Cowen on business and imperfections
I’m reading Tyler Cowen’s Big Business: A Love Letter to an American Anti-Hero and I can’t but agree with David Henderson: “the book is outstanding. There are valuable facts and/or bits of economic reasoning on virtually every page”. The book is written for the cultivated layperson and aims to address her concerns, to play with the wrong ideas she entertains and offer a better way to understand the reality that business is.
By reading the book, you sense how Cowen has been thinking about these matters for years; he knows inside out the arguments used by the anti-market forces as much as the ones typically waged by those who are friendlier to a market economy. He has mulled over the anti-business rhetoric for quite a while.
The message of the first chapters is powerful and will shock anti-business people if they ever come to read the book. Business “makes most of the stuff we enjoy and consume” and is “what gives us most of the jobs”. It makes for a big part of our lives, and of our identity too: though some of us seem to forge their identity in their reproach of business.
Are critics of business always wrong? Certainly not. Cowen makes a cogent point: business is imperfect, fraudulent and rotten, yes, but because so are we. No fault of the market system is other than a fault of our being human- the readers of EconLog much less than anybody else, but still we’re imperfect. On the other hand, some institutions have the power to unleash the best of us while restraining the worst. The profit motive allows us to join larger and larger chains of cooperation, thereby satisfying a growing number of our needs and wishes. But we have difficulties to understand it, because it works in ways that are not consistent with the simpler, more straightforward, more easily intelligible realm of human relations we all live in. Larger chains of cooperation make “most of the stuff we enjoy and consume” but never win our sympathy.
Here’s a quote:
So many of the problems with business are in fact problems with us, and they reflect the underlying and fairly universal imperfections of human nature. Yet we respond to this truth somewhat irrationally. While we suspect business of wrongdoing, at the same time we expect corporations to give us jobs and take care of us, to give us a network of friends, to solve our social problems, and to give us risk-free consumption experiences.
This is another way of saying we judge companies as we might judge a person, sometimes even a family member: in terms of connection and standards of integrity. This is a mistake, because corporations are legal constructs and abstract entities, and they do not have purposes, goals, or feelings of their own. We would do better to think about the proper role and function of the corporation in the social and legal order, and how the behavior of companies can create jobs and produce goods and services. But precisely because we tend to judge corporations by the standards we use to judge people, it is hard for us to accept the partially venal or sometimes amoral pecuniary or greedy motives operating behind the scenes, and so we moralize about companies instead of trying to understand them.
Apr 27 2019 at 11:48am
And this marks the exact spot or one of them where Cowen fails to consider how we might through taxes, subsidies, regulation, or reassignment of property rights mitigate those problems. But of course this requires a very fine grained response not one based on loving business more or less.
Apr 27 2019 at 3:53pm
I suspect your response is correct. But also naively utopian.
The utopian flaw is in expecting the politicians who enact these “taxes, subsidies, regulations, (and) reassignment of property rights” to be more inclined to virtue than the business people we need to guard against.
I am suspicious of both, but I suspect that the business person is under greater pressure to maintain his/her reputation for fair dealing. Almost all business is repeat business, and is dependent on the customer (or supplier)(or worker)(or lender) being willing to do business with you again today. If their dealings with you yesterday had worked out badly, they would likely look for another firm to do business with, leaving the business that (they believe) cheated them out in the cold. Businesses have to compete for the trade of those customers / suppliers / workers / lenders. Governments don’t.
If you feel you have been mistreated by your government, you have little recourse. (Except, of course, to vote with your feet. Which explains all of those people trying to get out of Guatemala and Venezuela. Not to mention Connecticut and Illinois.) Add to this the motivations of those who enter business or politics. Those who enter business generally want money — and can have mine if they offer me fair value for it. Those who enter politics generally want power. Over others. It is the natural calling of the bully.
I think you are trusting people who got into this field because they like power over others to not abuse that power once you’ve handed it to them. (Or is it your position that Donald Trump should have more influence over your life & society?)
Apr 28 2019 at 10:24am
If my position, that public policy can mitigate problems with how the economy works is “utopian,” is yours, that it cannot, “panglossian?” 🙂
Apr 30 2019 at 12:53am
Thank you for bringing up Dr. Pangloss. It pushed me to try to get better educated about him. (Although my major conclusion was that Liebniz didn’t deserve the mocking Voltaire gave him. And that Voltaire either didn’t grasp — or refused to fairly present — what I think Liebniz had said. I think he said there was only one science / one truth. And in a cause-and-effect world, this was the only possible reality. So yes, it was the “best”. It would simultaneously be the “worst”. It was the only.)
I think we’re entangled in our words here: Pangloss is a mocked figure because of his (supposed) unshakeable optimism. Part of my confusion comes in your labeling my view as panglossian when your position would seem much more optimistic than my own.
Or perhaps we’re closer together than we think.
When Pangloss proclaims this to be the “best of all possible worlds,” is the emphasis on “best” or on “possible”? It is certainly not the best of all imaginable worlds, but it may be the best of all possible ones. As the old joke goes, “The optimist thinks this is the best of all possible worlds. The pessimist is afraid the optimist may be right.”
And I’m a coward about getting into the weeds of whether free-will exists or not.
Apr 29 2019 at 6:06am
You put the best solution at the wrong end of the list. With proper definitions of property rights, then human nature and Coasean bargaining obviates the need for the first 3 options in your list.
If transaction costs are too high, then they are too high. We will have to wait or We (the people, not We the government) will have to work on technology that lowers transaction costs (which is happening all the time).
Apr 29 2019 at 9:27am
Thaomas prompted me to defend an ideology of freedom against an ideology of pragmatism.
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