A Different View Of The Economy

Eric Liu and Nick Hanauer:

Consider regulation. Under the prevailing assumption, regulation is an unfortunate interruption of a frictionless process of wealth creation in a self-correcting market. But Gardenbrain allows us to see that an economy cannot self-correct any more than a garden can self-tend. And regulation — the creation of standards to raise the quality of economic life — is the work of seeding useful activity and weeding harmful activity.

Is it possible to garden clumsily and ineffectively? Of course. Wise regulation, however, is how human societies turn a useless jungle into a prosperous garden. This explains why wherever on earth one finds successful private companies, one also finds a well-regulated economy, and where regulation is absent we find widespread poverty.

Or take taxes. Under the efficient-market hypothesis, taxes are an extraction of resources from the jobs machine, or more literally, taking money out of the economy. It is not just separate from economic activity, but hostile to it. This is why most Americans believe that lower taxes will automatically lead to more prosperity. Yet if there were a shred of truth to this, then given our historically low tax rates we would today be drowning in jobs and general prosperity.

Gardenbrain, in contrast, allows us to recognize taxes as basic nutrients that sustain the garden. A well-designed tax system — in which everyone contributes and benefits — ensures that nutrients are circulated widely to fertilize and foster growth. Reducing taxes on the very wealthiest on the idea that they are “job creators” is folly. Jobs are the consequence of an organic feedback loop between consumers and businesses, and it’s the demand from a thriving middle class that truly creates jobs. The problem with today’s severe concentration of wealth, then, isn’t that it’s unfair, though it might be; it’s that it kills middle-class demand. Lasting growth doesn’t trickle down; it emerges from the middle out.

I would tend to lean toward the garden side.  Taxes are not necessarily damaging to the economy, and some reasonable and well-crafted regulations are necessary for a well-functioning economy.  I get sick of hearing about we need free markets without burdensome regulations.  That might work great if there were only 20 people on Earth, but with about 300 million people in the U.S., we need substantial regulations.