Evolutionary Economics requires three types of provisions from the government to maximize free choice in the marketplace - the effective rule of law, institutions to ensure a dynamic competitive environment, and the provision of public goods. All of these provisions are necessary to maximize the efficiency of the free market.
First, the rule of law should guarantee property rights, the right to pursue a lawful calling, the right to non-discrimination, and the general preservation of open market entry and exist. The rule of law is an absolute necessary to provide mutual trust and safety in the capitalist system. Most importantly, as mentioned in the previous section, governments should never insulate businesses from competition. Property rights allow individuals and firms the right to retain the compensation resulting from their socially-beneficial choices, as well as preserving the autonomy and incentives to make those choices.
Second, governments need to provide the necessary institutions to provide the open knowledge, communication, and necessary support to allow all citizens to comfortably participate in the collective enterprise we call the capitalist system (see Section 3). The 2007 Nobel Prize in Economics was awarded to three economists who developed innovative methods, called "mechanism design," to efficiently make sure all market participants receive the information that is required to fuel a free market transaction. Because more market particpation is a good thing, efficient public policy should also ensure the that "losers" in the competitive market enjoy a smooth transition into other, more efficient uses of their time and energy.
Third, government-backed institutions should help provide those public goods which are either necessary prerequisites to efficient participation in Western capitalist society (e.g. basic unemployment assistance, education, roads, infrastructure) or inefficiently provided by markets alone (e.g. local community preservation, environmental protection, defense). The demand for these basic public goods must be universal so that any welfare gains from a more efficient private provision of them, even if at all possible, is dwarfed by the convenience, stability and justice of their provision by the state. As a result, efficient provision of public goods helps enhance market participation and social order. (G.W.F. Hegel famously argued that welfare programs should combine private and public elements, to placate the poor and avoid a 'pernicious rabble' who feel marginalized in society.)
Of course, many citizens think that the government should provide myriad other non-public goods. However, Evolutionary Economics explains that governments should only provide those goods or services that are universally demanded - because the government provision of non-public goods (e.g. pork barrel legislation) only restricts necessary competition, entrenches special interest influence, and generally inhibits the complex evolutionary process of capitalism. Only market competition can effectively differentiate, select, and amplify options of non-public goods to satisfy the diverse tastes of humans. By restricting competition with ill-advised regulation, governments stifle innovation and create technological and social stagnation.
Robert Nozick, the greatest libertarian philosopher of the 20th century, argued that the only justified government provisions are those which could have "evolved" as voluntary associations satisfying self-interest within an anarchic "state of nature." While Nozick argued that only protection against force and fraud would have so evolved, Evolutionary Economics explains that given a certain level of wealth, a basic social safety net would have evolved as well. Where a citizen needs assistance in order to participate in creating value-added services in capitalist society, to the extent it is economically feasible, it is in the interest of every citizen to make sure he gets it. Whether in creating a more educated society or aiding job transitions, the provisions satisfy universal values. Despite what Ayn Rand's acolytes would argue, no man is "sacrificed" for another in this process; efficient government provisions are value-added for every citizen.
The welfare state is thus efficient to the extent that it promotes reciprocity and responsibility. Forcing businesses to provide health insurance is inefficient because it distorts market labor prices, but direct government-provided health care "vouchers" can efficiently help the uninsured find affordable health care in the open marketplace. Likewise, direct income assistance to the poor or unemployed is efficient and necessary to ease cyclical unemployment and help workers eventually find jobs. While most public race-based affirmative action does more harm than good, urgent policy action is needed in the American inner city to ensure equality of economic opportunity and equal protection of the laws. State-run public schools which create a government monopoly in education are inefficient - but school vouchers that allow all parents to choose which competing private schools to send their kids are efficient. It may be a thin line, but Evolutionary Economics explains that it makes all the difference.
All of these rules of free choice are very similar to the rights and freedoms traditional to the modern liberal democracy. In the end, the fundamental idea of Evolutionary Economics is the recognition of the intrinsic dignity and autonomy of every individual.
John Rawls, in his famous A Theory of Justice, argued that a just and fair society only promulgates rules that everyone would agree to, without knowing their actual place in society. He also argued that inequalities are only permissible to the degree that everyone (especially the poorest) benefit from them. Evolutionary Economics explains why a well-regulated system of free markets - giving everyone the ability to contribute to and benefit from nearly limitless value-added innovation - is the way to do exactly that, satisfying the intellectuals of the Left as well as the economists of the Right.
And now you, dear reader, have the economics knowledge to impress friends, embarrass socialists and anarcho-capitalists alike, and help to bring the universal insights of Adam Smith and F.A. Hayek to the people of America and the world. See you in the marketplace of ideas.
Stay tuned for Part II of the Layman's Guide to Economics...
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