Almost right, but then he blew it

Mike Rosen presents a daily radio show and write a punchy comment column for Rocky Mountain News, Denver, USA.

Last week he almost wrote a piece that could have been a strong candidate for monthly The Adam Smith Solution prize. Below I give four selections from it. The first two paragraphs are right on the money (as US newspaper columnists put it):

“A market economy is based on incentives. The prospect of financial reward is what motivates most people to work, save and invest. There's nothing particularly ingenious about a system that recognizes this. It's intuitive. In The Wealth of Nations, Adam Smith didn't invent an economic system; he merely observed and analyzed what people do naturally when left to their own devices.”

and

“When you impose penalties and restrict rewards on economic activity - such as by excessive taxation - however noble your motives, there are consequences. You get less work, savings, investment and output. If that weren't the case, we could tax ourselves rich.”

And then he rains on his own parade (a favourite cliché of US news reporters):

“Adam Smith summed it up nicely, more than 200 years ago, when he observed that in a market economy, people pursuing their own prosperity are inadvertently moved as if by an "invisible hand" to promote the interests of society as a whole."

Oh, no he didn’t (a traditional Scottish Pantomime routine)!

Apart from the generalization of the single use of the metaphor ‘invisible hand’ into ‘people pursuing their own prosperity’ (Smith referred in his single use of the metaphor in “Wealth of Nations” to merchants preferring to sell in their home market to selling abroad as an example of the unintended consequences of the merchants’ preference aiding national economic growth), he never used the words ‘as if by’.

Nor did he imply that that every inclination that promoted one’s own prosperity would necessarily ‘promote the interests of society as a whole.’ Individual actions could also have negative consequences for society. For example, the inclination of “merchants and manufacturers” to promote local monopolies for themselves, to raise prices and thereby profits at the expense of other activities of benefit to society.

This common error cost Mike his otherwise winning chance for the monthly prize. However, he did end with a paragraph that complements the other two quoted above:

“They do this by creating wealth - for themselves and, in the process, for others. Any society that becomes obsessed with restricting the accumulation of personal wealth will destroy initiative and creativity. The way the world works, if you want the poor to get richer, you have to make it possible for others to get richer, too.”

So well done, Mike, but keep working on what Adam Smith actually said, not what is endlessly repeated in US Economics 101.

Mike column can be read at:
www.rockymountainnews.com/drm/news_columnists/article/0,1279,DRMV_86_3809614,00.html/