A book I recently read—Jeff Madrick’s book entitled Seven Bad Ideas, subtitled “How Mainstream Economists Have Damaged America and the World” (see suggested readings)— along with the excellent Ken Burns TV series on the Roosevelts, have gotten me again thinking about economic theory and its effect on products. Mainstream economists disagree, of course, but there is wide acceptance of theories that conclude that economics alone can result in good societies. One is Adam Smith’s theory of the Invisible Hand – that buyers and sellers will converge on the ideal price for a good or service with no input from outside agencies such as governments. Another is Says Law, which states that supply creates its own demand and has been around for two hundred years, even though major economists, such as Keynes, have put major effort into demonstrating that it does not work in modern society.
A more contemporary figure that was extremely influential, and who subscribed heavily to pure capitalism with minimum intervention from government, was Milton Friedman, who Madrick vilifies repeatedly in his book. He also emphasizes the many positive effects of government funding (massive support of research and development) as does the Roosevelt series vis-à-vis such programs as the Works Progress Administration (WPA), which produced major infrastructure works as well as supporting artists, environmental work, and other socially valuable projects and products that would not have happened if dependent on pure capitalism itself.
From my position at Stanford University in Silicon Valley, it seems as though a great number of students and people are captivated with entrepreneurship and start-up companies. That is good, but most of the start up companies I hear about and see are focused on making money for the founders and investors, and may or may not add a great deal to society. The sale of WhatsApp, a then small software company, to Face Book for $19 billion certainly had economic ramifications, but what does it add to the quality of life in the U.S.? On the other hand, many highways and other roads in California seem to be falling apart, and I meet few people who talk about starting a company to repair roads. Neither does pure capitalism seem to care much about preserving the environment, global warming, or aid for the poor.
Faith in the market and such things as supply and demand curves simplify thinking about money and perhaps national economies, but modern economies are not simple. Madrick points out that perhaps different cultures and countries in various stages of development may need devices that bias the market—tariffs, local incentives, and other such things that are anathema to those who believe in the “free” market . And products may be economically successful, but perhaps not important. I was reading this weekend about two apps that tell the owner how often she/he use their smart phones each day. Economically successful, and perhaps an aid to breaking overly time-consuming habits, but ????????