The personal website of Matt Henderson.
03 January 2013
In discussions about society and economics, proponents of collectivism often respond to free-market capitalists with incredulity. How could you possibly put profit above the needs of human beings?
That is a tragic misunderstanding. And in a domain so important but so closely tied to emotion, it often derails constructive conversation and progress.
The sad truth is that putting the needs of others first, ultimately fails as a societal model. Intentions don’t matter; what actually works — or more precisely, what produces the best results among imperfect alternatives — is what matters.
As it happens, organizing society around the innate human tendency to act in ones own best interest will achieve, through the invisible hand of the impersonal price system, the best sustainable results for the poor and needy. Not perfect results; but the best possible results.
It naturally starts as the most noble of ideas. There are those in our society who are in need due to no fault of their own, and we as a society should collectively help them.
How do we collectively help those in need? We don’t tend to do it directly; rather, we attempt to do it indirectly through government. We allow the government to tax a portion of our income, in order to use that money to — in addition to the basic functions of government — help those in need.
But government is comprised of people; human beings. And that’s the fundamental problem.
Who goes to work in government? Government jobs are stable, by and large free from accountability and the pressures of competition. At mid and high levels, government jobs offer power and opportunities for corruption.
I’ve lived in four countries and visited many more, and my experience in this regard is fully consistent. Although there are exceptions, government everywhere, in general, attracts people for whom such job qualities appeal. In general, these are not qualities consistent with achievement in private enterprise, where only the most competent, efficient, productive, competitive and effective entities survive.
The result is no surprise — incompetence, inefficiency and ineffectiveness. For every dollar collected in taxes to help the needy, only a fraction arrives at its intended destination. Furthermore, the situation grows worse with increasing size of government, and government always tends to grow. Over time, less and less of each tax dollar ends up actually achieving the initial aim of society — helping the needy.
Today we see massive inefficiencies, incompetence, and corruption in government, and growth in government spending as a percentage of GDP on a scale in the United States (as in Europe) that is clearly unsustainable. And it extends beyond welfare; just look at the America medical and education systems.
The existence of welfare creates situations in which those with the capability to escape their needful situation choose to remain. And, worse, it creates situations in which those outside actually prefer to enter welfare, rather than to fend for themselves. (Here in Spain, I often speak with unemployed who are in no hurry to find a job, and have seen all manner of ingenuity and innovation in fraudulently accessing government welfare and benefits programs.)
Over time, the proportion of the ever-growing total population eligible for government help who are actually in need, declines.
Milton Friedman was one of history’s most intelligent and respected social and economic thinkers. A life-time of research led him to conclude that although the intentions of a collectivist societal model are good and noble, such a model can’t and doesn’t work in practice in the long run.
A fundamental flaw, therefore, in designing a social model is to begin with good intentions.
Experience should teach us to be most on our guard to protect liberty when the government's purposes are beneficial. Men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers. The greater dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding.
—Justice Louis Brandeis
The alternative is free-market capitalism. In his ground-breaking work, “The Wealth of Nations”, Scottish economist Adam Smith discovered that the impersonal system of prices in a free market acts as an invisible hand, organizing very complex and distributed systems of efficient production, resulting in a situation in which the individual, acting in his own interest, actually works towards the larger benefits of society; objectives which were of no intent of his own.
According to the research of Milton Friedman, history clearly demonstrates that wherever you find reasonable conditions for the poor, you will find something resembling a free-market society. And wherever you find the worst disparity and conditions for the poor, you will find a model of central societal planning.
It’s a counter-intuitive idea, for sure, and leads to hundreds of reasonable questions and concerns. I would urge anyone interested in this topic to watch Milton Friedman’s “Free to Choose” series, now available on YouTube.
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