By Richard Ebeling
There is little that happens in society in general and the market economy in particular that most on the political “left” do not think needs more government intervention, regulation and redistribution to make “better.”
One recent example of this is a lengthy “report” primarily prepared by Nobel Prize-winning economist, Joseph E. Stiglitz, for the Roosevelt Institute. Released in June 2015, Stiglitz and his co-authors present an agenda for Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity.
The “Progressive’s” Agenda for Bigger Government
Running for 100 pages, it is based on the premise that markets are inherently likely to be unfair when left on their own without pervasive government oversight and regulation, that income inequality must be cured through various fiscal and interventionist policies, that America’s economic system is persistently biased against ethnic and related minority groups and that sustainable growth and stable financial markets require more intrusive government intervention, including making “full employment” a higher priority for the Federal Reserve in setting monetary policy.
In the grab bag of policy proposals are included federal laws restoring union power to control labor markets and hold businesses hostage to their wage and benefit demands, even heavier environmental regulations on business and industry in the name of saving the planet, higher marginal tax rates on the classified “rich” and increased capital gains and dividend taxes to pay for all the things the Roosevelt Institute authors think government should be doing more of.
Economic growth is to be fostered through massive government-funded infrastructure programs and expansion of “public transportation” as a tool for creating job access for low-income groups.
Stiglitz and his team also propose to raise the federal minimum wage, impose mandatory paid sick and family leave, subsidize child care for working mothers, increase government spending on all levels of schooling and education, including reducing people’s financial responsibility for repaying loans for higher education, “universalizing” government-funded health care even more than it is already, have the government go more directly in to the home mortgage business at subsidized lending rates with below market-based credit worthiness and expand Social Security access and benefits.
The report really represents a laundry list of every aspect of market activity that those on “the left,” at one time or another, have argued and pushed for as needing corrections or repair through a larger and more intrusive regulatory and paternalistic state.
Even where some actual negative social effects can be shown to have their origin in earlier government interventions and regulations, in Stiglitz’s eyes it is still the market that has failed. Where he correctly observes that the government has used its powers and authority to benefit some at the expense of others, his “solution” is never to end privilege or favor for any and all, but merely to shift how and for what purposes government intervention is used to benefit those groups he likes more or considers more deserving.
It is impossible in a short opinion piece to offer a detailed critique and refutation of Stiglitz’s “diagnoses” of America’s economic ills and his “cures” that, in my view, would lead to an even more government-controlled society and market than already exists – and not for the better.
America is Suffering from Serious Economic Problems
Instead, an as an alternative, I would like to present, however briefly, what might be considered a classical liberal, free market “Rewriting of the Rules for the American Economy.”
America is suffering from a variety of serious institutional and structural problems. It has been most visible in the relatively slow and sluggish recovery from the 2008-2009 economic recession. Most economic recoveries over the last 70 years have witnessed real growth in Gross Domestic Product in the early phase of previous upturns of four to five percent, even over 7.5 percent in 1983. Since 2009, GDP growth has hobbled along between one and 2.5 percent most of the time.
Again, following most post-1945 recessions, recovery of jobs lost in the economy due to an economic downturn was more or less recouped on average within nine months to a year and a half. It is now six years since the 2009 trough and the American economy still has not fully recovered from the loss of jobs from the recession and to successfully grow employment beyond that level.
The same weakened pattern of improvement in the American economy may be seen in average wage growth, labor force participation in the job market and the slower rate of start-ups of new businesses and capital investment.
(It should be pointed out, however, that while several indices of real wages over the last several decades have measured limited real wage growth, these indices do not give any clear and relevant calculation of the improvement in the qualities of goods and the availability of new goods the characteristics of which have been radically innovative in our daily lives compared to what could be bought on the market, say, in 1985 or 1990. So that average standards of living across all income groups have dramatically improved, regardless of what a wage index may imply.)
It would be too dramatic to use the word, “malaise,” as President Jimmy Carter did to describe the economy during his presidency, but it is nonetheless the case that the American economy is not as robust and dynamic as it could be and has been in a number of previous post-recession periods.
The Primary Source of America’s Problems Is Government
From the classical liberal, free market perspective, the source of America’s economic problems stems from the size and scope of government regulation, intervention and redistribution in the economy.
All levels of government absorb at least 40 percent of GDP (up from around 34 percent two decades ago and a mere seven percent a century ago). Over 80,000 pages of federal regulations handicap business enterprise, with estimated compliance costs of nearly $2 trillion.
In 2012, the Institute for Justice calculated the difficulties for those wishing to practice a small business due to occupational licensing. Especially for low and medium income groups, such occupational regulations makes it time consuming and financially burdensome for the poorer members of the society to improve their material circumstances through self-employment.
The Institute studied over a hundred occupations and found that licensing and mandatory training expenses can easily come to hundreds of dollars, and take up anywhere from several months to over a year for meeting the government stipulated learning courses.
Their investigation concluded that in most cases occupational licensing had little or nothing to do with safety or standards to protect consumers, and far more to do as a method to limit the competition that existing practitioners of these lines of work would have to face.
Business and corporate taxes in the United States are among the highest in the world, including the imposing of double taxation on foreign earnings brought back to the U.S. after they have already been taxed in the country in which the revenues were earned.
The institutional and structural crisis confronting the United States is not a crisis of “capitalism” or the free market. It is the crisis of the interventionist-regulatory-redistributive state.
America, today, may be free and open in comparison to a good number of other countries around the world but in comparison to a truly free America, the United States of the twenty-first century is far from a land of liberty.
Restoring the Spirit and Understanding of Individualism
America must rediscover and reestablish its own founding principles and philosophical ideas. Without this, no lasting institutional or structural change is possible.
This means recapturing the spirit and meaning of individualism and individual rights, that every human being should be considered a free person, allowed to live his or her own life as he or she wishes, guided by their own goals, purposes and ideals that will give their life meaning, value and worth, as they define it.
This means liberating ourselves form the false notion that the individual is owned and subservient to the collective, the tribe or the group into which they were born, and to which a political and ideological elite asserts they are to be sacrificed and obedient, that their life is not their own, but the property of the collective.
As long as this underlying collectivism is not challenged and overcome, real and sustainable freedom cannot be restored. America was founded on the idea of sovereign individuals, who associated with each other for mutual betterment through voluntary trade and consensual association. Government was meant to secure and protect each individual’s right to his life, liberty and honestly acquired property (“honestly acquired property” meaning peaceful production and/or voluntary exchange.)
Privileges and favors, subsidies and artificial protections for some at the expense of others must be repealed and abolished. There must be an equality of individual rights before the law, not an inequality of government-imposed “entitlements” and redistributive “rights” that cannot be secured for privileged individuals and groups without taking through taxes or regulations from some to give to others.
The Free Society Is a “System of Natural Liberty”
When individual rights are respected and government is limited to the protection of those rights, society experiences what Scottish moral philosopher and political economist Adam Smith called a “system of natural liberty.”
Each individual is free to apply his knowledge, talents, abilities and skills as he thinks best in the system of division of labor as he undertakes the earning of a living in peaceful, voluntary and competitive cooperation with others.
It is a fortuitous social order, in which each individual is free to live his own life as he thinks best, but which at the same time makes him mutually interdependent with all the others in his society due to the specialization of tasks and occupations.
Thus, to improve his own circumstances he must apply the knowledge, talents, abilities and skills he possesses in ways that benefit those with whom he trades and associates, within and outside of markets, as the means to acquire from them the goods or assistance without which he cannot attain many of his own goals and ends.
From Adam Smith to F. A. Hayek, advocates and proponents of the free-market economy have pointed out and emphasized that not only does government planning, regulation and control restrict the individual’s freedom to act peacefully as he finds most advantageous. It also inhibits the ability of all in society to best improve their circumstances, because those in government – politicians and bureaucrats – can never possess and effectively use all the knowledge that only exists in a decentralized and dispersed form in the respective minds of all in society, and for the efficient use of which those in government can never have the same self-interested motive as those who possess that knowledge.
Thus, both the achievement of greater human liberty and motivated use of that divided and personally possessed knowledge for the mutual improvement of all requires the radical reduction in the size and scope of government at all levels and for all activities.
Market Opportunities for Capital Formation and a Better Society
A free society, with very limited governmental functions, leaves most of the income and wealth produced in the hands of those who have earned it. This provides the financial wherewithal and the incentives and possibilities for increased savings and investment, and the resulting capital formation.
It is savings wisely invested that results in the profitable manufacture of the new, improved and more efficient capital equipment that increases output per man hour, that raises the (marginal) productivity of labor and that brings about, over time, both higher wages and more, new and better goods and services to buy at competitively lower prices with the incomes earned.
These are old truths that reasonable economists have understood and explained for nearly 250 years, now. To the extent that their insight and advice was even partially followed by governments, subsistence poverty has been reduced or even virtually eliminated in more parts of the planet. Work has become less burdensome, with fewer hours and greater free time and leisure accompanying the higher earnings and rising standards of living.
Furthermore, commercial society makes people more courteous, polite and deferential to their fellow men, as human relationships have come to rely more on voluntary consent and mutual agreement than force and coerced fear by some against others.
When a potential customer can shop next door rather than in your establishment, self-interest soon makes it a disadvantage to be rude, impolite, or discourteous in one’s market dealings with others. And fraud and deceit, even when technically seeming to be within the law, carries the risk of loss of repeat business and a word-of-mouth bad reputation, which can cost more in the long run than the seeming gain from a short-run advantage at a customer’s expense.
Combine this with a non-inflationary monetary environment in which individuals can confidently use the market’s chosen medium or media of exchange to facilitate their current transactions and their intertemporal exchanges in financial and related markets, and the institutional setting will be most conducive to business creation, growth and improvement, jobs for an increasing labor force with rising real wages (when accompanied by market-guided investment and capital formation) and improved standards of living for larger and eventually all segments of the society.
Natural Inequality and Egalitarian Desires
However, critics of the market have often pointed out that not all start with the same opportunities in life, and that this presumably gives some unfair advantages at the “starting line” of the race of life.
The fact is, we are not born equal. Some of us have been lucky enough to have chosen parents with the genes that give us the physical attractiveness to maybe be a successful movie star, or the differing height to be either a professional basketball player or a horserace winning jockey.
We are born into different family environments that may or may not give special attention to the value of an education, or the discipline and responsibility in managing one’s own affairs and pursuing a chosen goal.
And some of us come from financially better off households that enable the purchase and enjoyment of material goods and personal and social opportunities that others may lack.
Since those on “the left” very often oppose the use of GMOs – “genetically modified organisms” – they have not, as yet, espoused the introduction of genetically modified human beings so we may all physically look alike and possess the same intellectual capacities and inclinations to assure a more egalitarian society through the genetic homogenization of humankind. (But one never knows what the future holds in store when it comes to the obsessions of the ideologically driven “social engineer.”)
But in Europe it has been proposed to ban homework and parents’ studying with their children at home, since some parents show greater interest and conscientiousness in trying to assist their child’s learning abilities and advancements. What is the problem? It gives socially unfair advantage to the children in these parent-active homes, compared to those households in which studying is downplayed and parent participation in the child’s learning is less or none at all. Thus, it is considered better to impose the lowest learning common dominator to assure egalitarian ignorance than allow some children to get ahead of others due to the quality of their parent’s support in the home.
So what, then, is left? The redistribution of wealth for educational, as well as many other purposes, of course, to make those who “unfairly” or “unjustly” have more than they “need” through the “luck” or “accident” of the market to pay for others deemed by the redistributors to be more deserving. More will be spent on government schools, including job-secured government teachers, with mandatory attendance to make sure that everyone has the same quality (or lack of quality) teaching as well as the same content of what is learned.
Those who earned more through successfully better serving their fellow men through the free, voluntary and competitive activities of the market are to be penalized for their success as professionals, as entrepreneurs, as managers and as valued, more highly paid workers in the marketplace of employment.
Educational Choice and Competition for Better Life Chances
Does lack of a good education, all other things held the same, hold a person back from the opportunity of getting ahead in life? No doubt. And there are thousands of young minds who fail to successfully learn even the three “R”s before they drop out or graduate from government schools, and tragically this happens to a disproportional extent in “minority” communities in America.
But the solution to this problem is not more taxpayer money and further centralized “common core” curriculums. It is a radical reform to foster the two “C”s: choice and competition. The educational establishment in America needs, desperately, to be fully privatized, and with this the ending of local and federal taxes collected to fund the current government monopoly schooling system.
Parents, with the resulting lowered taxes, should be given the right and ability to choose where their children are educated, by whom and with what curriculum and teaching methods. Choice puts decision-making where it belongs in a free society – with the individual, in this case parents.
With choice comes responsibility for the outcome of the decision. Place this responsibility back where it should be, and its exercise will be taken as seriously as when most people decide what job to take, what house or car to buy and the clothes and shoes to purchase. Since it is their own children’s education and future that is at stake, more parents will end up taking the time and effort to try to wisely decide their offspring’s schooling.
Competition creates the institutional setting and motive for excellence and innovation. This is and can be no less in the arena of education and schooling than in other aspects of life. Competition for consumer dollars drives private enterprises to devise better, new and less costly products to market to all of us as consumers. This would work no less in the educational business, if learning and schooling were made part of economic liberty.
But what about the parents or children who lack the financial wherewithal to finance a decent education in this privatized schooling market? The free society in countries like America has shown itself to be compassionate and benevolent communities of private charity and voluntary philanthropy. Even under the current burdens of taxation, Americans in 2014 generously gave almost $360 billion is charitable giving, more than a third of a trillion dollars.
Reduce taxes, set the market economy free to generate more wealth, output and prosperity, and people will have even greater financial capacities to help those that remain in society who may need that “helping hand.” Besides, a growing economy continues to raise more people out of poverty and modest financial means so the number of people asking for or needing such voluntary assistance would decrease over time.
Artificial Inequalities Versus Equal Rights in the Market Economy
Finally, there are unjust and unfair inequalities in American society. There are people and groups that are prevented from having opportunities and chances to rise to their potential.
But in the eyes of the classical liberal the origin and basis of these inequalities are “artificial,” and not part of the inescapable inequalities of the human condition and the outcomes of freedom. They are due to locking large segments of the population – especially, but not exclusively, in ethnic and racial minority communities – around the country into intergenerational dependency on government welfare and redistributive programs.
It is due to condemning the youth of America, and again especially in the poorest segments of the population, into mismanaged, self-serving and counter-productive government schools that leave too many young minds far behind in that race of life.
It is caused by a regulatory system that locks out the financially poor and poorly educated from starting their own businesses or being hired in local community small businesses because of the often-strangling hand of occupational and enterprise-licensing procedures that prevent people from taking the initiative to improve their own lives.
Minimum wage laws, and union restrictions in “closed-shop” states, as well as tax burdens that hamper job creation and employment opportunities all work to artificially keep those at the lowest end of the income levels from escaping from their circumstances.
Freeing markets under a regime of equal individual rights under an impartial rule and enforcement of the law would do far more to help those that “progressives” claim they are most concerned about in society than the entire array of interventionist and welfare statist programs have done in more than a half a century of coerced redistribution since the heady hopes of LBJ’s Great Society programs.
Adam Smith’s conception of a “system of natural liberty,” under which each individual is free to live his own life as he chooses and peacefully compete and cooperate in the arena of market exchange remains the finest and most powerful vision and agenda for a free and prosperous America and world for all.
Dr. Richard Ebeling is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was professor of economics at Northwood University in Midland, Michigan (2009-2014). He served as president of the Foundation for Economic Education (2003-2008) and held the Ludwig von Mises Chair in Economics at Hillsdale College in Hillsdale, Michigan (1988-2003).