I’m teaching a principles/intro class this quarter (for the first time in longer than I care to remember!), and my students are all very clear on a concept that I’m afraid President Obama has forgotten … or at least that his rhetoric contradicts: economic activity is not a win-lose relationship. Using language like “America can win again!” runs directly counter to the fundamental basis of economic activity, and the fundamental reason why economic activity has created the amazing, unprecedented degree of growth and increases in living standards that we’ve experienced over the past two centuries.
What is that fundamental concept? Economic activity is grounded in mutually beneficial, voluntary exchange, and thus creates gains from trade.
Despite my long history as an athlete, I object strongly to President Obama’s win-lose rhetoric as applied to economic activity. It’s inaccurate, and it stifles widespread understanding of the mutually beneficial, cooperative, voluntary relationships that are essential to prosperity. It’s a metaphor he and his speechwriters should leave on the basketball court.
But it’s a metaphor that plays into his strategy to support taxpayer-funded government spending on such things as renewable energy, because the win-lose sports metaphor requires (however implicitly it’s stated) some form of central direction — a coach, a quarterback. In this vision, the economy needs guidance to “win!”, and of course President Obama will argue that such guidance can only come from experts, particularly “public-minded” government experts.
Studying economics shows just how flawed that vision is. The dynamics, the feedback among decentralized buyers and sellers in markets, have over time produced unprecedented growth, and have done so most successfully in situations in which such central direction is limited. Perhaps we principles of economics instructors should send President Obama a copy of I, Pencil (pdf) … or at least send him Milton Friedman’s discussion of it from Free to Choose:
UPDATE: Thinking about it more on the train on the way to work, I think it’s fair to say that one individual, or country, doesn’t “win” economic activity, but that we generally “win-win-win” through generating gains from trade. President Obama’s rhetoric misses that crucial point.