If you accept evolution, you must oppose over-regulation of the economy

Liberals and conservatives unite!

Posted May 31, 2009

Political liberals and conservatives butt heads on several topics: the size of the welfare state, teaching evolution in the schools, and the amount of economic regulation. Actually, these are all same issue. Political bulwarks notwithstanding, those on both sides of these issues often reveal ignorance of their commonalities. This is one cause of obstinate political conflicts.

Here's the resolution: biological systems are complex, nonlinear, and adaptive. This irks social conservatives because such a system has no place for a God who is intervening in life's daily activities. No one is in charge in biology. Creatures mutate and those that are more successful at leaving offspring increase their number. If a mutation is detrimental, creatures with it leave fewer offspring and may become extinct. Competition for scarce resources drives this effect so plants and animals evolved to use resources efficiently. Call this biological creative destruction--species adapt or disappear.

The laws of biological evolution apply directly to that human brainchild, economic trade. Businesses that adapt to customers' needs better use their scarce resources more efficiently and "reproduce" faster. This drives out less efficient companies. Think Wal-Mart. And Google. These initially mutant forms either survive and increase their market share or go extinct. Just as with biological creatures, even successful businesses face competitive pressure from the next innovative mutant business. No one is in charge. Call this economic creative destruction. This irks liberals because it shows that no one can or should direct the economy.

Just as a mouse with two legs is less well-adapted to its environment than is a four-legged mouse, a business that cannot survive a recession is not well-adapted to its environment and will go bankrupt. When an animal dies, its remaining energy is recycled as food for predators and insects that consume it. In the same way, the physical and human assets of a bankrupt business are recycled into companies that are better adapted to their environment. Scarce resources drive adaptation and efficiency. If we bailout losing business, we don't allow resources to be recycled to better uses, driving efficiency and adaptation.

Yes, if you have lost your job during this recession it is awful. But, new jobs are created every day and these can be found. Bailout out failing firms is analogous to using scarce biological resources to save the two-legged mouse. One could do this, but this is just throwing good resources away--this will not stop the mouse's inevitable end due to maladaption. Regulation undergirds economic exchange and is necessary, but having government officials micromanage businesses ignores the wisdom of millions of people voting with their wallets every day. The opinion of the millions will always win out.

In fact, "bailouts" are much worse than just wasting resources. Without scarce resources to drive competition, there is no incentive for people to think of new and better businesses. No failure, no innovation. It is innovation that increases living standards. Raising incomes gives us greater ability to reduce hunger, disease, infant mortality, and improve education. Higher incomes also increase trust in other people, and raise our happiness (e.g. see my research on this here).

The main point is that there is no free lunch: resources are always limited and biological and economic adaptation is driven by scarcity. Just as no one controls biological evolution, no one controls economic evolution. There are substantial costs of trying to over-regulate the economy, both in higher taxes but also in reduced innovation and lower living standards. Seeking to manage all economic transactions has been tried in the Soviet Union (and Communist China, and North Korea and Cuba, etc.) and these failed spectacularly because of the lack of adaptation and innovation. Totalitarian economic models are counter to our human nature of exploration, self-direction, and reciprocity. The imposition of over-regulation violates not only the human desire for self-determination, but also the physical laws that govern all of life.