If economics is finally a science, what, exactly, does it teach? With the help of Columbia University economist Pierre-André Chiappori, I have synthesized its findings into ten propositions. Almost all top economists—those who are recognized as such by their peers and who publish in the leading scientific journals—would endorse them (the exceptions are those like Joseph Stiglitz and Jeffrey Sachs, whose public pronouncements are more political than scientific). The more the public understands and embraces these propositions, the more prosperous the world will become.The list is
- The market economy is the most efficient of all economic systems.
- Free trade helps economic development.
- Good institutions help development.
- The best measure of a good economy is its growth.
- Creative destruction is the engine of economic growth.
- Monetary stability, too, is necessary for growth; inflation is always harmful.
- Unemployment among unskilled workers is largely determined by how much labor costs.
- While the welfare state is necessary in some form, it isn’t always effective.
- The creation of complex financial markets has brought about economic progress.
- Competition is usually desirable.
When looking to the future, Sorman writes
In the future, the threat to the beneficent influence of economic science will come less from tired socialist revolutionary rhetoric than from new dangers, such as terrorism and epidemics. Terrorism is, in part, a consequence of globalization: young, uprooted people unable to adapt to a dynamic, capitalist world invent new global ideologies and seek to put them into practice with global weapons. Globalization can also accelerate the proliferation of deadly illnesses. The AIDS epidemic was the first global attack by a mutant virus; SARS, avian flu, or some unknown illness could follow, surging from uncontrolled Chinese, Indian, or African backwaters and following the massive migrations of a global economy. Terror and epidemics could both unleash political upheavals that would undermine the market order itself.Sorman see another danger in the very nature of economic systems: the cyclical nature of growth. While he thinks that recessions on the scale of the Great Depression are less likely to happen today because the political mistakes that aggravated it, such as protectionism and the drying-up of credit, aren't as likely to be repeated in the future, he does see smaller crises as being inevitable. Such problems are bound up with innovation and the forces by which the new drives out the old in periods of creative destruction. Similarly he argues that free trade will mean that some people will lose their jobs, that foreign competition will wipe out entire companies or even entire industries. Sorman points out that
Then there’s the fear of ecological disturbances, which could result in incoherent policies that wouldn’t necessarily diminish risks to the environment but might prevent development and thus harm the interests of the poorest peoples. One example: prohibiting genetically modified organisms—which, evidence suggests, pose no threat whatsoever to the environment—will hurt the productivity of farming at a time when global demand for food will grow.
We all know it because, as Friedman argued, layoffs and closings get disproportionate media coverage. Meanwhile, nobody talks about the ongoing reduction in prices for consumers and investors, scattered among a huge number of beneficiaries. That helps explain why politicians are prone to deride free trade and voters are too often ready to agree.Sorman goes on to say
To help the losers in the free market, government shouldn’t back away from either free trade or creative destruction and start subsidizing doomed and obsolete activities, a protectionist course that guarantees only economic decline. Instead, it should help the losers change jobs more easily by improving educational opportunities and by facilitating new investment, which creates more employment. An essential task of democratic governments and opinion makers when confronting economic cycles and political pressure is to secure and protect the system that has served humanity so well, and not to change it for the worse on the pretext of its imperfection.Sorman closes this piece by noting that one of the hardest ideas to translate into language that public opinion will accept is the fact that even the best of all possible economic systems is still imperfect. Markets are one of the many human institutions that are the result of human action, but not of human design. But they are based on people and without perfect people you are unlikely to get perfect markets. But for all these imperfections, we have yet to find a better economic system.