Politics vs. Economics
I’ve been meaning to do a post on FLG’s liberal/conservative time horizons theory for awhile, but haven’t gotten around to it. In the meantime, partly inspired by Jonathan’s post yesterday on the yuan, FLG has put forth a separate time horizons theory about the difference between politics and economics, which I think provides a useful way of thinking about markets vs. politics.
Basically, FLG views politics as short-term and economics as the long run. What he means by that is at the end of the day underlying financial and economic forces win out. So, policies aimed at mitigating the unpredictability of economic and financial forces, pretty much the central tenet of progressive economic policy, are bound to fail.
Now, the obvious response from anti-market, pro-government, or pro-regulation folks is to say markets fail too. That’s true. But implicit in the market mechanism is an inherent fluctuation. Everybody knows that prices fluctuate with supply and demand. Sometimes there’ll even be a huge swing. But it’s all sort of baked in there. The very idea of government involvement is to take that fluctuation out of it, which creates a bunch of problematic assumptions and incentives if the policy cannot hold.