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By Root 1560 0

—in the management of the economy—using resources as efficiently as possible, sharing them fairly between people, and allowing people as much freedom and self-determination as possible—and it is only possible to hit two of these three aims at any one time. Thus tilting toward markets for efficiency and higher growth, and toward greater liberty at the same time, will set back equality. Emphasizing equality as well as efficiency requires downplaying individuality and self-realization; instead of looking out for themselves and their own standard of living, people will need to develop for themselves a sense of self-discipline, much as the “Protestant work ethic” drove the achievements of early capitalism and allowed these to be widely shared. During the past generation, the shared values that allow a capitalist economy to function well have eroded. Our current sense of malaise reflects the absence of meaning in the institutions and arrangements that make up the economy. They’ve tilted too far in favor of individualism and the gratification of immediate wishes. Mutuality and patience will be more important values in the Economy of Enough.

At different times, and in different societies, people will collectively make different choices about which aims matter most. Up to a point the trade-offs of the trilemma will not bite—for example some efficiency improvements might be possible within the prevailing standards of individuality and equality—but ultimately doing better on one or two of these fronts will involve doing worse on another. The existence of the trilemma is why so often there seems to be an innate dynamic to capitalist economies. Marx and Engels thought that capitalism contained the seeds of its own destruction. Others, notably Joseph Schumpeter, have seen the process as a continual reinvention driven by technology and enterprise. My take on the dynamic is that depending on the circumstances (including technology), the policies and the institutional framework of the economy must change in order to restore a balance between the three aims of efficiency, equity, and liberty.

Clarity about the trade-offs between values often plays out in the way people typically think about the role of “the government” and “the market,” especially now that the crisis in the financial markets has tarnished the reputation of markets in general. As any applied economist knows, there is no such thing as a “free” market. In any context where people or firms are trading goods or services, they do so within a framework of laws and government regulations, and also the expectations and cultural norms of their society. There’s nothing “free” about this, although certainly the regulations can be more or less restrictive in specific cases. Markets are one of the many types of economic institutions—along with households and families, businesses, not-for-profits, unions, and indeed different bodies and branches of the state. In many circumstances, organizing the many and varied transactions people want to undertake is most effectively done via a market. There’s no better way of coordinating the vast amount of information needed to match supplies and materials with the things people want to buy—government planning turned out to be a terrible way to do this. Other times, markets do not achieve very desirable outcomes.

This is no surprise to economists, who have an ample catalogue of “market failures.” Unfortunately, the circumstances in which markets fail make it just as hard for governments to achieve desirable results. Take the classic example of pollution caused by a factory, an external “bad” that is imposed on the environment by the factory. The price charged for its products will not reflect the side-effect of the pollution, and the factory will have no incentive to curb its emissions. In theory the government can offset the externality by imposing a tax on the factory’s output. But usually it won’t have enough information to work out what level the tax needs to be. In practice, governments are more likely to set caps on the amount of pollutants