FREE MARKET MACROECONOMICS—ALL YOU REALLY NEED TO KNOW IN 30 SECONDS
An often overlooked fact of pure free market behavior only adds fodder to my contention that there would be little of particular use for me to say in a discussion of "markets and management." Markets have an uncanny and nasty habit of doing things that were not expected or anticipated; it would be the likely case that almost anything I say would be shallow or simply moot. The whole idea of market risk is a direct acknowledgement of this. People are innovative, and innovation, by definition, is "outside of the box" and hence does not yield predictable results. Entrepreneurship, the acceleration of technological achievements, and the resulting advances in communication and the spread of all forms of knowledge create a soup of unknown digestibility. Things are changing, and what those changes portend make our future both exciting and risky. So, if I were to focus on our economy as a "free market," it would be proper to end this chapter here with a salute and a heartfelt earnest set of best wishes on your ongoing voyage.
A CHANGE OF PARADIGM
Fortunately for me, the critical assumption in the foregoing discussion is false: the economy within which managerial decisions are and will be made is becoming less and less legitimately characterized as a "free market." Recognizing the fact that government is playing an ever-increasing role in the economy changes the paradigm in significant ways. Unfortunately it is predictable that the expansion of government's activity in the economy will yield a whole new slew of unintended consequences that will both increase risk and decrease overall productivity and the well-being of our citizens. But it also presents new opportunities for those savvy enough to identify how the game is fundamentally changing and act accordingly. Therefore, the bulk of this chapter will be devoted to the topic of "The Economy, the Government, and Managerial Decision Making." Discussion of the ramifications of the addition of the two words, "the government" into the title could fill up several books the size of this one. So, it will fall on me to highlight just some of the implications. That hopefully will allow me to be general in a meaningful way so that the reader hopefully will be able to readily apply their own knowledge of time and place to determine their own best courses of action.
The Myth of Free Market U.S. Capitalism
The first "lesson" is that we recognize that the U.S. economy is not and never has been a true "free market" economy. In his 1963 book, The Triumph of Conservatism, about the so-called called "Progressive Era" at the beginning of the 20th century, historian Gabriel Kolko wrote, "[T]he answer is that the federal government was always involved in the economy is various crucial ways, and that laissez faire never existed. . . . This has been known to historians for decades, and need not be bela-bored."3 This fact may be well known, yet it most decidedly needs to be belabored as it is conveniently ignored all too often in public discourse. Whenever any Tom, Dick, or Mary runs for public office, increasingly there are identified economic issues where something is claimed to be amiss with our "free market" economy. Having erected such a straw man, the inevitable "fix" proposed by the political wannabes will be more government oversight, regulation, or outright management of the offending businesses. So pervasive is the faith that ours is an imperfect but "free market" system that it is almost never suggested that the offensive behavior could be the result (intended or not) of government intervention itself in the marketplace. And, in those rare instances when blame is laid on the government's doorstep, the solution offered is to change or increase government involvement rather than to examine it for being the fundamental source of the problem. The continued duplicity, complicity and "imperfection" of the "free market" is implicitly assumed as an article of faith; the only mistake those who subscribe to that faith made was that they didn't get the proper amount of government intervention right the first time. Politicians do not get elected on the "mea culpa" platform.
Some may point out that even in the best of all worlds, there is a legitimate role for government to play in the economy. In its simplest form, the government role would be to set the ground rules and be an impartial referee of last resort in the economy, but otherwise let the chips fall where they may. There would seemingly be a role for the government in granting and enforcing copyrights and patents. Then there would be a role in dealing with "natural monopolies" and the provision of "public goods." All of these are generally accepted as "proper" roles of government in the economy. My argument is not whether these are proper or improper, but rather that the government unmistakably is involved in the economy. That is a fact. Further, it is a fact that the involvement of the government in the economy has consequences that are often far from the intent of the involvement. Even the most traditional roles we have assigned to government are not untainted. For example, many claim that copyright and patent protection is needed to encourage innovation and growth by protecting intellectual property. Actually the example of copyright and patents provides several interesting lessons to which we will turn later. However, now it is sufficient that we understand that government is not a neutral benign, staid, and static arbiter in the economic affairs of the nation. Rather, it is an alternative stage where managers must have a presence—whether they like it or not.