Pesky democracy interferes with market

Outside of North Korea, there are few who really suffer from “a lack of understanding of the role of profits in the functioning of the economy”, despite what Judith Sloane imagines (‘Profit is not a dirty word when it generates economic growth and raises living standards’, The Australian, 27/12).

But what does not follow from this is her contention that only unregulated profit-seeking is effective in “promoting efficient use of resources and ensuring resources are directed to their most productive ends”. This is wishful, naive 19th century economics, which has been thoroughly debunked by modern theory, and by the observable facts: while economic systems undeniably find their own equilibria, these may not be optimal for the participants, and for some may be disastrous. That is why regulation is necessary, why it is often called for by the electorate, and why laws which, say, restrict bank exit fees are not qualitatively different from laws against theft.

To mock, as Sloane does, the notion that “governments can decide on the social and economic outcomes they see as desirable…, and a combination of laws, regulations and jawboning will ensure these are achieved” is to mock democracy itself.

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