There has been much talk of recently of the death of Reaganomics. Is this true?
IS REAGANOMICS DEAD?
There once was a sheep farmer named Kirchener. Kirchener had a flock of seventy-seven sheep. Down the road another farmer, Steffins, had a small flock of ten sheep. Steffins’ flock, however, has one very valuable asset. One of his sheep, inherited from his father, is a prize-winning sheep, a Cheviot purebred. Very, very valuable.
Kirchener offers to buy the Cheviot sheep. Steffins refuses. Kirchener offers more and more. Steffins is not interested. That sheep was his father’s. It’s more that just an economic asset; it’s an heirloom. It’s sentimental. So in spite of all Kirchener’s efforts, Steffins will not part with the sheep.
Kirchener is determined to have that sheep. That Cheviot sheep will make an excellent addition to his flock. He can breed it, show it and do a lot of other things with that sheep. He simply must have that sheep.
So Kirchener, desperate, buys up Steffins’ mortgage and finds a reason to foreclose on it. As a part of the settlement, Kirchener gets the flock of sheep as well as the property. It’s all done legally so Kirchener is within his rights.
This story demonstrates some of the assumptions of the free market. They are as follows:
1. Free markets unrestrained by government result in the most efficient and socially responsible allocation of resources. Clearly Kirchener can utilize the value of that sheep more than Steffins can. By obtaining Steffins’ mortgage, Kirchener is merely following free market principles.
2. Removing the barriers to trade and freeing the flow of money and goods spurs competition and efficiency, creates jobs, lower prices, and benefits everyone. Kirchener has freed up the value of that sheep by his plans to breed and show it.
3. Privatization is more efficient than government control. By utilizing the private mortgage market, Kirchener has made efficient use of his resources, money and power, to increase his resources in the most efficient manner.
4. The primary responsibility of government is to provide the infrastructure needed to advance business and promote the rule of law respecting property rights. Kirchener acted legally and without government restriction to gain more private property.
These are some but not all of the assumptions of current free market philosophy. But if you really think about it, underlying these assumptions is an even more basic set of assumptions that are hidden to most of us. So let’s look at and explore these unspoken assumptions. Here are what I think are the hidden assumptions of free market philosophy:
1. Humans are motivated by self-interest expressed through the quest for financial gain.
2. The greatest benefits to society are those actions that yield the greatest financial return to the individual.
3. Competitive behavior is more rational than cooperative behavior and society should be built around competition and not cooperation.
4. People are motivated most by greed.
5. The need to consume and acquire is the highest expression of what it means to be human.
6. Pursuing greed and consumer goods leads to the best social outcomes.
Nowhere are these hidden assumptions made more clear than in Oliver Stone’s film, Wall Street, where Gordon Gecko claims, “Now in the days of the free market, when our country was a top industrial power, there was an accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire, made sure of it because it was their money that was at stake. Today, management has no stake in the company…the point is, ladies and gentlemen, that greed—for lack of a better word—is good. Greed is right. Greed works.”
So what do you think? Which set of assumptions are the most valid? I invite you to reflect on both of these sets of assumptions and come to your own conclusions.
Some points to consider: 1) if the second set of assumptions is more valid than the first set, is Reaganomics over? 2) is the troubled economy today the natural result of the beliefs and practices of the last thirty years? 3) could there have been any different result?
I hope you will reflect on these assumptions and come to your own conclusions.