Thursday, March 4, 2010

The Two Adam Smiths

Most people who even know who Adam Smith was tend to associate him with The Wealth of Nations. In it Smith described the evolution of capitalism and the power of the invisible hand of the market to take self-interest in business and convert it into something that served the common interest.
Few people associate Smith with his other great book: The Theory of Moral Sentiments. In this book Smith asserts that no matter how self-interested even the hardest person is, there is something within all of us, something in human nature, that feels sorrow at the sorrow of others and sympathy for those who are suffering or in pain.
What Smith was trying to figure out was how capitalism worked (of course the word "capitalism" hadn't been invented yet, but even though the word didn't exist, that's the problem Smith set his mind to.)
It clearly wasn't as simple as today's free-marketeers would like to believe. Smith wrestled with the power of the invisible hand and with the deep-seated psychological force of sympathetic human nature encountering a moral dilemma.
Which is exactly where we are in the US in the debate over health care.
Think of it at first as a four box matrix--the kind they teach at the Harvard Business School.
Let's use Smith's two books to frame the matrix.
On one axis we've got the invisible hand of the free market at one end, government control at the other.
On the second axis we've got human compassion, empathy, moral right at one end, pure self-interest, cold-hearted Scrooge-ism.
The Obama administration is trying to convince us all that the administration has a solution that's win-win! It works in economic terms, cuts back on the rising costs of health care, preserves the insurance industry's right to make money, helps with the federal deficit--all terrific economic outcomes!--and offers health care coverage to the tens of millions of Americans who can't get it or can't afford it. It's economic and moral!
The Republicans tend to see the world more in terms of the Wealth of Nations, and less in terms of the Theory of Moral Sentiments. They want the government out of health care--it should be about the free market. Beyond that, their view of moral sentiments was best expressed by Kentucky Senator Jim Bunning who, when informed that his filibuster would cut off COBRA benefits for millions of poor and unemployed Americans said, "Tough shit."
So in a four box matrix formed by the two Adam Smiths, we know where the Obama administration would put itself and where the Republicans would wind up.
Now let's make it more interesting.
What if the economic promises of the Obama adminstration were shown to be flat out wrong.
What if the Obama plan won't curb rising medical costs, won't benefit the federal budget deficit, and actually will represent a government intrusion into the operation of the free market in a significant way?
What if it comes down to a fundamental choice between a strict interpretation of The Wealth of Nations and The Theory of Moral Sentiments on the matter of health care?
Here's what Smith wrote: "How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it."
When it comes to health care for our fellow Americans, what could be clearly a matter of moral sentiment?
Ultimately it turns on an argument that is less about the kind of economics we want to practice, and more about the kind of country we want to be.
In a balancing of the Two Adam Smiths, when it comes to a matter as fundamentally human as health care, the moral sentiment has to be the book that offers the right instruction, for the right reason.

All Rights Reserved 2009 (c) Alan Webber, Rules Of Thumb