In Your Dreams

Little Bo Peep has lost her sheep
And doesn't know where to find them.
Leave them alone, and they'll come home,
Wagging their tails behind them.

"If you build it, they will come." -- Field of Dreams

Supply creates its own demand.

   If there be an excess supply of workers (unemployment), wages (the cost of labor) will fall so that demand and supply in the market for labor will rebalance to economic equilibrium.
   At least, that's the theory in classical economics, also known as free market economics. This line of thinking, still found among conservatives, calls for little or no government involvement in business. In a free market, producers can make what they want, when they want, in whatever quantity and quality and want, and price their goods at whatever the market will bear.
   They have a right to try. Equally, they have a right to fail.
   From an abstract, academic, scientific standpoint, this view holds.
   And while adherents of this line of thinking praise the value of competition, in the real world producers don't want competition at all, but a monopoly. This was common in the 19th Century in America, when there was almost no government involvement in business.
   In this Golden Era of the 19th Century -- the era of corruption, monopolies, robber barons and the contrast of the super-wealthy and those in abject poverty, there was, in accordance with classical economic theory, there was virtually no government regulation of anything, anywhere, ever.
   So if there was a large supply of workers available, employers could, and did, reduce wages and even cut the pay of those already on the job, in the name of free market economics obeying the Law of Supply and Demand as it applied to the labor market.
   Workers, of course, objected and protested, and were fired, to be replaced by others willing to work for less. Result: Labor unions were formed to protect the rights of workers. To the contrary, many company owners felt workers had no such "rights," and should defer to management in all things.
   "The rights and interests of the laboring man will be protected and cared for -- not by the labor agitators, but by the Christian men of property to whom God has given control of the property rights of the country, and upon the successful management of which so much depends."
   So said George Frederick Baer, president of the Philadelphia and Reading Railroad, speaking for mine owners during a coal strike in 1902.As for any "divine right" of capitalists, workers were having none of that argument.
   But this was the 19th Century, when there were no rules, regulations or laws dealing with food production and distribution, and no standards governing medicines and pharmaceuticals. There was no Food and Drug Administration, no Federal Reserve Board to control the money supply and try to keep down inflation and smooth out the business cycle. There were no labor unions, and no worker compensation or unemployment insurance program benefits.
   But there was a free market economy. And the theory was that the economy, left to itself, would eventually rebalance as market forces combine to reach a new equilibrium of supply and demand, which in turn determined price levels.
   Eventually.
   But how long is eventually?
   Can a nation afford to ride out a storm of unemployment, stalled production and starvation until the ivory tower economic theory, in the long run, adjusts to reality?
   This is not ancient history. Such attitudes were widespread in the 19th Century, but soon a perfect storm of economic problems combined, and there are many still alive today who remember the Great Depression of the 1930s.
   Even so, there were many so-called experts who maintained that the business cycle had a mind of its own, and there was nothing that government could or should do to try to smooth it out or control it. Any attempt to intervene was doomed to failure and would only cause additional problems.
   That was then, and this is now. Even so, many of the same factors that led to a worldwide economic collapse more than 80 years ago contributed to a new, Great Recession, beginning just six years ago.
   At that time, one of the heroes of the conservative, free market, classically oriented economists was Friedrich Hayek, who insisted that government intervention was not only inadvisable but impossible, and would only lead to more problems.
   But his legacy carries on, and his book, "The Road to Serfdom," was discovered a few years ago by conservative talk show host Glenn Beck.
   Those who do not learn from history are condemned to repeat it.
   Supply side economics, as it's called, was reincarnated during the presidency of Ronald Reagan, and represents a return of theories held by conservatives since the 19th Century. Their hero is Hayek.
   Hayek was a contemporary and rival of John Maynard Keynes who, contrary to classical economic policy, urged government spending to reboot a stagnant, failing economy and rescue the capitalist system, with the proviso that government should step back and ease off stimulating the economy when the business life cycle turns up again. Call it demand-side economics.
   There were then, and are today, many who believe that any effort to jump-start the economy through government programs would be doomed to failure and only make things worse.
   It was a Little Bo Peep way of thinking. Leave things alone, and the sheep will come home, happily wagging their tails behind them.
   Eventually.
   In the long run.
   We can't afford to wait out the multiple disasters of joblessness, poverty, hunger and disease while the economic storm subsides.
   The story of Little Bo Peep does not take into account the possibility of wolves in the wilderness.
   And as Keynes pointed out, "In the long run, we are all dead."