The Wonder of Economic Freedom By David Henderson

Like fellow blogger Alberto Mingardi, I appreciate Jeffrey Tucker’s writings on the “marvels of a free market economy.” The other person I would put in the same category is Don Boudreaux over at CafeHayek. And another blogger who contributed mightily to that genre but who seems to have abandoned it is Brad DeLong. Indeed, I use his NBER study Cornucopia in an Executive MBA class that I teach.

Partly because of Tucker and Boudreaux, partly based on my own optimistic attitude, and partly based on my own experience, I also appreciate, and like writing about, the wonders of economic freedom.

There are so many margins on which so many products and services are improving. As Don Boudreaux likes to point out, although each one of these improvements is small, when you put them all together they are a huge improvement. And, of course, the main reason for these improvements is the pursuit of profits in a somewhat-free market. In the first day of every class I teach, I hand out my Ten Pillars of Economic Wisdom. Pillar #2 is that incentives matter. Pillar #10 is that competition is a hardy weed, not a delicate flower. Those two go together in this context. As Schumpeter pointed out so eloquently in Capitalism, Socialism, and Democracy:

But in capitalist reality as distinguished from its textbook picture, it is not that kind of competition [price competition] which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance)-competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives. This kind of competition is as much more effective than the other as a bombardment is in comparison with forcing a door, and so much more important that it becomes a matter of comparative indifference whether competition in the ordinary sense functions more or less promptly; the powerful lever that in the long run expands output and brings down prices is in any case made of other stuff.

So, for example, the big competitor to the horse-drawn buggy was not a lower-price horse-drawn buggy; it was the automobile. The big competitor to mail was the fax. The big competitor to the fax was e-mail.

And those are big changes. There are also little changes that matter. I travel a lot and stay in hotels a lot. Almost every hotel I stay in now has a bowed-out shower curtain rod. That’s a small improvement that makes a shower much easier. I also watch TV a lot: public policy programs, sports, The Good Wife, and some comedy shows. There was always a tradeoff between watching the show completely and doing chores such as putting the dishes in the sink and dishwasher, feeding our demanding cats, and cleaning the cat box after one cat in particular left a smelly deposit. In the “old days,” we could tape the show on the VCR. But then you had to wait until the tape was done before watching. Now we can just pause and clean the kitty litter. Normally, we catch up before the show’s end by fast-forwarding through the commercials.

Or think about paying bills. I bought a couple of hundred stamps at Costco early last year. I still have most of them left. This year I switched most of my bill paying over to the Internet. One advantage is that I can time payments with pinpoint accuracy so that when I know a check will be deposited to my account on x date, I can, on day x+1, pay a bill that’s due.

And who really thinks that those little changes on all those margins show up in GDP? Most of them probably don’t.