Number 35 - January 2000
Economic Ideology and Reality
Ideology is a commitment to certain assumptions or policies without regard to whether they
achieve intended objectives. Ideology tends to classify certain people, groups or institutions
virtuous, while considering other evil.
Ideology is behind much in public policy. Concepts of good and evil are pervasive in public policy.
For example, labor is considered to be good, but employers are considered to be evil; government
is considered to be good, but business is considered to be evil. In the extreme, economic activity is
viewed in terms of exploiters and exploitees -- the good are exploited by the evil.
- Business has been characterized as evil. The popular conception of the competitive market
is negative. Part of this perception derives from the misconceptions that businesses are able
to manipulate prices without losing sales, and that businesses exploit labor. In a competitive
market, consumers are the prime beneficiaries. The ideological view of the competitive
market is behind frequently occurring proposals to "make business pay," -- when in fact,
virtually all taxes are ultimately paid by consumers.
- Labor has been characterized virtuous -- as exploited by business. Rooted in "class struggle"
ideology, the foundations of US policy portray business as evil and labor as good. It is
assumed that employers exploit powerless employees by paying the lowest possible wages.
It is assumed that that companies make excessive profits, which can be freely redistributed
as higher wages to employees. But the employee or labor union that seeks a higher wage is
not morally superior to the owner who seeks higher profits. Both endeavor to improve their
own economic situation, as each would do if they exchanged positions. Both seek to highest
return on their resources.
- There is a naive view (sometimes an ideological view) that profits are evil -- that profits raise
the prices of goods and services to the consumer. But profits are the incentive behind
investment. Higher profits encourage greater investment, which encourages more human
economic interaction and creates greater wealth. Profits are not simply consumed, they create
new investment and provide incentives to sustain investment. Investment creates and sustains
jobs. It produces taxation to support government activities.
- The popular conception of government is favorable. Part of this perception derives from the
assumption that government is driven by a public service ethic, that public purposes are the
incentive behind all government activity. But, government services, regardless of initial
intent, often fail to achieve their objectives and cost more than necessary. The problem is the
incentives of government. The pro-government ideological conception of government is at
odds with the practical impact of government in the economic sphere.
People are not good or evil, their actions are generally in response to the incentives they face. In
general, people prefer a higher economic standard of living. They prefer affluence over poverty and
comfort over discomfort. People interact economically to improve their standard of living. Producers
and consumers alike respond to economic incentives (potential rewards) and act in ways that they
perceive will improve their economic situation.(1)
Ideological notions are dangerous because they pit segments of society against one another. This
not only corrupts the democratic process, it creates economic inefficiencies. Invariably, a new
privileged group or class emerges, to the disadvantage of other groups and classes.
Economic ideology is expensive. It limits opportunity and destroys human creativity thereby placing
artificial limits on job creation and economic growth.
The competitive market serves the people. In spite of anti-market ideology, the competitive market
serves the interests of people. The competitive market achieves its public purpose of service to
consumers by producing jobs and economic growth. Consumers are sovereign -- they are the masters
of the competitive market.
Economic policy should be evaluated based upon reality, not ideology. The success of an economic
policy does not result from the intentions of its advocates. Economic policies are successful only if
they serve their public purpose -- consumers. Pragmatism -- whether or not policies work in reality
-- is the test.
Note
1. Economic motivations vary based upon personal values. Economic values may displace all
other values -- the burglar seeks economic gain, even by illegal means. Economic values
may be relatively unimportant, as in the case of people who dedicate their lives to voluntary
service to the disadvantaged. However, most people fall in the middle. Economic
motivations are important, but not all encompassing. In general, people tend to seek
improvements in their economic situation.
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