Professor Deirdre McCloskey is a distinctive voice for common sense. She trashes all the prevailing theories of her colleagues in the economics professoriat, as well as the practices of the social engineers in government and think tanks. In an essay on her website titled Populism Is Zero Sum Under Majority Rule, she succinctly summarizes her case (which she has made most unsccinctly yet supremely engagingly in her Bourgeois Trilogy series of three 600-page books: The Bourgeois Virtues, Bourgeois Dignity and Bourgeois Equality).
Here, we present a 10-point summary of the case the good professor makes in the paper. We’ve substituted the term individualism (which she does not use) for terms like classical liberalism (which she does use) because we look through the individualist lens and we think that’s a good modern expression for what the professor means. Please do judge for yourself by reading the original.
Individualism is a win-win proposition. Populism, liberal democracy, socialism and all the other theories of social order are zero sum.
The principle of zero sum is clearly expressed in redistributionist policies such as progressive taxation. One group can be made richer only if another is made poorer. Tax those who are successful and redistribute the loot to the poor.
Zero sum is default thinking for humans. It’s deeply natural: the herd mentality. Everyone should be equal.
Unfortunately, if the herd rules, it will do so violently, by forcefully seizing the wealth of those who succeed more than others.
The herd’s forceful readjustment is after-the-fact. Equality is imposed as an end-state.
After individuals have exerted their efforts to serve their fellows well, have increased economic growth and created prosperity, the redistributionist police intervene to confiscate the fruits of individuals’ labors. They punish some (those who have created the prosperity) and reward others.
Individualism, on the other hand, promotes the beneficent process, not the egalitarian end-state.
Individualism wants everyone to be free and equally equipped at the beginning, in order to try their best, each in their own way. The market – the voluntary decisions of individuals to exchange goods and services in a win-win exchange – delivers a verdict on which efforts are worthy of reward by customer acceptance. Professor McCloskey calls the outcome of the process “trade-tested betterment”. Trade means voluntary exchange. Tested means the market decides and the consumer is judge. Betterment means win-win for all participants.
Zero sum thinking assumes no growth.
Your gain will be my pain. That’s the assumption, which includes the conviction that there will be no economic growth or it will be so slow as to be negligible. In these circumstances, riches can be accumulated only by evil means. Entrepreneurs are to be viewed with suspicion, if not outright hatred.
Such feelings may have been appropriate for the middle ages, when there really was no growth. Now they are reasserted because of the slow growth theories that are popular in the professoriat again today. Same idea, same feeling, same suspicion.
The truth is that there has been tremendous economic growth over the last 200 years and it has benefited everyone.
Professor McCloskey puts numbers on the economic growth of the last 200 years: a 3000% percent – equivalent to 30X – improvement. She calls it the Great Enrichment. The improvement has gone to the workers. Their real wage is 20-30 times what it was. And this doesn’t include the hard-to-measure improvements in quality, from better health care to air conditioning to big screen TV’s. The return on capital had stayed pretty much static, while the return on work has soared.
Exchange-tested betterment made poor people rich.
It is true that poor people were once very poor. They struggled with a low quality of life. Subsistence farming labor was the lot of most people before the Great Enrichment. There were famines and starvation. The new truth is that this low quality of life is largely eliminated.
Economists get this all wrong. Why is that?
Professor McCloskey cites two main reasons why economists don’t understand the win-win of individualism. First, economists don’t understand economic growth. Their theories don’t predict it, so the empirical evidence can’t be accepted.
Second, they don’t understand the efforts of individuals to seek their own distinctive way of serving others, in order to create value for their customers which they can exchange in markets. Economists invented an idea they call “perfect competition”, which means that no-one should have any advantage over anyone else. If they do, the redistribution police will intervene.
But in reality, the whole point of economics is that each of us tries to find our own individual advantage, the thing that we do best that is unique to us. We exchange that on the market with others who have found exactly the same advantage for themselves, except in a different field, or in offering a different service, or in making a different product. There’s even an economists’ term for this: comparative advantage. But it’s been discarded.
The right is as bad as the left in opposing individualism.
The left wants to confiscate and redistribute. The right wants to maintain hierarchy. Someone has to be the boss, to tell others what to do. Hierarchy is just another form of suppression of individualism. It results in intervention, and forceful imposition of the status quo.
We need a positive theory of “no bosses”.
Economists and social engineers believe that social order requires bosses. It is achieved only by “the continuous attention of authority”. We’ve written elsewhere that the opposite is true.
Order is the result of the spontaneous dynamics of adjustment. Each of us is free to do our best, and our ideas are tested in the marketplace. Some are accepted, some are not. Each of us makes adjustments accordingly. We may not be able to predict exactly how these adjustments are going to play out in the future. We simply continue to generate new ideas and new knowledge and make new exchanges.
It is necessary for us to be free to do so. We should not have to ask permission in advance from any authority or expert or boss.