Laissez faire!

The key lessons about free markets and wealth generation are summarised in BFN, thus:

Recapitulating, a free society generates wealth by the simple expedient of letting markets function without undue hindrance. It creates institutional frameworks to govern markets with a view primarily to ensure justice. India should seek to build market governance institutions of this nature; these institutions must remain fully accountable to us. However, even Western societies find it hard to manage regulators who often hijack policy and start enforcing things they were not asked to. The government and citizens, together, must strongly curb such tendencies.

Given space constraints I will not discuss how these institutions are to be created [DOF contains some more details on this issue], but we can learn much from the experience of the West and from their literature on economic reforms. While endorsing most of the standard literature of economics and economic reforms, I would like to suggest a few words of caution:

• Our future is too important to be left to economists. We must never let economists monopolize the thinking that we need to put in as concerned citizens. The literature of economics should be used to supplement our holistic thinking; not as a primary source of policy ideas.
• Economists are driven primarily by the goal of economic efficiency. They do not base their advice purely on the principles of freedom. They are therefore likely to propose interventions by governments on grounds of market failure, information failure, information asymmetry, ‘equity’ and so on. We should soundly reject such advice. We need to back off from any intervention by the government unless it is proven without doubt that such intervention will improve our freedoms including our accountability. Let us follow the imperatives of freedom and we won’t go wrong.
• Next, we should never use the pretext of ‘equity’ more than once in society’s decision making. If poverty is being addressed by a branch of the government (say, which is implementing the negative income tax), then all other parts of government should provide whatever it is they are required to provide, without reference to equity. Let there not be a thousand policies each trying to remove poverty. That will significantly increase poverty.
• Finally, policy makers are usually very weak in their understanding of good governance and how to implement things. Policy makers, indeed each of us, must therefore learn more about what drives bureaucrats. We must ensure that bureaucrats have the right incentives, and we must tightly control our bureaucrats.

On the whole, it is relatively easy to build free markets. All we need to do is to get out of the way. Laissez faire!