President and the Secretary of State insist that they are progressives instead of liberals. As they have pushed their agenda, the Republicans opposing them have coalesced around small government/open market principles. These correspond roughly to order anf chaos.

The chaos in question is the free market. Progressives look at aspects of free markets such as pay inequality and boom/bust cycles with horror. Their impulse is to bring order to this untidiness though increased regulations. The current batch of progressives draw from a long history. This is at least the third time in the last century that they have pointed to an economic bust and insisted that capitalism is dead, that it doesn't work. During the 2008 campaign, Barack Obama insisted that each economic problem could be solved through more regulation. Now that he is president, the list of industries that he plans to regulate is constantly growing.

This dates back to the first half of the 20th century and the first Progressive era. American progressives were fascinated with the changes going on in Europe. A number of them, particularly the editorial staff of The New Republic, made pilgrimages to the USSR to see progress of the Five Year Plans and other reforms. The less-radical wanted to follow the example of Italy and Germany where the government kept private ownership but established strong economic controls.

On the other hand we have the libertarians. They celebrate free, open markets. They insist that markets may not be pretty but they are the most efficient way of producing and distributing goods. What looks like chaos to the outsider is an orderly, self-correcting system. It is not random but it has too many inputs to control and any attempts at taming the chaos will bring unforeseen and undesirable consequences elsewhere. This view has parallels in chaos theory which holds that small changes in initial conditions can lead to large changes in behavior. This is often called the Butterfly Effect.

You can see this breakdown on most of the major objectives of the Obama administration. They want to control banks, large financial institutions including insurance companies and automotive manufacturers. Later this year they will propose some form of universal health coverage. They plan to reshape the power grid. They are appalled by income equality and are changing this through caps on earnings and through additional taxes on the upper end.

Their insistence that everything is knowable and therefor controllable convinces them that global warming models are correct and that urgent action is needed.

The libertarians have a completely different take on all of these issues. Yes, pay inequities exist but wealth has its own multiplier effect. Eliminating wealth hurts other portions of the economy. A one-size-fits-all approach does not fit all. Some people, especially those in their 20s, prefer to spend their money on food and shelter rather than insurance. Not everyone wants or needs the tiny, unsafe econoboxes that the progressives want produced. Climate is too complex for models to predict with enough accuracy to bet our economy on.

There attitudes are not the exact opposites of each other which means that each side sometimes finds itself talking past the other. In a recent meeting between the president and the heads of several banks, the bankers tried to explain that cutting executive pay would just rob their firms of talent. Obama didn't want to hear this and cut them off. From his point of view, no one should be paid millions of dollars, ever.

Personally, I side with those who think that open markets are preferable to regulated ones. Too often well-meaning attempts end up making things worse in the long-run. Here are a couple of examples:

Around 1990, President George G. W. Bush and a Democrat-led Congress decided to reduce the deficit by raising taxes. One new tax that was tailored to only hurt the rich was a new sales tax on yachts. It turned out that most boats covered by the new tax were purchased by upper-middle class boating enthusiasts. The new tax made new boats too expensive for these people to afford. As a result, the boat-building business had major layoffs. Between lost income tax and unemployment benefits, the tax cost the government much more than it brought in.

Another example from the Bush (41) administration - acid rain became a major issue. Congress rushed to pass legislation that required low-sulfur emissions. This hit the coal mining industry in the east hard to the benefit of the western states. More recently, a study just put out by NASA indicates that this legislation is the main cause for Arctic temperature rises. The study indicated that the best way to cool the Arctic would be to resume burning high-sulfur coal. Ironically, this came from someone who works for James Hansen. Hansen has called for outlawing all coal-fired generators. Acting on Hansen's recommendations may actually make things worse instead of better.

Global warming is an example of the two sides talking past each other. The progressives want to take action right now and can't understand why anyone would wait. The libertarians are not convinced that there is a problem and see the cure as being worse than the problem. They want solid assurances that there is a problem.

This is the state of the American political debate right now.

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