The American author F. Scott Fitzgerald wrote, “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.” 1
One of the great joys of my life has been to return to the classroom as a college instructor. And as much as I am asked to educate young minds in the field of economics, I believe my chief responsibility is to impart the beauty of complexity.
Students want answers. That is not just because they want good grades and a leg up in their job search, as pragmatic as those aims may be. Rather, in my view, it is because students come to college with the expectation that professors have answers. Yet despite the rigors of academia, augmented by life experience, we generally don’t. The closer we look, the more we read, and the more we contemplate, the more we recognize the complexity that defies the kind of absolutes implicit in easy answers.
Complexity often surfaces in apparent contradictions. For example, libertarian ideals of free markets—lauded by Hayek and Friedman—can only be achieved with the help of government.
What is, after all, a market if not an exchange of property rights? And only laws, designed by government, can establish and protect property rights. Taken literally, Ronald Reagan was incorrect: Government is not the problem…even if bad government can be the source of many problems. 2
But once government is established, hopefully with the intent to foster individual liberties and protect property rights, it must also serve the people. But what does ‘serve the people’ mean? Surely, we neither want a tyranny of the majority nor a cabal of an empowered minority, for either would infringe on individual liberty.
Nor is the preservation of all property rights absolute. Otherwise, slavery would be permissible.
Taxation would also be impossible, without which the government would not have the means to enforce property rights or defend individual liberties.
When we have a government, reasonable people should debate its limitations. We might find broad agreement that excessive regulation, unlawful wars, wasteful spending, policies that create perverse incentives, or excessive taxation are best avoided. We could agree that the rule of law, national defense, protection of fundamental liberties, and the promotion of equal opportunity are legitimate activities of government. But we should also strive for informed civil discussion about the potential need for government to redress inequality, provide single payer healthcare services, or prevent monopoly abuses.
Hayek famously extolled the virtues of free markets. Quite rightly so. No human endeavor has ever lifted as many people from abject poverty and mass starvation as free market capitalism.
But still, that stupendous accomplishment cannot blind us to the failings of free markets.
First principles of economics tell us that markets will fail if relevant information about products and services is not fully available and equally shared by all participants, when externalities—such as pollution—are a by-product of economic activity, when property rights cannot be established (‘the commons’), or when a few actors gain market dominant positions.
In all those cases, producers, consumers, innocent bystanders, and society overall can be harmed, sometimes in life-threatening manner, by the operation of free markets.
Climate change, the proliferation of guns, noise pollution, the gross inefficiencies of the US healthcare system, the depletion of wild stocks of fish in the oceans, and recurring financial crises are merely some of the best-known instances of the failure of free markets to serve humanity. Market failure is so common that many economists consider the ideal case of ‘Pareto efficient markets’ the exception, rather than the norm.
It is doubtful that President George W. Bush will go down in history as one of America’s most articulate presidents, but when confronted with the need for a massive government response to the 2008 financial crisis he quipped: “I had to abandon free market principles in order to save the free market.” 3
Quite right.
To return to President Reagan, we must recognize that often government is the problem. The roots of the aforementioned financial crisis reside in both the inadequacies of finance (above all the asymmetric information between borrowers, lenders, and buyers of complex financial securities) and in government policies that pushed banks to lend to those unable to grasp or afford the mortgages offered to them, often by unscrupulous lenders.
Human beings love simplicity and order. Most prefer a perfectly mowed lawn to a wild meadow, with all its weeds.
But life is nature. In looking for simple answers—or worse, easy villains to blame for what goes wrong—we all too often suppress the realities of complexity.
Much is made of today’s ‘snowflake culture.’ Yet among my students, I have found few that are so sensitive that they cannot come around to accepting the discomfort of a world that can’t be neatly ordered.
Ideology, along the political spectrum, rarely survives scrutiny because it cannot abide the complexity of the human condition.
On the last day of class, I tell my students what I told them on the first day of class:
- The brain is like a muscle—it is made stronger by exerting it to the point of pain. But also allow time for rest and recovery.
- Accept that individuals and groups of individuals do not always, or even mostly, behave rationally. We are guided by reflexive responses, emotions, and our cumulative experience as much as we are by well thought-out reasoning.
- Life is messy. Embrace its messiness. Marvel at the beauty of complexity.
- And, above all, leave your world a bit better than you found it.
Larry Hatheway teaches undergraduate economics at Fairfield University, as well as undergraduate and MBA economics at the University of Wyoming.
1 Fitzgerald, F. Scott, “The Crack Up’, published in Esquire, 1936.
2 “Government is not the solution to our problem. Government is the problem.”, as quoted from President Ronald Reagan’s 1981 inaugural address.
3 https://www.cnbc.com/2010/11/22/an-animated-conversation-with-former-president-george-w-bush-the-transcripts.html