Economic Nonsense: 42. A planned economy is more rational than an unplanned one

Very few people advocate an unplanned economy.  At a simple level people might suppose that having intelligent and informed people direct the economy is better than having it proceed by blind chance.  But this is not the choice.  The choice is between an economy in which millions of individual decisions made daily interact with each other to produce an overall order, and an economy whose overall order is sought by a few people gathered around a table trying to direct it.  In other words the choice is not between planning and chaos, but between an order produced by the few and an order produced by the many.  It is between planning done by a few at the centre, and planning done by many at the periphery.

When a person makes an economic choice, to buy or not buy, to stay in a job or to change employment, it is not necessary for the information about that choice to be collected and relayed to a directing authority.  The choice itself impacts upon the economy sending information through it that causes it to change and respond.  In a centrally planed economy the information has to be relayed to the centre so that those in charge can add it to other inputs and decide how to respond to it.  That process takes time, and much of the information is outdated or submerged into a fog of other data before it can reach the centre and be acted upon.  In a spontaneous, interactive economy, its effect is immediate.

Much as the directing authority might try to ascertain the circumstances of individual economic participants, they cannot hope to have more knowledge of them than the individual concerned.  The market economy thus has more information at its disposal, and it can act more rapidly, responding to imbalances and redressing them.  This means that the centrally planned economy is by no means more rational than the spontaneous one.  It is true that the billions of transactions that have input into a market economy might be too large for an individual mind to encompass, but that makes it complex rather than irrational.  

Economic Nonsense: 41. Immigration is bad for the economy

Many argue that immigration harms the economy.  Some suppose that immigrants are attracted by welfare, and come to live off benefits at the taxpayers’ expense.  Others assert the contradictory claim that “they come here to take our jobs.”  Schrödinger’s immigrant, like his cat, seems to manage two states simultaneously.  Some point to the pressure on services and resources, with immigrant children filling classrooms and their sick taking up hospital beds and lengthening waiting times to see doctors.

The reality is that most immigrants are young and ambitious, coming to better their lives.  They are overwhelmingly fit and looking for work.  Many of the jobs they take up are ones whose low pay and long hours do not appeal to the native population.  Most do not draw benefits or take up hospital space.  In some sectors they help fill skill shortages, and many UK businesses clamour for more educated and talented foreigners to be allowed in.

The work they do adds to our GDP and boosts growth.  The taxes they pay boost our public finances.  Most immigrants have shown some drive in being prepared to move to a new country to improve their lot.  Some have scraped up cash to finance their trip.  Some have taken risks on their journey.  They constitute a huge net plus to the economy, not a minus.  

It is true that in some areas, particularly if they concentrate, they can put pressure on local facilities.  A minority seeks to retain a culture that sits ill alongside the tolerance and liberalism that Britain has developed over its history.  These are indeed problems, but they are ones that can be addressed and dealt with, and some are temporary rather than long-term. 

Immigrants do one more positive thing for the economy.  Most countries in Europe face declining and ageing populations, and will encounter difficulties if there are not enough young people in work and paying taxes to support the elderly with appropriate services.  The UK population is not declining, and it is immigration that is making the difference.  Far from constituting a problem, it is in this case a solution.  

Economic Nonsense: 40. Too much wealth is owned by too few people

Underlying the claim is an assumed egalitarianism.  How much is “too much” and how few is “too few?”  Obviously those making the criticism have some concept in their minds of how they would like to see wealth distributed in society, and it seems they would prefer a more equal distribution than is currently the case.  The obvious question is “Why?”  The answer often given is that this would be ‘fairer’, but since they seem to define ‘fairer’ as ‘more equal’, this is not very helpful.

It does not help, either, that many of these measures of inequality only count certain forms of wealth.  Many people in the UK see equity in housing as their main source of wealth.  For some it is pensions.  Many assessments of wealth distribution, on the other hand, only count assets and investments, and thus miss much of the wealth owned by ordinary people.  Few if any seem to count entitlements to such things as health and education as part of measured wealth, even though they undoubtedly improve the living standards of the average citizen.

It could be argued that societies with an unequal distribution of wealth are able to increase wealth faster, and that poorer people in those societies become richer more rapidly than those living in more equal societies.  To poorer people it matters that they are able to command more resources.  It matters less to them that software multi-billionaires have widened the gap between them and made society less equal.  

Part of the reason this criticism persists is envy, the resentment that some have more, yet aspiration is often motivated by the observation that some have it better.  The success of others can inspire the desire to emulate instead of simply envying.

The false zero sum game probably plays a role in this criticism, the notion that because some own so much, the rest must make do with less.  In fact wealth in constantly being created, and creating wealth is a far surer route out of poverty than redistribution.  Instead of envying those richer than themselves, people would be better advised to try to copy them.

Economic Nonsense: 39. Only strong government regulation can hold big business in check

It isn’t strong government that causes concern for big business.  They are more worried about the smaller, newer businesses that might take away their trade.  It is competition, not government that they worry about.  Big business often cozies up to big government.  It employs lobbyists to negotiate with civil servants and ministers, and hammers out agreements on what types of regulations should be introduced, and how they should be implemented.

Big business can cope with regulation.  It can afford the staff to deal with compliance.  Small businesses, especially start-ups, find it more difficult to afford the money or the staff time that regulatory compliance takes up.  Big business knows this, and often strikes deals with lawmakers to impose regulation that will deter newcomers from entering the market.  Far from it being used to control big business, regulation often helps big business by imposing unacceptable costs on its real or would-be competitors.  People speak of “regulatory capture” when the industry works with government to secure helpful regulation.

Some regulation is needed to reassure the public that it will not fall victim to sharp practice or shady dealing, but five words should be engraved above the door of every legislator: “Competition is the best regulator.”  It is competition that keeps firms striving to deliver high quality and keen prices.  The fear of losing trade is more powerful than the fear of incurring the displeasure of government.

Regulation is commonly used to protect those in the market from competition by those who might enter it.  If no-one can trim hair without training and a certificate, the prices charged by existing hairdressers will not be undercut.  If no one can enter the taxi trade without a medallion or a two-year training course, the fares charged by existing cabbies will be protected.  All rules like these are done in the name of protecting the public, but in reality it is the established operators that they most commonly protect.

To control big business government should pursue a policy of promoting competition.  It should make it easier, not harder, to enter established markets.  This, more than regulation, will keep firms attentive to their customers.

Economic Nonsense: 38. The market cannot produce art, music, literature & museums

The market actually does produce such things in some other countries.  What the market does best is to allow people to create the wealth that will fund cultural activities.  The United States has a strong tradition in which people who have done well in business support the arts.  Names such as the Guggenheim Museum or the Getty Centre remind us of the generosity of rich patrons.  Andrew Carnegie, who found fame and fortune in the United States, funded the provision of organs in many churches in his native Scotland, as well as numerous libraries.

In fact the arts have been funded by rich patrons through the ages.  It was often regarded as a sign of good character and culture that a wealthy person would support art, architecture and sculpture.  The emergence of modern economies since the Industrial Revolution has enabled wealth to be created on an unprecedented scale.  This, in turn, has allowed some people to become rich through business and become patrons, where previously it was mostly aristocrats and rich merchants who could afford to do so.

When Kingsley Amis wrote for the Adam Smith Institute opposing arts subsidies, his central case was that if government through its arts committees funded the arts, their output would be skewed towards the desires and tastes of the paymasters, rather than from the passion and inspiration of the artist.

It must remain a suspicion that the committees responsible for handing out public funds as grants to the arts will give effect to their own tastes, rather than those which the public might freely choose to support otherwise.

Some arts can be self-supporting through ticket or admission prices, but government can help through its tax laws, remitting all or part of the tax that would have been due on money donated to artistic institutions.  It does not itself need to dole out taxpayer-funded largesse,  The UK’s National Lottery has multiplied financial support for the arts without needing taxpayer funds.  The view that the market cannot finance the arts and that government grants are needed to sustain them is simply not correct.