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Wednesday, October 11, 2006

Deregulation and globalization

Two words that strike terror in the hearts of some - deregulation and globalization - provide opportunities and an unimaginable improvement in life for millions (if not billions) of people. Although freedom and self-determination are a commonplace in the West, the majority of the world is only now coming into contact with the benefits of both.

One place to look for encouragement when it seems time to run for the hills is Cato's Letter, a quarterly put out by the good folks at the Cato Institute (mentioned below). This quarter's letter is penned by the chairman of FedEx. Why should we care what he has to say? FedEx only generated about $30 billion in revenues last year.

In the spirit of "words mean things," I provide a few pertinent quotes from his Letter:
It is remarkable to see these completely eclectic trading patterns: things coming from Argentina going to Budapest and things coming from Kiev going to some remote part of China and things coming from Chubu Airport in Japan going down to Brazil. International trade is being propelled by the growth in high-tech and high-value-added goods displayed on the Internet and now available to people with very little hassle.
Today trade might be driven more by individual, rather than aggregated, preferences. If so, this is the manifestation of the freedom of choice and freedom of action - freedoms that have only recently, that is within the last two hundred years, become part of the vocabulary.

Another great statement:
As long as people are permitted to be entrepreneurial and allowed to deal with markets on a commercial basis, the economy is highly flexible and able to correct itself.
This is all too true, but it can take time for a market to correct itself and often this is "too long" for different reasons. Politicians have two, four, six, or eight years for something to happen. If the market for renewable energy is developing "too slow" it is tempting for the government to intervene on its behalf, to speed the market along, to deal with the market in a distinctly non-commercial manner.

Another statement that caught my attention:
My experience as a manager and participant at the board level in a number of large enterprises has taught me the flaw in the mindset that holds that large bureaucratic systems like the federal government can manage virtually anything they want to. It is impossible to manage the health care requirements of tens of millions of American citizens at the federal level. It is impossible to manage all of the permutations of people's economic aspirations and lives through a complex tax code. It is impossible to try to second-guess the market. It is impossible, from a
managerial standpoint, for the federal government to do the things it is trying to do today
This is what Hayek argued over sixty years ago. There is too much information for the central planner to incorporate. One of the worst traditions in economic theory is to even contemplate a world with the "social planner" who is busy trying to maximize total surplus in a market using all the information required to do so. I do not argue that the thought experiment is not worth while, rather that it is too easy for the layman, politician, or crank, to misconstrue the theoretical "social planner" as something that can actually exist. Perhaps economics should do away with the "social planner" and replace him (or her) with some other term.

Smith goes on to call out those who continue to argue that centralizing everything and anything tends to yield positive results:
In the 20th century, we had some of the most dramatic examples in the history of mankind of the horrors of central planning. How much more real-life experience do we have to have with the fallacy of central planning than the tragedies of untold magnitudes that beset the Soviet Union, China, Cambodia, and other countries?
Such arguments resonate with those who love freedom and have read about what happened and what is happening in the workers' utopias. However, I wonder if the argument might be a little tired amongst those who still waffle between freedom of thought and action and the comforts of free-riding on others, which is how the centralized systems ultimately worked for a while (and eventually failed). I am not sure what to do instead, but such arguments don't seem to be carrying the day in the United States.

All in all, Smith's Letter is a good read and I recommend subscribing (it's free!)

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