Freedom Line Blog

Think a dollar doesn’t go as far as it used to?  Think again.  Let’s hear it for capitalism and the underappreciated progress that it brings:

Three Cheers for Capitalism

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Economist Deirdre McCloskey will soon release her new book entitled “Bourgeois Equality:  How Ideas, Not Capital or Institutions, Enriched the World.” It it, she describes the unprecedented transformation  and improvement of human wellbeing through the power of economic freedom, as illustrated by this graph:

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The Power of Free Markets

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As McCloskey summarizes, that’s the result of the free market revolution:

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[I]n the two centuries after 1800, the trade-tested goods and services available to the average person in Sweden or Taiwan rose by a factor of 30 or 100.  Not 100 percent, understand – a mere doubling – but in its highest estimate a factor of 100, nearly 10,000 percent, and at least a factor of 30, or 2,900 percent.  The Great Enrichment of the past two centuries has dwarfed any of the previous and temporary enrichments.  Explaining it is the central scientific task of economics and economic history, and it matters for any other sort of social science or recent history…

The modern world was made by a slow-motion revolution in ethical convictions about virtues and vices, in particular by a much higher level than in earlier times of toleration for trade-tested progress – letting people make mutually advantageous deals, and even admiring them for doing so, and especially admiring them when Steve Jobs-like they imagine betterments.  The change, the Bourgeois Revaluation, was the coming of a business-respecting civilization, an acceptance of the Bourgeois Deal:  ‘Let me make money in the first act, and by the third act I will make you all rich.'”

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It’s something for which we should all remain grateful, and hopefully more readily defend against the eternal onslaught of statism.

Don’t give up on American culture and run off to some deserted island or desolate wilderness hut just yet.  There’s still some good news to report.

According to a new Gallup survey, free enterprise, small businesses and capitalism remain far more popular among Americans than socialism or the federal government.  Despite the media kid-gloves treatment of admitted socialist presidential candidate Bernie Sanders, only 35% of respondents say they maintain a positive view of socialism.  That is actually down from 2010 and 2012, when 36% and 39% reported positive feelings.  As for the federal government, which too many candidates from all parties continue to offer as some sort of elixir for what ails us, only 44% report positive feelings.  That is also down from 2010 and 2012, when 46% and 51% held it in high esteem.

So congratulations, Obama.  Not exactly the transformative presidency in the mold of Ronald Reagan to which you aspired.

Meanwhile, 85% of Americans report positive feelings toward free enterprise, 60% hold capitalism favorably despite constant sloganeering from the political left and an astonishing 96% hold small business in high esteem.

Now it’s just a matter of all of us doing a better job of putting those ideals into practice.

Ben Domenech says that one way for conservatives to reframe their economic message before the 2014 midterms is to start using the phrase, “free market fairness.”

“Those on the right should be prepared to make the case that the warped relationship between Wall Street and Washington needs to be fixed, that socialized risks and privatized profits are fundamentally unfair, and that… equality-focused policy solutions, and those of the left, would hurt income mobility and systematically destroy wealth and growth,” he writes in the Wall Street Journal.

Free market fairness can be thought of as the alternative to crony capitalism. The latter can be defined as “government efforts to tilt markets in favor of preferred firms [to] reward political connections and lobbying money.” Troy’s recent article on eliminating the elite-driven Export-Import Bank is an excellent example of how conservatives can show they are serious about removing barriers to equal economic opportunities.

Adopting the free market fairness frame also strengthens the GOP’s insistence on a government dedicated to the rule of law. As Solyndra and other Recovery Act era abuses fade from memory, the rule of law critique has been increasingly focused on abuses of executive discretion like Deferred Action for illegal immigrants, Justice Department refusals to defend the Defense of Marriage Act and the growing litany of delays and waivers of ObamaCare. Refocusing on how crony capitalism picks winners and losers would bring the rule of law argument full circle.

Maintaining a fair playing field isn’t the same as giving one team extra points. The only way the American dream can remain open to everyone is if the people in charge of the rule book fairly to all participants.

In an interview with CFIF, Roger Ream, President of The Fund for American Studies (TFAS), and Michael Cox, Sr. Fellow at the Federal Reserve Bank of Dallas and Director of the O’Neil Center for Global Markets and Freedom at Southern Methodist University’s Cox School of Business, discuss TFAS’s online videos: “It’s a Wonderful Life (with Capitalism)” and “How Nations Succeed: What’s the Secret to Ending Poverty.” Ream and Cox also discuss what young people are learning in college about freedom and free markets, and what accounts for America’s tremendous progress over the last 100 years.

Listen to the interview here.

I’ve written before that the importance of Paul Ryan’s brand of conservative reform is that it puts federal policy on a fundamentally different trend line than its current course under President Barack Obama.

From Ryan’s perspective, the American future post-reform looks like one where there’s more money in everyone’s pocket, less going to the government, and a fiscally sustainable social safety net.

As for President Obama, all you need to know is contained in his campaign’s “Life of Julia” web ad.

If Ryan is true to form, then during his time as Mitt Romney’s running mate he’ll accentuate the choice facing voters this fall of an American future that is either growing thanks to a resurgent capitalism or declining under the weight of a galloping socialism.  Perhaps he’ll do so along the lines described by Harvard economist Robert Barro in the Wall Street Journal:

Drawing correct policy implications is hard because one naturally focuses on the jobs and production that are directly saved or lost when the government bails out GM or when Chinese imports expand. In contrast, it is impossible to detail where U.S. jobs and production would have been created or destroyed if GM had been allowed to fail or if trade with China were curtailed.

What is feasible is to look at the overall impact of a set of policies. For example, a general increase in socialistic policies tends to lower economic growth. And, more specifically, the Obama administration’s weakening of individual incentives to work and produce by its sharp expansion of transfer payments can be reasonably viewed as retarding the U.S. economic recovery since the end of the recession in 2009.

With the addition of conservative thinker and budget expert Rep. Paul Ryan to the Republican presidential ticket, we can hope that the economic dialogue will become more serious. And perhaps this added substance will extend beyond the important issue of long-term fiscal reform to encompass the enduring but still crucial debate about socialism versus capitalism.

2012  may be remembered as the year that Barack Obama dropped the mask. Based on his remarks at a campaign stop in Roanoke, Virginia on Friday, the president has no interest in making his peace with America’s entrepreneurs. In fact, his remarks there should make their blood run cold:

We’ve heard this rap before. It sounds suspiciously like Elizabeth Warren’s pep talk to a room full of agitated Boston liberals. But, if anything, Obama’s remarks are actually worse. Warren didn’t go so far as to denigrate hard work and intelligence, which the president seems to consider middling factors when it comes to being successful in life (note to the president: I’d absolutely love to meet these armies of workaholic geniuses who wouldn’t be succeeding without the federal government).

The asininity per square inch of this speech is pretty daunting, but here are a few corrective notes:

• Notice the examples Obama uses — teachers, firefighters, and infrastructure. These are all (by relatively expansive definitions, anyway) public goods. If there were a caucus of conservatives out there advocating boarding up schools, abolishing fire departments, and moving to a system of rope bridges, the president would have a point, but these are generally uncontroversial examples of public expenditures. Moreover, they’re not areas that are primarily financed by the federal government. Left unsaid is why taxes should increase to fund green-energy boondoggles like Solyndra, PR efforts for the stimulus package, or six-figure salaries for the Interior Department’s Twitter monkey.

• The constant liberal assertion that the economic growth of the 1990s — coming on the heels of Bill Clinton’s tax increases — shows that taxes don’t effect the broader economy confuses correlation with causation and ignores the effects of NAFTA, the IT revolution, welfare reform, etc. In truth, the 90s likely boomed less than they would have without Clinton’s tax hikes, something that the work of Obama’s own economic advisers suggests.

• Liberals love to trot out the example of the internet as government innovation that works, but it’s worth noting that the internet wasn’t designed with commercial purposes in mind, but rather as a communications tool for the military. And, in fact, many of the lingering inefficiencies of the internet stem from its government paternity, and a whole host of the improvements that have been made to it owe to market forces.

In an interview with CFIF, American Enterprise Institute President Arthur Brooks discusses a concrete and actionable plan for defending America’s core economic values from the corrosive doctrine of wealth redistribution and his latest book, The Road to Freedom: How to Win the Fight for Free Enterprise.

Listen to the interview here.

Over at the Wall Street Journal, James Grant, editor of Grant’s Interest Rate Observer has a perceptive review of the new book, “White House Burning: The Founding Fathers, our National Debt, and Why it Matters to You,” by former IMF Chief Economist Simon Johnson and University of Connecticut law professor James Kwak. Two passages deserve special attention.

On the banking system, Grant writes:

Here’s an idea: Let’s try capitalism for a change.

Rather than the bureaucratic monstrosity called the Dodd-Frank Act, for instance, why not hold the bankers personally accountable for the solvency of the institutions that employ them? Until 1935, bank stockholders would get a capital call if the company in which they had invested became impaired or insolvent. It was their problem, not the government’s. In the same spirit, suggests the New York investor Paul J. Isaac, let the bankers forfeit a portion of their past compensation—say, that in excess of 10 times the average manufacturing wage—if they steer their employer on the rocks. And let them surrender not just one year’s worth but rather seven year’s worth—after all, big banks don’t go broke all at once. Proceeds would be distributed to the creditors, as in days of yore. Bankers should not only take risks. They should also bear them.

And on the endless invocation of the Great Depression as the sole object lesson in how to respond to a severe economic downturn:

Messrs. Johnson and Kwak, who draw the usual conclusions from 1929-33, fail to mention the depression of 1920-21. Yet this cyclical downturn was as instructively brief as it was ugly. Peak to trough, nominal GDP plunged by 23.9%, wholesale prices by 40.8% and the CPI by 8.3%. Unemployment, as it was then inexactly measured, soared to 14% from a boomtime low of 2%. And how did the successive administrations of Woodrow Wilson and Warren G. Harding, along with the Federal Reserve, meet this national disaster? Why, they balanced the budget and raised interest rates. Yet for reasons never examined in the pages of this book, that depression promptly ended and the 1920s roared.

Grant’s theme? Responsibility, both personal and collective. That has the great virtue of being the right thing to do. It also has one even greater virtue: it works.

Last week, President Obama made the surprising announcement that Dartmouth University President Jim Yong Kim — a relatively obscure figure — was his nominee to become the next President of the World Bank, the international organization that works to spur economic development throughout the world. Thanks to some careful digging by the NYU Development Research Institute, we’re now learning a bit more about Jim’s views — and the details are a little startling. The Ivy League executive seems to think of economic growth as a zero-sum game — and one in which the developed world has been consistently sticking it to the little guys. A few excerpts from his writing:

… the quest for growth in GDP and corporate profits has in fact worsened the lives of millions of women and men.

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Using Cuba as an example, Chapter Thirteen makes the case that when leaders prioritize social equity and the fundamental right of all citizens to health care, even economically strapped governments can achieve improved and more equitable health outcomes.

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… [G]rowth – the market-led economic growth sought by governments, the growth in profits celebrated by businesses, and the growth in power and influence of transnational financial and corporate interests – often comes at the expense of the disenfranchised and vulnerable…  As the imperatives of growth at any cost increasingly determine economic and social policy and the behavior of global corporations, more people join the ranks of the poor and greater numbers suffer and die.

And if this isn’t bad enough, the final passage cited by the NYU group finds Jim quoting Noam Chomsky.

Dinesh D’Souza caught a lot of flak for positing in his book, “The Roots of Obama’s Rage,” that the president’s ideology could be traced largely to the Kenyan anti-colonialism of his father. While I think that D’Souza overstated the case rather severely, instances like this one remind us of the germ of truth to his argument.

Whether Obama is decrying a world where international negotiations were “just Roosevelt and Churchill sitting in a room with a brandy” or picking a new World Bank President who seems to find the very practice of capitalism predatory, there seems to be a consistent suspicion that someone somewhere is being victimized. Should Jim Yong Kim become the head of the World Bank, it will be the people of the developing world — caught in the downward economic spiral that always accompanies attempts at implementing “social justice” — who will be the victims.

Will someone please tell the Wall Street Journal editorial page that Mitt Romney is not Rick Santorum?

Over the past week there’s been a raft of handwringing at the conservative publication over Romney’s inability to make “the moral case” for all kinds of economic activity, such as private equity and capitalism’s risk and reward system.  Yet since Romney hasn’t risen to the challenge of defending the free market, surrogates have stepped forward in droves.  Two recent examples include a guest column that ran yesterday headlined “Newt’s Bain Opportunism is Mitt’s Opportunity,” calling on Romney to “make a moral case for free market capitalism.”  One of today’s editorials, “Mitt Romney’s 15%,” thinks the candidate’s disclosure of his tax rate gives him “the opportunity to make the moral and practical case for lower rates and fewer loopholes.”

The Journal and other economics-only conservatives are demanding too much from Romney.  He’s not a moralist.  As this revealing bio-piece makes clear, those who know him consider Romney a relativist.  Members of his church came to a similar conclusion when he challenged Ted Kennedy in 1994.  Remember, the defining characteristic of a relativist is that he doesn’t believe in absolutes.  For example, the idea that government should never force its citizens to purchase a product against their will…

Simply put, the reason Romney won’t make the moral case for capitalism is because he can’t make it.  It’s just not the way he approaches decisions in business or politics.  Like other New England Republicans, he sounds like a fiscal conservative, but he’s always willing to increase spending, and pass more regulations.  (See RomneyCare, the Salt Lake City Olympic Games bailout, etc.)  His history shows that he opts for what works instead of what’s right.

If the Wall Street Journal and its guest columnists are chagrined that Romney is unable or unwilling to defend beliefs they hold dear, then maybe it’s time they lower the temperature on the rest of the conservative movement who have been expressing the same disappointment with Romney since 2008.

I’m glad to see the Wall Street Journal’s editorial page echoing Troy’s advice to Mitt Romney to get out in front of the Bain-bashing and make a full-throated defense of free market capitalism.  But as both Troy and the Journal seem to allude to, Romney doesn’t appear capable or willing to make the case for democratic capitalism; the kind of market economy that emphasizes equal access and opportunities instead of guaranteed outcomes.

The way I’m using the term, democratic capitalism disdains the unfairness many perceive in the crony capitalism of Obama’s Solyndra deal, and in the bailouts of companies deemed too big to fail.  Americans don’t like it when public employee unions get tenure protections and better benefits than the private sector.  People feel cheated when General Electric pays no federal income taxes thanks to loopholes only the wealthy like Warren Buffet can exploit.  For the free market to work, people have to trust it, and right now Wall Street, the White House, and many other entrenched special interests from unions to rent-seeking businesses are making everyday Americans think the capitalistic system they’ve been sold is far from democratic.

In a sense, democratic capitalism is at the heart of Sarah Palin’s appeal.  Her entire career in Alaska was built around taking down entrenched interests enriching themselves at the expense of a fair system.  She exposed a corrupt state oil and gas commission; disrupted the state GOP’s patrician good old boys club by defeating an incumbent governor; and won a fight with a major oil company over its ability to exploit Alaska’s natural wealth without sharing some of it with residents.  These were the accomplishments that made her a maverick and put her on John McCain’s vice presidential radar.  When Palin was toying with a presidential run this time around, she gave a major speech blasting distortions of the economy that make the market less fair, and ultimately, less free.  Better than anyone to date, Palin communicates the Tea Party’s angst over Big Government into a larger narrative about the dangers posed by any segments of society that threaten the democratic element in America’s form of capitalism.

Now, I’m not saying that Mitt Romney is a foe of democratic capitalism.  What I’m saying is that he doesn’t appear comfortable articulating his understanding of the free market in a message that applies equally to executives and frontline workers.  That’s probably because he’s never been a frontline worker.  Of course, he’s worked hard – graduating with honors from Harvard law and business schools demands it – but as the son of an auto executive and governor whose first job out of graduate school was telling CEO’s how to fix their companies, Mitt Romney has never experienced capitalism from the factory floor.  That means he will have a hard time explaining the virtues of capitalism to people near the destructive end of capitalism’s creativity.

Fairly or not, if Romney is the nominee liberals will savage him as a member of the 1% who made millions replacing people with technology and exporting many of the remaining jobs overseas.  Conservatives who favor the free market should hope that Romney discovers how to articulate the democratic element of capitalism soon and well.  He could start by reading Troy’s excellent remarks as soon as possible.

It’s as clear a statement of what works (and what doesn’t) in providing economic growth and well-being as you’ll find. It’s a guide to not only the rightness but the utility of freedom. And it can be viewed in the time it takes to wait for a stoplight to change. It’s the new video from the good folks (yes, we’re not afraid to say it) at the Charles Koch Foundation. The only thing wrong with this project? That there aren’t more videos like this one:

Courtesy of a story from UK Reuters:

President Hugo Chavez blamed “criminal” capitalism on Sunday for global climate phenomena including incessant rains that have brought chaos to Venezuela, killing 32 people and leaving 70,000 homeless.

Worst hit is the coastal area of the South American OPEC member nation where millions live in precarious hillside shantytowns and mudslides have been toppling rickety houses.

Hmmm, an oil-rich nation with millions living in shantytowns? How often do you think that happens in capitalist societies, Senor Chavez?

Below is one of the latest cartoons from two-time Pulitzer Prize-winner Michael Ramirez.

View more of Michael Ramirez’s cartoons on CFIF’s website here.

While it keeps the entertainment industry’s wheels greased, that’s the conclusion that Reason has come to. And it’s hard to dispute their conclusion:

Here’s another proof that the most insightful thinking on the Right usually comes from those outside the political establishment.  Fr. James Schall, a political science professor at Georgetown University, draws out an important lesson from a familiar story in the Gospel of Matthew.  Known as “The Workers in the Vineyard,” this narrative of Jesus’s shows the owner of the vineyard paying the same daily wage to laborers who worked different amounts of hours.  When the workers who had labored the longest complained to the owner – a symbol of God – he asks the grumblers why they think he shouldn’t be generous.  Per Schall:

Modern theories of society hesitate to allow room for generosity. The owner’s property does not belong to him; it belongs to the community. Here, everyone gets only what is just. No room for generosity is allowed. All ownership that would allow for generosity is unjust. The early workers were deprived of what was rightfully theirs, even if they agreed on a set wage for the day.

In a state built on “rights” and “justice,” we find little room for generosity and abundance. Everything is controlled by the state. No one receives more than others. Envy rules. The capitalist parable, as I call it, when spelled out, deals with God’s ways with us. We can save our souls to the very end, even the worst of us. What is it to me, who have borne the heat of the day? In the divine owner’s contract with us, we must accept one condition, namely, His generosity. Many a just man refuses it. He will work forever only on his own terms.

Conservatives often intone the superior virtue of the private sector in healing the ills of society.  How refreshing to read an interpretation of Scripture that evidences the claim’s truth.

H/T: Jared Watson

As the Austrian economist Joseph Schumpeter memorably put it, the free market is about “creative destruction” —  rank, privilege, and status mean nothing if you can’t compete in the marketplace. Bad companies and products wilt under competition from more capable rivals.

Applying these kinds of first principles to policy debates can be unwieldy at times, however, if they don’t exactly square with your political coalition. Republicans have been wed to the business establishment for decades on the notion that those who philosophically support the free market and those who actually grind the gears of commerce on a daily basis are natural allies. Not necessarily, says Wisconsin Congressman Paul Ryan in an interview with RealClearPolitics. When asked about the current state of the economy:

Republicans messed this up too. We have to remember that we’re also to blame for having practiced crony capitalism. But where we are right now — it’s a systematic expansion of this doctrine. For us, it’s easier to fix because we just have to rededicate ourselves to our principles. For Democrats, they would have to repudiate theirs, because crony capitalism sits nicely with their philosophy. You can sort of see an alignment here where big business and big government find a common agreement and that is a very big danger to our free market system. So we need to go back to being pro-market, instead of just pro-business. And there is a difference.

Ryan is one of the brightest members of Congress around (his comprehensive plan for restoring America’s economic health is referenced extensively in the interview and can be found here) and it’s nice to see an elected official finally making this too-oft ignored distinction.

For a man of such supposed intellectual prowess, Barack Obama certainly seems oblivious to any sense of irony.

Attempting to stanch his hemhorraging public aproval numbers, Obama yesterday retreated to phony populism by proposing $90 billion in new taxes upon American banks. It must be noted that many of these banks have already repaid the questionable bailout funds that they received, and are now staring at a form of double jeopardy.

Obama’s misguided proposal contradicts his own stated goal of encouraging bank lending in this choppy economy, because the new tax will undercut banks’ ability to create new loans.  Further, the tax will merely be passed on to strapped American consumers, as all corporate taxes ultimately are.  It’s such a terrible idea that even Democrat Senator Kristen Gillibrand voiced opposition, saying it “could disproportionately affect New York City’s economic recovery, which relies on a growing financial services industry.”

Disregarding this reality, Obama was undeterred, sanctimoniously thundering, “we want our money back, and we’re going to get it.”

We feel the same way, Mr. President.  In just the first year of your administration, we have seen you squander our hard-earned dollars on failed “stimulus” behemoths and bureaucratic boondoggles on behalf of labor unions and other favored special interests.  We have seen you triple the budget deficit after telling us duirng your campaign that you were going to reduce it by scouring the budget “line by line.”

Yes, Mr. President, we also want our money back.

The Small Business & Entrepreneurship (SBE) Council this week released its annual ranking of individual states by business friendliness, and the results aren’t surprising to anyone who understands the importance of lower taxes, less regulation and fewer labor burdens.

After noting the inhospitable business environment cultivated by the Obama White House and the Pelosi-Reid Congress at the national level, SBE Council chief economist Raymond Keating highlights the critical role played by individual states in fostering small business growth.  As Mr. Keating notes, “small businesses, of course, drive innovation, economic growth and job creation.  If we want to get our economy back on a solid, robust growth track, then we need pro-entrepreneur policies at the federal, state and local levels.”

The study incorporates some 36 government-related factors, including tax rates, regulatory costs, state government spending, property rights and energy costs.  And the results are not shocking.  Pro-growth states like Texas, Florida and South Dakota lead, whereas notoriously basket-case states like California and New York sink toward the bottom.

It’s often said that the states serve as policy test laboratories in our federal system, so here’s hoping that someone directing our national levels of government learn the simple lessons offered by the SBE Council’s latest report.