Just How Stupid Are We? (Vol. 209)

We Keep Trying Failed Economic Ideas That History Proves Don’t Work – And We Keep Getting Burned

Have you ever put your hand on a hot stove?

What did you do? You pulled it away immediately because you were getting burned.

Would you do it again?



Of course not.

Most reasonable and rational people learn from their mistakes. So why does that lesson seem to disappear when it comes to economics?

Throughout history, economic systems have evolved from rule by brute force and dictators toward modern free enterprise market economies. Countries that have embraced this system, often referred to as capitalism, have discovered something remarkably consistent. It works. It raises living standards and creates prosperity.

Does everyone benefit equally?

No.

But should that be our goal?

I don’t think so.

The real measure of success is whether everyone has the opportunity to improve their standard of living. We should celebrate the people who create better products, better services, and better businesses because they make life better for everyone else. We are not all the same. Each of us has different talents, abilities, and ambitions. Trying to engineer equal outcomes is an exercise in futility.

Today’s world offers every imaginable economic model. There are autocracies, socialist systems, mixed economies, and market-based free enterprise systems. Most countries fall somewhere between the extremes.

The important question is simple.

What have we learned?

When we compare results, one conclusion becomes hard to ignore. Free enterprise consistently delivers higher living standards for ordinary people. Autocracies and socialist systems consistently concentrate wealth and power in the hands of political leaders and their chosen insiders while the average citizen falls behind.

Yet politicians continue selling ideas that have already failed time and again.

Why?

‘Insanity is doing the same thing over and over and expecting different results.’ This famous quote is true, although no one is sure of its origin. So, why do we keep putting our hand back on the hot stove?

Take rent control. It sounds compassionate. It promises affordable housing. It wins applause during campaigns.



Then reality arrives.

The late Swedish economist Assar Lindbeck, hardly a conservative firebrand, famously said, “In many cases rent control appears to be the most efficient technique presently known to destroy a city, except for bombing.”

History has proven him right.

Argentina lived under extensive rent controls until libertarian economist Javier Milei became president. One of his first actions was eliminating rent controls. Almost immediately the supply of rental housing surged, giving renters more choices and putting downward pressure on prices through the basic laws of supply and demand.

Rents declined quickly.

Former Treasury Secretary Larry Summers once described rent control as “the second-best way to destroy a city.”

Vietnam’s former Foreign Minister Nguyen Co Thach made a similar observation in 1989 when he said artificially low rents had destroyed Hanoi’s housing stock, remarking that “The Americans couldn’t destroy Hanoi, but we have destroyed our city by very low rents.”

How many more examples do we need?

Now consider another fashionable idea: free public transit.



Who doesn’t like free?

Kansas City eliminated bus fares with the help of federal subsidies. Supporters celebrated. Then the money ran out. The city could no longer afford the program and cancelled it. Even worse, officials experienced significant increases in vandalism, assaults, and disruptive behavior, forcing the city to spend millions of additional dollars on security.

New York and Boston experimented with fare-free transit on a more limited basis. The results were similar. The programs proved financially unsustainable and were eventually scaled back or discontinued.

Good intentions are not enough.

Economic policies must actually work.

Real growth and prosperity come from sound economic principles. I discussed many of those principles in Facts, No Spin #206: Why Good Economic Policy Leads to Growth and Prosperity: https://www.mainstreeteconomics.org/post/why-good-economic-policy-leads-to-growth-and-prosperity

When nations embrace free enterprise, protect property rights, encourage innovation, and allow markets to function, ordinary people prosper.

There is no shortcut.

There is no free lunch.

There is no government program that can repeal the basic laws of economics.

The next time a politician promises something for nothing, ask yourself one question.

Have we already put our hand on this hot stove before?

If the answer is yes, perhaps it’s finally time to stop getting burned.



Will we ever learn?

I certainly hope so, because history keeps teaching the same lesson.

Bottom Line

Failed economic policies do not suddenly become successful simply because someone gives them a new name.