"Alternatives" Isn't a Dirty Economic Word

There Is No Alternative. Margaret Thatcher and her allies in the "dry" wing of the British Conservative Party popularized the phrase three decades ago. TINA, for short. The name never caught on in the U.S. as in the UK and parts of Continental Europe, but the idea did. The most compelling statement of it may have come from Milton Friedman, talking to Phil Donahue in 1979:

There is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.

Put that way, it's hard to disagree with. There is no attractive alternative economic system out there that we could jump to if we got tired of this capitalism stuff. And we shouldn't want to — the capitalist era has coincided with a staggering increase in living standards.

But Thatcher was also saying that a specific set of financial-market-friendly, ownership-oriented, low-tax policies was the only path to economic success. By the 1990s, similar attitudes had taken hold in both major political parties in the U.S., at international institutions such as the IMF and OECD, and in the Zeitgeist everywhere. The newly globalized economy, policed by what Thomas Friedman dubbed the "Electronic Herd" of financial markets, just wouldn't allow for much freedom of choice in economic policymaking.

Yet look at the World Economic Forum's national-competitiveness rankings now. The top 10 nations are, starting at No. 1, Switzerland, Singapore, Finland, Sweden, the Netherlands, Germany, the U.S., the UK, Hong Kong, and Japan — all capitalist countries, sure, but with dramatically different forms of capitalism and roles for government (government spending is well more than 50% of GDP in Finland and less than 20% in Hong Kong). If competitiveness is too subjective a metric for you, the UN's Human Development Index (which measures wealth, health, and education) delivers a similarly mixed top 10 list: Norway, Australia, U.S., Netherlands, Germany, New Zealand, Ireland, Sweden, Switzerland, and Japan. Then there's the simpler method of just counting per capita GDP (adjusted for purchasing power), which gives us Luxembourg, Macao, Norway, Singapore, Brunei Darussalam, Switzerland, Hong Kong, U.S., Australia, and Austria. That last list does seem to indicate that it's best to be a small country (or autonomous region of China) that either has huge petroleum reserves or is a magnet for wealthy people from elsewhere, but that's not exactly helpful as an economic-policy roadmap.

One thing all the countries on these lists do have in common is that they participate in the global economy — they don't wall themselves off, as India and China tried to do for decades (with dismal results) before changing course. They also have economies driven by the profit motive (although that may be arguable in the case of Brunei, where oil and gas export pretty much are the whole economy). So successful economies do operate within certain bounds. They're just not nearly as narrow as a slogan like "There Is No Alternative" might lead you to think.

A classic example: As Thatcher took office as Prime Minister in 1979, booming oil revenue from the North Sea offered big opportunities and posed big decisions for the UK and Norwegian governments. Under Thatcher, the UK chose to spend the windfall as it came in and cut other taxes — a policy that her successors didn't really alter. Norway started out on a similar track, albeit using the money more to prop up its increasingly expensive welfare state than to cut taxes, but in 1990 established what was then called the Petroleum Fund, now a $720 billion sovereign wealth fund with significant global influence and hugely positive implications for the country's fiscal present and future. Now, not surprisingly, some in the UK are saying that's an alternative they should have considered.

The strength of TINA as a governing principle is that it's simple. But that's its weakness, too. It often doesn't tell you what you need to know, and sometimes it gives you the wrong advice (putting oil money straight in consumers' pockets surely seemed a more TINA thing to do than setting up a government-run oil fund). There are similar problems with the simple consensus on monetary policy that prevailed during the TINA years (set a low inflation target and keep to it, period) and the prevailing view in the U.S. and UK on how to run a corporation (maximize value for shareholders, period). The real world just isn't that simple. There are other factors at play. And there are alternatives.

One of the most convincing arguments for the superiority of free-market capitalism is that one size doesn't fit all. Tastes vary, and change. Information about the economy, as Friedrich Hayek wrote, is too widely dispersed for any one person or organization to know what the best course is. This observation is usually taken as an argument against government intervention in the economy, which is certainly how Hayek meant it. But in a world where there are lots of governments with differing policies and priorities, yet increasingly a single global financial market in which returns across countries and asset classes are ever-more correlated, it's not obvious to me that the Electronic Herd will always have better economic judgment than your local mayor.

What got me thinking about all this was President Obama's recent push to start a new economic policy conversation in the U.S. After actually sitting down and reading the speech that kicked off the campaign July 24 at Knox College in Illinois, and the one at an Amazon warehouse in Tennessee Tuesday where he proposed a reduction in corporate tax rates in exchange for more infrastructure and education spending, I cannot claim to have encountered a new economic paradigm. In general, the President's proposals seem designed to be reasonable-enough-sounding things that House Republicans will say "No" to (possible new House GOP slogan: There Is No Alternative to No).

Still, the tone is interesting. "Growing inequality is not just morally wrong, it's bad economics." Obama said in Illinois.

Because when middle-class families have less to spend, guess what, businesses have fewer consumers. When wealth concentrates at the very top, it can inflate unstable bubbles that threaten the economy. When the rungs on the ladder of opportunity grow farther and farther apart, it undermines the very essence of America — that idea that if you work hard you can make it here.

The TINA take on inequality is that it's an inevitable byproduct of economic dynamism. You want growth, you have to accept inequality. That's surely true, up to a point. The anti-TINA argument is that beyond that point inequality starts dragging down the economy — that there's a Laffer curve for inequality, as economist Mark Thoma put it. What that point is, and what to do about it, are hard questions to answer. But that sort of is the point in a post-TINA world. There aren't always obvious answers. There are, however, alternatives.