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The Goal Is Freedom

02 Feb

Where Free-Market Economists Go Wrong

February 1, 2008

by Sheldon Richman

Sheldon Richman is the editor of The Freeman and “In brief,” and a contributor to The Concise Encyclopedia of Economics. TGIF appears Fridays. Comments welcome.

As the stimulus juggernaut steams through Congress, advocates of freedom would profit by studying the case closely. Try not to get depressed by the spectacle. Politics, alas, trumps economics. There’s nothing new in that, but we ought to learn some lessons and adjust our strategy accordingly.

Newspaper accounts make clear that the President and people who run Congress hurriedly got together on the stimulus package because they were afraid to appear as though they were doing nothing in the face of a recession. They were particularly worried about seeming to put party above the public good.

As the Wall Street Journal put it, “The speed with which Washington hashed out the plan was driven mostly by the drumbeat of bad economic news. Behind the scenes, it was greased by other powerful motivations. Congressional Democrats needed to demonstrate they were capable of results after a year of gridlock. Republican lawmakers, up for re-election, wanted to show sensitivity to voters’ economic woes. And the White House didn’t want ‘recession’ added to its legacy.”

Political interest was universally aligned against good sense. The politicians could get away with this because most of the public is economically illiterate.

Such is how we get economic policy. Bismarck was right: “If you like laws and sausages, you should never watch either one being made.”

As free-market economists point out, government cannot affirmatively stimulate what we misleadingly call “the economy.” (It is people and property engaged in transactions.) All government can do is move money around. To make some people able to spend more it must make other people spend less. Politicians imply that they know who ought to have more and who ought to have less, but beside the obvious injustice of the matter, they can’t know.

Some politicians have now forgotten their own declarations that this is an economic stimulus and treat it openly as a wealth-transfer measure. Why else would they insist that unemployment benefits be extended, food stamps increased, and home-heating subsidies pumped up? These things are irrelevant to the flagging auto or housing industries, so what does such income redistribution have to do with stimulus — unless we’re talking about a political stimulus?

Economists Fall Short

I said the government can’t affirmatively stimulate the “economy,” but it can encourage productive activity. How? By not discouraging it. Here is where some free-market economists have fallen short in shaping the public debate. Too much of what they say is along these lines: “The economy is fundamentally healthy. Recessions are a necessary correction of errors. So just let the economy work through its current problems. The government need do nothing.”

That message should make advocates of individual liberty squirm because it implies that the market today is essentially as free as it needs to be. I often see this implication in economists’ statements. It may be unintended, but it’s there. For example, a few months ago the news media were proclaiming that gasoline prices were at historic highs. In fact, when adjusted for inflation they were not. But the economists pointing this out sounded a little too defensive, as though they were the defending the free market’s honor against market critics. What should we say if next week gasoline does hit a historic high and the anti-market folks blame the free market? I know what I’d say: What free market?

The same defensiveness can be seen whenever a left-statist charges that the gap between rich and nonrich has widened or income mobility has ceased. Whatever the truth of these charges, libertarians shouldn’t react as though the free market is being assaulted. The critics may think it’s the free market they’re attacking. But — need I say this? — we have no free market.

Similarly, if economic activity is slowing down, it can’t be the free market’s fault — because we don’t have one!

What we have is corporatism, an interventionist system shot through with government-granted privileges mostly for the well-connected (yes, who tend to be rich). This system is maintained in a variety of ways: through taxes, subsidies, cartelizing regulations, “intellectual property” protections, trade restrictions, government-bank collusion, the military-industrial complex, land close-offs, restrictions on workers, and more. As a result, people can get rich at the expense of the government’s victims. Even some who have prospered apparently by market means have actually done so through government intervention. Wealth can be transferred in many ways besides welfare and Medicaid, some of them quite subtle.

Overlooked Facts

Free-market economists know this, but they often seem to forget it, such as when they indiscriminately defend firms (such as oil and pharmaceutical companies) in today’s corporatist economy. These economists convey the message that since in a free market people get rich and companies get big only by serving consumers, anyone who is rich today and any company that is big must have gotten that way by serving consumers. The flaw in the argument should be obvious.

Kevin Carson, as I’ve noted before, has a name for the philosophy of those who have “trouble remembering, from one moment to the next, whether they’re defending actually existing capitalism or free market principles”: vulgar libertarianism. (Incidentally, the strain of libertarianism that is acutely sensitive to this point is called “left-libertarianism,” an allusion to the fact that early liberals, such as Frederic Bastiat, placed themselves on the left  — rather than among the apologists for the old regime and landed aristocracy on the right — and were champions of the oppressed common people against the privileged.)

Given the corporatist nature of the economy, it is a mistake — as well as strategically foolish — to say the government should do nothing when a recession might be coming on. There’s much it should do — or rather undo. Freedom’s advocates must spell this out in detail, revealing how government policy harms the mass of people who have no political connections. In contrast, when an economist who proclaims his support for the free market says everything is fine and the economy will fix itself, he brands himself a defender of the statist quo and turns his back on the state’s victims.

The freedom philosophy is a radical idea that looks ahead, not back to some mythical golden era or a Panglossian present. Every time we pass up an opportunity to make this point, we alienate potential allies who are concerned about those who are having a tough time of things. Yes, living standards have improved for decades and being poor in the United States is not what it used to be. That only shows that even a marketplace hampered by government privilege can produce astounding wealth. But to be satisfied with that is to be willing to trade freedom and justice for a mess of pottage.

F.A. Hayek never spoke more wisely than when he said, “What we lack is a liberal Utopia, a programme which seems neither a mere defence of things as they are nor a diluted kind of socialism, but a truly liberal radicalism which does not spare the susceptibilities of the mighty (including the trade unions), which is not too severely practical and which does not confine itself to what appears today as politically possible.”

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