The Magazine

Give Us Liberty

The economic consequences of government.

Jun 18, 2012, Vol. 17, No. 38 • By MATTHEW CONTINETTI
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Will Smith was about to be surprised. 

President Obama, Senator Reid, and Speaker Pelosi

AP

It was mid-May, and the actor was appearing on French television to promote his latest blockbuster. The host wanted to hear the Fresh Prince’s thoughts not only on Men in Black III but also on American tax rates. “I have no issue with paying taxes and whatever needs to be done for my country to grow,” Smith said. “So I will pay anything that I need to pay to keep my country growing.”

Even the 75 percent top rate proposed by the newly elected French president François Hollande, the host asked? Smith’s movie-star grin contorted in disgust: “Seventy-five?” he said. “Yeah, that’s different.” He looked from side to side, perhaps wondering if President Obama was lurking off-camera to punish him for such apostasy. “That’s different. Yeah, 75. Well, you know, God bless America.”

Will Smith reacted viscerally because a top tax rate of 75 percent offended his sense of justice. It might be right, in his view, for the government to take 30 or 40 percent of a rich person’s earnings, but taking 75 percent would not be right at all. It would be wrong. Unjust.

One of the virtues of Arthur Brooks’s new book on the morality of free enterprise is that it supplies empirical support for Smith’s intuitive reaction. The Road to Freedom is personal and idiosyncratic, filled with autobiographical asides, references to the author’s wife and children, corny jokes, and the occasional pop culture allusion. But it also has a serious intent. Brooks attempts to prove, scientifically, the “moral legitimacy of free enterprise” by testing whether the system “enables people to flourish,” whether it is fair, and how it “treats the least fortunate in society.” He argues that free enterprise passes all three tests, and he makes a good case.

Consider human flourishing. Ex--panding on arguments he made in The Battle (2010), Brooks says that high tax rates are wrong not only because they damage the economy, but also because they violate the principle of earned success. You are more likely to be happy, he observes, when you create “value with your life or in the lives of others,” and the happiness of the people ought to be the goal of any society that aspires to morality. Brooks cites social science research to conclude that money might not make us happy, but it does serve an important purpose: Dollars and cents are an “index of success—an imperfect one at that—not success itself.” We require such an index because it is the only way to “keep score,” to know how we are doing at the game of life, to measure the link between effort and reward.

There is of course the danger of assigning too much value to money—the danger of materialism—but at the end of the day the incomes we earn suffice as one measure of the value we create in our lives and in the lives of others. When government takes too large a chunk of those incomes, it interferes in the scorekeeping process, breaks the link between effort and reward, and undermines earned success. An unlimited government inculcates the very opposite of earned success, what Brooks calls “learned helplessness” or dependence. This is “a state in which, if rewards and punishments are not tied to merit, people simply give up and stop trying to succeed.” When we cease to be self-reliant and rely instead on unearned rewards from others, we develop an entitlement mentality that erodes our character and bankrupts our polity. 

Why does government obstruct earned success? Brooks’s answer is that too many of us misunderstand fairness. Nancy Pelosi and Barack Obama, for example, think in terms of “redistributive fairness.” They are offended by the fact that some individuals have larger pieces of cherry pie than others. They want to divide the pie equally so that every individual receives an equal slice. They are champions of the bureaucratic or administrative state, which serves as the pie-cutter, redistributing income across society so that everyone receives his fair share.

But Pelosi and Obama do not have a monopoly on fairness. Brooks proposes a second definition: “Meritocratic fairness,” in which “fairness means matching reward to merit” and “forced equality is inherently unfair.” A Tea Party activist earned his income or property fair and square, without breaking any laws or infringing on another’s rights, and therefore has a right to use it as he sees fit. That might mean he wants to invest his surplus income in the stock market, or save it in a bank account, or buy bars of gold. Whatever he does, Nancy Pelosi cannot claim that income is the government’s by right. The activist earned it. It is his.

Brooks is not an anarchist; he does not want to vanquish redistribution altogether: “Most serious economists also believe that a social safety net in a civilized country is appropriate to prevent the worst predations of poverty.” He is not arguing for corporate cronyism or the “unjust allocation of rewards to anyone, rich or poor.” He seeks a society that respects meritocratic fairness by interfering as little as possible with the inner workings of the economy and shrinking the wedge that government extracts from a citizen’s earnings. A society that satisfied Brooks’s first two conditions—human flourishing and meritocratic fairness—would almost certainly fulfill his third condition of improving the lives of the poor. The link between market economics and the alleviation of poverty is well established: One can see it happening, in real time, throughout Asia, where hundreds of millions of people have seen their standard of living rise over the last several decades.

Having made his argument for free enterprise, Brooks moves on to applying market principles to the major issues of the day, such as America’s profligate public spending, exploding national debt, trash heap of a tax code, and smothering Federal Register of regulations. The attentive reader cannot help noticing, however, that Brooks’s moral case for capitalism depends rather heavily on the material consequences of capitalism. “To fulfill the moral promises of the pursuit of happiness, basic fairness, and help for the less fortunate, America’s economy must continue to grow,” he writes. Presumably, free enterprise results in economic growth, which, in turn, satisfies Brooks’s criteria for justice.

But what if the economy stops growing? What if free enterprise fails on its “moral promises”? Are we then justified in shucking economic liberty to the side in favor of more state control or communal ownership of the means of production, or some heretofore unimagined, post-material economic system? Economic growth can be a fragile reed on which to hang an entire worldview—or a political party. Growth slows. Economies crash.

And what precisely is free enterprise? Brooks says it’s “the system our Founders left us to maximize liberty, create individual opportunity, and reward entrepreneurship.” But this describes the system’s ends without explaining its means. This definition also verges on anachronism, since “free enterprise” is a phrase the Founders would not have recognized. (The coinage derives from the late 19th century and was deployed by the partisans of a lightly regulated industrial capitalism.) The Founders may have been more familiar with the system of “natural liberty” that Adam Smith extolled in The Wealth of Nations, as well as with the largely agricultural and small-scale manufacturing economy of their own day. Even then, the Founders, many of whom supported tariffs, did not always follow Smith’s lead. Turning to the Founders does not necessarily get us closer to what Brooks means when he says “free enterprise.”

Neither does looking at our country today. America is typically considered the paragon of free enterprise, or “cowboy capitalism,” but this reputation, as Brooks admirably points out, is largely false: “Despite all the claims that America is organized on free market principles, over the decades it has become arguably just as socially democratic as Europe.” Total spending at all levels of government was 8 percent of the economy in 1913. It was 36 percent in 2010. Our corporate tax rate is the highest in the world. Our per capita debt burden is higher than Greece’s. Our economy, like that of other social democracies, has stalled as the state has expanded.

One takes “free enterprise” to mean an economy with low rates of personal and corporate taxation, minimal welfare spending, free trade, low barriers to business formation, and as few rules and mandates as possible. And one finds it hard to name a locale other than perhaps Hong Kong or Singapore where these policies are currently enforced simultaneously. Certainly they were not all in force in the United States during the postwar boom, or even during the Reagan or Clinton booms. Federal spending has floated around 20 percent of the economy pretty consistently for decades, with tax revenues slightly lower at 18 percent of the economy. Our debt as a percentage of the economy has waxed and waned over the centuries, and skyrocketed after Richard Nixon severed the dollar from gold in 1971. Yet the American economy grew at a brisk pace nonetheless, before it seemingly hit a wall at the turn of the millennium.

Did America reach the social-democratic tipping point around the time George W. Bush was elected president? Doubtful. That is why “free enterprise” seems like either a normative ideal that is close to impossible to realize in a democracy—or a category so expansive as to be practically meaningless. What the Founders left us was not a specific economic system but a constitutional republic that relies on a specific set of institutional arrangements to limit the ability of one faction of the population to infringe on the equal natural rights of another. 

Some of those rights have economic components, but The Road to Freedom is less about rights than it is about fiscal and regulatory policy. That is a missed opportunity since, as Brooks suggests, the moral case for limited government and economic freedom can be found in the political principles of the American Founding. The Founders believed that every human being is born with certain inalienable rights that exist prior to the establishment of civil society and government. They are rights attached to our bodily natures and therefore literally cannot be taken from us unless we die. Our very existence gives us the right to life and therefore the right to self-defense. Our capacity for reason and conscience and worship give us the rights to civil and religious liberty. Our capacity for work gives us the right to property that results from our labor.

Government, in the Founders’ understanding, is instituted to protect equally these natural rights to life, liberty, and property—for investors and laborers alike. As Thomas Jefferson said in his first Inaugural Address, America needs 

a wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned.

Abraham Lincoln thought government should secure “free labor—the just and generous, and prosperous system, which opens the way for all—gives hope to all, and energy, and progress, and improvement of condition to all.” And in his 1984 address to the Republican National Convention, Ronald Reagan noted that inflation’s victims were not only the wealthy but also “working men and women.”

Work is what takes us from learned helplessness or dependence to earned success and independence. Through public policy, governments and societies affect how much we work, and for what reason, and for whose benefit. Government can pay us not to work, or it can tax our labor and incomes and investments to such an extent that we do not work harder on the margin. Not only do we make less money; we lose some of our sense of self-worth. We lose our right to labor, and to the benefits of our labor. Jefferson, Lincoln, and Reagan understood: Governments that assert a claim to a citizen’s property will have no trouble asserting a claim to his conscience as well. It cannot be a coincidence that the Obama administration, which wants to “spread the wealth around,” also coerces religious institutions to provide contraceptives and abortifacients to employees. In both cases, Barack Obama believes his vision of the good trumps the equal rights of others.

Read The Road to Freedom for its explication of earned success, its definition of meritocratic fairness, and its moral commitment to using free exchange to improve the lives of the destitute. But don’t forget that the moral truths that animate this admirable book, and others, cannot be found in economics or statistics or social science. They are found in the individual dignity of every human being, and in the natural equality of man. Will Smith’s ability to pursue happiness does not depend on our 35 percent top tax rate. It depends on the depth of our commitment to the vision of the Founders.

Matthew Continetti is editor in chief of the Washington Free Beacon.