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Vail Valley Voices: The wrong software

A number of years ago, New York Times columnist Tom Friedman made clever use of analogy, using the three elements common to all computers – hardware, an operating system and software – to compare and contrast various forms of government and their economies.

In his analogy Friedman compared “hardware” to the basic set of rules, or ideological shell around a nation’s economy. For example, during the Cold War, the world had three basic types of governmental systems or “hardware”- capitalism (free market hardware), communism (the hardware of socialism) and hybrid systems of government (governments that combine features of both.)

Friedman then likened “operating systems” to the broad macroeconomic policies of a country. Throughout the Cold War (and even today in a smattering of countries) communistic/socialistic economies revolved around central planning. There’s no free market; the government decides who produces what and when, and what it should cost. And perhaps most importantly, government decides how capital is to be allocated.

According to Friedman, hybrid forms of government make use of “operating systems” that are combinations of socialism, free markets and state-directed economics. These societies fare better than their rigid state controlled counterparts, and depending upon the degree of government involvement (or absence thereof), some governments fare better than others.

To illustrate, up until the last 15 years or so, most of China’s state-run economy was a miserable failure. But the Shanghai province fared much better because that region’s economy was more of a hybrid, which is one of the reasons the Chinese government continues to move away from the traditional communistic “operating system” and towards a more effective “hybrid” form of government.

Mr. Friedman also posited that the political-economic “operating systems” of the major capitalist nations should be sub-divided. He felt nations such as France, the U.K., Germany, Japan and the Scandinavian countries based their economies upon free market capitalism but retained significant welfare-state components, while the “operating systems” of the U.S., Hong Kong and Taiwan for example, observe purer forms of free-market capitalism.

Meanwhile, for our purposes here, we can define “software” as all of the things that fall broadly into the category we’ll call the rule of law.

“Software” includes regulatory oversight agencies, banking and commercial laws, bankruptcy rules, contract laws, business codes of conduct, an independent central bank, property rights that encourage risk-taking, processes for judicial review, international accounting standards, commercial courts, an impartial judiciary and laws against conflicts of interest and insider trading by government officials all implemented in a reasonably consistent manner.

What is particularly interesting in all of this is that the most economically and ideologically challenged nations in the world will remain challenged because their “hardware,” “operating systems” and “software” are incompatible. It’s akin to using PC software with a Mac operating system – it just doesn’t work. Russia, Iraq and Afghanistan are just three examples of nations that have struggled mightily with democracy and free markets because of this fundamental incompatibility.

So how does this relate to the United States in 2011? Back in 2008, America opted for hope and change. But two and a half years of the administration’s economic policies find housing prices continuing to weaken, an unemployment rate that increased from 7 to 9 percent and a cost of living that’s increasing exponentially. Why?

America was told that if the second stimulus wasn’t passed, unemployment would reach an astronomical 8 percent. Well, we passed that benchmark some time ago. We were told about the “shovel-ready projects” that would lift us out of recession; but wasn’t that President Obama joking and laughing with Jeffrey Immelt just last week about how those projects “weren’t so shovel-ready” after all?

No one questions the fact that the president inherited a profoundly bad economy; but what the administration won’t admit is that they have made it worse. President Obama is not a socialist, but his administration doesn’t seem to understand that you can’t combine the socialistic policies of centralized one-size-fits-all government with free market capitalism and expect the economy to function properly.

It’s unclear if any of the Republican presidential candidates have the formula for economic recovery, but it’s patently obvious the current administration doesn’t. And continuing to lay his administration’s inadequacies at the feet of his predecessor strikes many as being somewhere between disingenuous and pusillanimous.

Perhaps the administration should take its cue from Tom Friedman and consider the author’s perspicacious analogy. While the founders gave us the proper hardware (free market capitalism) it appears the administration is intent upon using an incompatible “operating system” replete with over-regulation, special interests and crony capitalism, and then further exacerbating the matter with “software” that precludes economic risk-taking and instead mires itself in policies of wealth redistribution, with Obamacare heading the list.

I may not have the answers to our economic problems, but I do know enough not to force-load a PC’s operating system onto an Apple computer.

Quote of the day: ” … Whether an economic system is capitalist, socialist, feudal or whatever, we must look at economic policies in terms of the incentives they create, rather than the goals they proclaim.”

– Thomas Sowell

Butch Mazzuca is an Edwards resident.


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