A Different Way of Thinking
In the Appendix of his dystopian novel 1984, George Orwell explained:
The purpose of Newspeak was not only to provide a medium of expression for the world-view and mental habits proper to the devotees of Ingsoc [“English Socialism” in Newspeak], but to make all other modes of thought impossible.
We are not there yet, but in The Fatal Conceit (University of Chicago Press, 1988), Friedrich Hayek wrote expressed a related idea:
The inadequacy of the terms we use to refer to different forms of human interaction is just one more symptom, one more manifestation, of the prevailing, highly inadequate grasp of the processes by which human efforts are coordinated.
A story in the Financial Times illustrates how approaches that are not informed by economics and methodological individualism produce faulty interpretations of reality and policy proposals. The story reports on the fear that, responding to the reduced gas supply caused by Vladimir Putin’s government, the German government, by supporting its businesses and consumers, will harm poorer countries (“EU Leaders Fail to Reach Deal to Cut Energy Prices,” Financial Times, October 7, 2022):
Italy and several other countries squared off against Germany at a summit in Prague on Friday, in a spat that mirrors clashes from past crises. Heavily indebted countries fear that their wealthier neighbors will gain an unfair edge by supporting their businesses and consumers.
Although this paragraph may not look like Newspeak, nearly everything there is strange. It is not “countries” that subsidize and clash, but their governments. Someone insisting that a country is the same as its government should be puzzled by a statement such as “this country has nice mountains.” If the “country” is viewed instead as composed of all businesses and consumers, that is everybody, we cannot properly speak of “its” businesses and consumers without a self-referential nonsense: businesses and consumers support their businesses and consumers. Finally, a state s that subsidizes “its” businesses and consumers in country S does not harm the individuals in country P, except in the very indirect sense that making individuals poorer anywhere reduces other individuals’ opportunities for exchange.
On this last point, consider the following. If the German government subsidizes some German energy consumers with the money (the resources) of some German taxpayers, this is merely a transfer: it makes some Germans richer and other Germans poorer (plus some deadweight loss caused by taxation). But if German taxpayers are obliged to subsidize some German energy businesses, the increased production of the latter and the resulting lower price of energy can only benefit energy consumers including those in other countries.
So why would an Italian worry about German taxpayers subsidizing German energy producers and thus, indirectly, Italian energy buyers? Don’t Italians and Frenchmen and many other individuals usually love to be subsidized by somebody else? The only rational reason for Italian wrath would be if the German government also forbade German energy producers from exporting their products to Italy, that is, established actual trade barriers around Germany.
If, as Eurocrats do, we extend the concept of “protectionism” to whenever a state in the world internally redistributes money or makes its own subjects poorer (say, through deadweight losses), we have to find another word for what used to be called “protectionism,” that is, your own government forbidding you to import or export or do it at terms it does not like. (See my EconLog post “Taking Comparative Advantage Seriously,” November 17, 2017.)
Non-sensical ideas often don’t come alone. From the first FT story cited, we learn more about Eurocrats’ and politicians’ thinking:
One area of convergence appeared to be a growing interest from member countries in working together to negotiate better prices for gas, some officials said, an approach the EU has previously suggested as a way to boost its collective bargaining power and avoid having countries bid against each other.
This project is actually being pushed by the European Commission (“EU Looks to Enforce Mandatory Co-Operation on Gas Purchases,” Financial Times, October 11, 2022). But what could it mean for “countries” to bid against each other? If it means anything, it is that rulers of each country do the bidding over and above the heads of their individual subjects. On a free market, on the contrary, a German person bids as much against other Germans as against Italians. He can stop his implicit bidding if he wants to, and he will simply not get the stuff, which goes to individuals who pay the bid-up market price. A free market is a continuous auction where every individual is equally free to bid. If the countries’ rulers create a cartel of states to do the bidding, it will still be over and above the head of their respective individual subjects. Moreover, since all European utilities and businesses (including those outside the European Union) consume only 14% of the world production of gas, it is not sure that the cartel would have enough market power to push down prices significantly.
Going back to the first quote, we may add that if the politicians of poor countries had not pushed their governments into debt in order to bribe their voters with apparently-free goodies, other countries could not now “gain an unfair edge”—even assuming that shuttling money inside Germany or subsidizing some German producers gave Germans any edge over non-Germans. And I haven’t talked about the price controls that the German government will impose, like other European governments already do and like the EU government is pushing at its level (I mentioned this problem in a recent post).
All that suggests that a different way of thinking is sorely needed.
(Featured Image: Wikipedia Commons, https://en.wikipedia.org/wiki/File:Le_penseur_de_la_Porte_de_lEnfer_(mus%C3%A9e_Rodin)_(4528252054).jpg)