Liberty Must Be Designed

We don’t live in a free market society. We’re not going to live in one tomorrow either. Any free market reform therefore, must take this into effect. This is part of my problem with Ron Paul. When I hear him talk about what he would do as President, it seems that in one fell swoop he’d get rid of vast government bureaucracies and programs. While this could be advantageous in the long run, it’d be chaotic in the short term, akin to getting cancer to get rid of AIDs. Roger Koppl points out then that in order for free market reforms to work, they must be designed.

Those of us who love liberty and fear the state support “deregulation.”  We want to unwind the bramble of regulations constraining the dynamic entrepreneurial economy.  But we have not thought enough about how to unwind the unwieldy regulatory apparatus of the current system.  It is one thing to show how a “truly free market” wouldwork.  It is quite another to show how to get from the current regulatory mess to something we are happy call a “free market.”

Most economists agree, for example, that licensing restrictions for physicians serve doctors better than patients.  There is less agreement on what to do about it now that we have it.  Simply lifting all restrictions immediately seems likely to create a “transition period” in which quacks and charlatans would prey on innocent patients.  The market would eventually work out mechanisms to ensure that we all get good care, but how much harm would be done in the “adjustment period” of the economist’s blackboard model?  We need to unwind it, but we don’t know how.

The California electricity crisis of 2000 and 2001 gives us a real-world cautionary tale.  As Nobel laureate Vernon Smith has explained, the problem was not so much “deregulation” as badly designed deregulation.

Transition Russia illustrates the dangers of undersigned deregulation.  The collapse of the Soviet system let to a kind of “free market,” but one that had not been designed in advance.  The result has been a “demographic disaster” marked by declining life expectancy.  You might object that Russia did not have a “true” free market any more than Stalinism was “true” socialism.   But if you don’t design liberty, that’s the risk you run.

Which brings me to my plea.  I would ask my fellow lovers of liberty to do less complaining about the evils of state control and more designing of markets and of the other institutions of a truly free society.