The Magazine

Give Us Liberty

The economic consequences of government.

Jun 18, 2012, Vol. 17, No. 38 • By MATTHEW CONTINETTI
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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.