As we see in Moore’s new movie, Capitalism: A Love Story, Moore is offended by some truly offensive things: banks engaging in wild speculation without concern for the risk, taxpayer bailouts for banks and other businesses, cozy relations between Wall Street and Washington, politicians getting favors from companies that want benefits from government, and big institutions pushing less powerful individuals around. True, he’s offended by some inoffensive things as well, such as the cut in the 90 percent top income-tax rate nearly 30 years ago. But by and large, what he rails against should be railed against.

(Update: Moore gets the tax-rate story wrong, and I let it get by me. The 91 percent top marginal rate fell to 77 in 1964 and 70 in 1965; this was the Kennedy tax cut — I wonder why Moore didn’t say that Democrats John Kennedy and Lyndon Johnson were the rate cutters. Under Republican Ronald Reagan, whom Moore wishes to demonize for cutting taxes for the rich, the rate dropped to 50 and eventually to 28 percent. HT: Gary Chartier.)

Had he called his movie State Capitalism: A Love Story, I might be applauding (with some reservations). But he’s targeting the more ambiguous “capitalism,” which he uses interchangeably with “the free market.” He can be forgiven for this, however. Most people would say that the current U.S. economic system is capitalist. Moore has probably heard that all his life. He’d hear if he watched a Fox financial program. Would Ben Stein or Lawrence Kudlow disagree? Moore has also heard Republican politicians, George W. Bush, for example, praise the existing system, with all its deep government interventions, as capitalist. He did this even as he and Treasury Secretary Henry Paulson, former chief of Wall Street behemoth Goldman Sachs, stampeded Congress into passing the $700 billion TARP bailout last year. Moore takes such people at their word: The free market is capitalism, and capitalism is what we have today.

Can we blame him for thinking this way?

Yes, it’s sloppy thinking, and had he been more curious and read beyond the confines of “Progressive” literature, he could have gotten the straight story. But many knowledgeable advocates of the free market contribute to the confusion by exhibiting what Kevin Carson calls “vulgar libertarianism,” or what Roderick Long describes as “the tendency to treat the case for the free market as though it justified various unlovely features of actually existing corporatist society.” How often have you heard a free-market advocate condemn pro-business intervention in one breath, then defend existing dominant corporations in the next — as though they did not arise in the interventionist environment just condemned? Pro-market is not the same as pro-business. If some market advocates don’t understand that, why should Moore? Vulgar libertarianism is a disconnect that makes the free-market philosophy look like a corporate apologetic. It’s done incalculable damage to the cause of freedom, in part by alienating potential allies. Who knows, maybe even Michael Moore.

Aversion to Profit

This may go a long way in explaining Moore’s aversion to profit — at least other people’s. He associates profit with business, which he associates with (state) capitalism. So for him, profit per se is suspect. But he should see a problem here. Does he think he’s exploiting moviegoers when his production company ends up with a profit? Do the co-ops and worker-owned firms he loves exploit their customers when they sell their products for more than their money costs? When two people barter, are they mutually exploiting each other because each gets more value than he gives up? To consistently oppose profit, one would have to oppose all human action, since every action aims at a surplus of subjective benefit over subjective opportunity cost.

Cornered like this, Moore might say he’s only the against excessive profits that capitalist market power permits. But now we’re back where we started. To the extent that intervention hampers competition by erecting barriers to entry — which is the usual effect, intended or not — protected firms are free to charge higher prices and reap more profits than would have been the case in an open market. Corporate power and privilege derive from political power and can’t exist without it. In contrast to existing capitalism, the truly free market would have no legal barriers to competitive entry, assuring that prices and returns are economically justified and not the fruits of privilege. Strictly speaking, entrepreneurial profit in a true market gets competed away because the very process of capturing them reveals valuable information to others and invites imitation. It takes innovation and efficiency — that is, superior service to consumers — to create new profits. Only the State permits business to make profits by withholding benefits from consumers.

But Moore doesn’t know this. What he “knows” is that the choice is between the current corrupt system — and it is corrupt — and some vaguely defined scheme of control by benevolent politicians, which he calls socialism and democracy.

In his movie Moore expresses affection for socialism, but he’s not clear what he means. He never advocates collectivization of the means of production or the abolition of markets. Instead he suggests that socialism means workers having a say in how the companies they work for are run. But why assume that’s anti-free market? He praises worker-owned companies and notes that hundreds of them exist in the United States today. He might be surprised to learn that these things are entirely compatible with the free market. In fact, it’s a perfectly libertarian intuition to abhor being subject to the arbitrary whim of anyone — yes, even a private employer. If government regulatory and tax obstacles to new competition and self-employment did not exist, workers would have their maximum bargaining power and widest array of alternatives. I imagine we’d see more departures from the traditional firm. People used to get their “social insurance” from mutual aid societies. Maybe in a true free market, we’d see a bigger role for the employment counterpart to these public, yet not governmental, organizations.

What would Moore think about a system in which no one could collude with politicians to legally plunder the rest of us for their own benefit and everyone was free to enter into any cooperative arrangements to produce and offer goods to others in voluntary exchange? Michael, that’s the free market!

FDR’s Second Bill of Rights

Of course, Moore naively looks to government to provide things. His movie laments that FDR died before he could see his Second Bill of Rights enacted. Roosevelt wanted government to guarantee everyone a good education, job, home, health care, and so on. Has Moore ever wondered where government would get the resources for this? He can’t really believe that somewhere there’s a massive pot of collective wealth waiting to be distributed. He must realize that the tax system would provide the money. But how can he not know that if government appears to penalize wealth creation with confiscation, less wealth will be created?

Moore is unaware that he commits the “Nirvana fallacy.” This is the erroneous idea that our choice is between the admittedly imperfect world we’re bound to live in if government leaves us alone and an imagined utopia in which benevolent and all-wise rulers oversee and regulate everything. Of course that is not the choice. Moore’s preferred system, whatever he calls it, would be run by individuals whose insight into the public interest would be no sharper and whose motives no purer than other people’s. However, since they would wield political power — which is the legal authority to compel obedience– they would be far more dangerous than anyone in a free market could ever be. He knows how corrupt politicians are. Why does he think different people would run things in his utopia? Does he really want them in charge of everyone’s job, education, health care, housing, pension, and the rest? It’s hard to understand why he isn’t uncomfortable with the idea of the people being tenants and employees of the State.

Whether he realizes it or not, Moore favors a system in which an elite necessarily would make critical decisions for the rest of us. He’d be incredulous to hear that, but if he ever comes to understand it, libertarians might end up with an unlikely ally.

Related posts:

1. Book Review ~ Experiment in Liberty by William Moore Gray III
2. Book Review ~ Its Getting Better All the Time: 100 Greatest Trends in the Last 100 Years by Stephen Moore and Julian L. Simon
3. Book Review: The Madisons: A Biography by Virginia Moore and The Great Rights of Mankind: a History of The American Bill of Rights by Bernard Schwartz

Indeed.

From the setting forth of praxeology as the a priori science of human action, to the description of the market’s operation, to the explanation of the business cycle, to the proof that rational central planning is impossible, Mises’s work is nothing less than a work of art. It faithfully captures the elegant orderliness of social reality that grows out of the logic of human action. I could go on, but instead I will reprint here, slightly edited, what I wrote in these pages nine years ago. I can’t improve on it.

If I had to pick my favorite sentence in all of Mises’s Human Action (a daunting task in a 900-page book), it would be this one: “The fact that my fellow man wants shoes as I do does not make it harder for me to get shoes, but easier” (p. 673 of the Third Revised Edition). That sentence may seem rather pedestrian compared to all the sentences Mises used to establish the science of praxeology (human action) and to spin out its countless implications for economics. But it’s a perfect example of how Mises showed that untutored intuitions about social interaction are often wide of the mark.

There is an old school of thought, widely identified with the Reverend Thomas Malthus, but actually quite older, that held the opposite of Mises’s position. Beginning with the undeniable assumption of scarcity, that school believed the human race was doomed to misery. Population would grow until it strained the carrying capacity of the environment; then starvation, disease, and conflict would set in and scale back the numbers. This process was assumed to be more or less the permanent fate of mankind.

How could it not be? Growing numbers of people would be vying for limited resources. Life had to be poor, nasty, brutish, and short—though not, as Hobbes had it, solitary. Mises was surely not the first to see it otherwise, but he was second to none in spelling out why the pessimists are wrong. He first seemed to concede their point, then zeroed in on what they missed. “The characteristic mark of the ‘state of nature,’” Mises wrote, “is irreconcilable conflict. The means of subsistence are scarce and do not grant survival to all . . . . The source of conflict is always the fact that each man’s portion curtails the portions of other men.”

What saves man from the dismal existence of wild animals? The division of labor, the first topic taken up by Adam Smith in The Wealth of Nations. As Mises put it, “What makes friendly relations between human beings possible is the higher productivity of the division of labor. It removes the natural conflict of interests. For where there is division of labor, there is no longer question of the distribution of a supply not capable of enlargement.” Mises drives home the point: “Because many people or even all people want bread, clothes, shoes, and cars, large-scale production of these goods becomes feasible and reduces the costs of production to such an extent that they are accessible at low prices.”

The upshot is that because of the productivity specialization makes possible, the rest of the animal kingdom holds few lessons for mankind. Anyone who believes government’s role is to temper the market with cooperation needs to learn that lesson. The market is cooperation.

***

To celebrate the 60th anniversary of the publication of Mises’s Human Action, we’ve brought together several high-powered contributors, spanning several generations, all with a special connection to the man and the groundbreaking book: Israel Kirzner, who earned his Ph.D. under Mises at New York University and who is regarded as the dean of Austrian economics; Bettina Bien Greaves, a retired FEE staff member who was Mises’s close friend, attended his NYU seminar, and compiled a bibliography of his work; Peter Boettke, a leading member of the “third generation” of American Austrian economists and professor of economics at George Mason University, which has the most Austrian-oriented economics department in the United States; and Peter Leeson, visiting professor at the University of Chicago and one of the rising stars of Austrian economics. Finally, the Human Action tribute winds up with Henry Hazlitt’s 1949 Newsweek column about the treatise. Hazlitt had much to do with introducing Mises to American readers.

I hope you enjoy the photo spread of Mises reflecting his close association with FEE.

Also in this issue, Sanford Ikeda registers his discontent with economics reporting in the newspapers, especially the way the definitions squeeze out any place for Austrian economics.

Barack Obama would have us believe he is ushering in a post-ideological age, where preconceived notions are equated with dogmatism. Mario Rizzo cautions that to throw out ideology is to throw out something important.

The last year of Fed expansion, bank nationalizations, “stimulus” spending, and bailouts has put the American economy even deeper into the arms of the State. In fact, Randall Holcombe says, these measures and precedents have fundamentally changed the U.S. economy.

Congress has decreed that tobacco will no longer go unregulated. Unregulated? Are those folks in Washington joking? Bruce Yandle relates the long history of tobacco regulation.

Here’s what our columnists have whipped up: Lawrence Reed wants to know who bailed out whom over the last year. Robert Higgs looks at big business’s role in the emergence of American statism. John Stossel imagines what would result from a truly competitive healthcare system. Charles Baird looks at the Employee Free Choice Act. And Steven Horwitz, reading claims that saving is keeping the economy in recession, responds, “It Just Ain’t So!”

This issue’s reviewers scrutinize books on the New Deal, ownership, global economics, and debt.

Readers react to past articles in Capital Letters.
—Sheldon Richman

Related posts:

1. What Human Action Has Meant to Me: Reflections of a Young Economist
2. Human Action: The Treatise in Economics
3. Human Action: The 60th Anniversary

Never mind the federal government’s own indispensable role as an enabler in the crisis, from its reckless monetary policy to its jawboning banks into making dubious mortgage loans. Never mind the long-term danger of its assumption of colossal new obligations and the moral hazard in the message its intervention sends. My response to my friend was of a more narrow focus. “Thank God we have the private sector to bail out the federal government not just last week, but every week!” I exclaimed.

Think about it. Taxes on the private sector pay a majority of the federal government’s bills. For most of the rest, the government borrows by selling its debt obligations, mostly to private-sector entities–including banks, insurance companies, and individuals.

The federal government is the world’s biggest taxer and the world’s biggest debtor. If those of us in the private sector didn’t pay our taxes or didn’t buy Washington’s paper, the feds would have gone belly-up decades ago. We’ve rescued Washington to the tune of tens of trillions of dollars over the years. A big difference between Washington’s bailing out the private sector and the private sector’s bailing out Washington is that the private sector has to work, invest, employ people, and produce goods to come up with the cash. It can’t create it out of thin air like Ben Bernanke can.

Our friends in Washington have blessed us with future burdens almost too astronomical to comprehend.  In the name of taking care of us in our old age, we are saddled with no less than $6 trillion in Social Security payouts over the next 75 years–for which there are no presently earmarked funding streams. According to Brian Riedl of the Heritage Foundation, the unfunded obligations for the new federal prescription drug program, enacted under President Bush, total another $8 trillion.

On and on it goes. The private sector has an awful lot of bailing out to do in the coming decades. I shudder to think how deeply we taxpayers will have to dig in the not-too-distant future to pay the bills of our benevolent, compassionate, and forward-thinking government.

Since Barack Obama took office in January 2009, the federal government has spent a full billion dollars every single hour. Before his term is half over, federal spending will have doubled in just a decade. The deficit in one year’s budget is now as large as the entire budget in George W. Bush’s first year as president, 2001–and I thought not very long ago that the spending spree he and the Republicans gave us would be tough to beat! The flood of red ink is now adding to the national debt to the tune of about $4 billion every day. At well over $11 trillion, that debt amounts to $37,000 for every living American.

Too Big to Succeed?

We’re told by the wise planners in Washington that certain private firms are “too big to fail.” So we’re handing big chunks of them over to the government.

The question we all should be asking ourselves is this: Are we trusting our economy and our lives to a government that is too big to succeed?

Once upon a time in America, most citizens expected government to keep the peace and otherwise leave them alone. We built a vibrant, self-reliant, entrepreneurial culture with strong families and solid values. We respected property and largely kept the spirit of the Eighth and Tenth Commandments against coveting and stealing. We understood that government didn’t have anything to give anybody except what it first took from somebody and that a government big enough to give us everything we want would be big enough to take away everything we’ve got. We practiced fiscal discipline in our personal lives and expected nothing less from the people in the government we elected, or we threw them out.

But somewhere along the way we lost our moral compass. And just like the Roman Republic that rose on integrity and collapsed in turpitude, we thought the “bread and circuses” the government could provide us would buy us comfort and security.

We gave the government the responsibility to educate our children, though government can never be counted on to teach well the main ingredients of a free society–liberty and character–or just about anything else, for that matter. We asked the government to give us health care, welfare, pensions, college education, and farm subsidies, and now our politicians are bankrupting the country to pay the bills. This welfare state of ours has become one big circle of 305 million people, each with his hand in the next fellow’s pocket.

This is a government whose reach even before the financial crisis scarcely left an aspect of American life untouched, from the cradle to the grave and the volume of our toilet-bowl water in between. As a portion of our personal income, its tax and regulatory burden consumes at least five times what it did just a century ago. But to the majority on the Potomac, government is nowhere yet big enough. This is madness writ large.

Stick to the Knitting

Remember In Search of Excellence, the 1982 best-selling management book by Tom Peters and Robert Waterman? One of its salient points is that an organization gets off track when it no longer “sticks to the knitting.” When it allows its mission to blur and stretch far beyond its founding design, when it becomes distracted by endless and dubious new responsibilities, its core competency evaporates. It will fail to do what it is supposed to do, because it’s doing too much of what it’s not supposed to do.

It may come as a surprise to those who see aspirin made in Washington as the cure for every ailment, but the federal government is not God. It can’t even be a good Santa Claus. It’s no Mother Teresa either, because on those occasions when it does some good it usually costs an arm and a leg and sends a big part of the bill to generations yet unborn. The fact is, the bigger government gets, the more it starts to look like Moe, Larry, and Curly.

Accentuating the madness of the present day, the cover of Newsweek declared last March, “We are all socialists now.” Pardon me, but I’m not about to sign on to a proven flop.

Related posts:

1. World in the Grip of an Idea: 33. Conclusion: Loosening the Grip of the Idea
2. Corporate Mergers: Method or Madness?
3. Gender Madness on Columbias Campus

A competing tale, popular among many libertarians and some left-radicals, presents the rise of big business as leading directly to satanic endeavors. This version maintains that the big businessmen, however virtuous they might have been at the outset, ran into trouble because of rampant competition among the emergent big firms. To suppress this irksome, profit-sapping market phenomenon, they used their wealth diabolically to influence or bribe lawmakers to create government programs, regulatory agencies, and so forth that, in effect, allowed them to wield the government’s coercive power in the service of propping up their cartels, suppressing competition, and maintaining excessive profits. The classic exposition of this interpretation is Gabriel Kolko’s The Triumph of Conservatism (1963).

Unfortunately, although these morality tales contains grains, or even big chunks, of truth, each leaves out a great deal of important, relevant evidence. In short, reality was much messier than either interpretation suggests. It is difficult to read deeply researched books such as Robert H. Wiebe’s Businessmen and Reform (1962), Morton Keller’s Affairs of State (1977), and Martin J. Sklar’s The Corporate Reconstruction of American Capitalism, 1890–1916 (1988) and cling to any simple interpretation of the relationship between the rise of big business and the growth of government.

Part of the difficulty arises from the vastness and complexity of the U.S. economy. A multitude of organized interest groups emerged to lobby the various levels of government. Although the federal government became increasingly weighty in the overall mix of interventions, the states and the large cities continued to play important roles–for example, such outright socialism as appeared in the United States arose primarily at the municipal level, especially for so-called public utilities, such as electricity and gas production, and local mass transit, such as streetcar service.

No serious scholar denies that businessmen played important parts in creating the interventionist state. “But who,” Wiebe asks, “are the businessmen? Sometimes they appear to be a handful of particularly successful and powerful men [Murray Rothbard emphasized especially the kingpins in the "Morgan ambit"]. At other times the community presumably includes everyone from the chairman of U.S. Steel to the corner grocer, without information on how, if at all, their thoughts and actions differ.” Wiebe is more impressed by the businessmen’s differences and rivalries than by their agreements. For example, the big New York bankers, notwithstanding their obvious clout, often had to contend with dissident bankers in major financial centers such as Chicago, Boston, Philadelphia, St. Louis, and San Francisco, who did not relish being overshadowed by the Wall Street titans–which is one reason (among several) why the Federal Reserve Act of 1913 created not a single central bank but twelve regional banks.

Wiebe concludes: “Among those prominent in the movements for a regulated economy were businessmen and farmers after greater profits, politicians in need of an issue, journalists in search of a story, a new class of economic and administrative specialists looking for ways to utilize their knowledge, and clergymen hoping to re-establish morality in industrial America.”

In substantial part, what made the big business (”trust”) question so politically salient in the late nineteenth and early twentieth centuries was not so much the increasing size of the leading firms as it was the emergence of a national (that is, interstate) market fostered by the development of new technologies of transportation and communication, especially the railroads (themselves described as “the first big business”) and the telegraph. When the scope of business had been local or at least predominantly intrastate for nearly all firms, government action in relation to business took place primarily on the local or state scene. As the national market came to characterize more and more businesses activities, established business-government relations became unstable and began to break down.

The giant corporations, which in many cases had become large in order to exploit new technologies and organizational structures that offered economies of scale and scope, entered increasingly into competition with the multitude of smaller firms serving previously fragmented local or regional markets. Firms threatened by the big interstate sellers sought protection by appealing to their local and state governments. For this reason, among others, local and state intrusions into market relations grew markedly in the late nineteenth century. The potential and actual mobility of firms, however, helped to contain these interventions, because companies pressed too hard simply left the jurisdiction.

At the same time, the big firms’ owners, harassed by dozens of state governments and their rapacious politicos, began to see the wisdom of federal regulation. Perhaps, they reasoned, they might stand a better chance of escaping from meddlesome, costly, and fluctuating state and local regulations if instead they dealt with a single, national, regulatory body. Such an agency might also be used to keep the big firms’ own interstate competition in check, thereby maintaining their returns.

As both small and big businessmen organized and pressed for favorable government interventions, other groups increasingly entered the fray, defensively if not offensively: Farm, labor, professional, and academic associations formed and sought expanded government measures. The nineteenth century’s dominant ideology, a distinctly American version of laissez faire, seemed increasingly unable to restrain this grasping for economic advantage via enlarged government power.

Because ideology and political movements develop reciprocally, the pervasive reactions to the rise of big business around the turn of the twentieth century gave rise not simply to a proliferation of newly organized interest groups seeking government protection of threatened positions; it also prompted intellectuals, both independents and “hired guns,” to develop new rationales for more active government. Thus Progressivism as ideology developed concurrently with Progressivism as politico-economic practice, each aspect reflecting the changing socioeconomic opportunities and hazards created by the rise of big business and its repercussions throughout the economy.

Related posts:

1. The Growth of Government in the United States
2. Why Wages Rise: 12. Riding The Waves Of Business
3. Government in the Textile Business

Passage by the House is certain, but it may not pass the Senate in its present form. As we will see, compromises that have been suggested are just as indefensible as EFCA itself.

Legal scholar Richard A. Epstein has laid out a convincing case against the first two provisions in a new Hoover Institution book. Under card check, a union would become the monopoly representative of all nonmanagerial workers in an enterprise if 50 percent plus one of those workers signed a card (or other piece of paper or petition) indicating their support for such representation. Signatures would be collected by union organizers who would likely remind any dissenters that the union knows where they and their families live. Under the current National Labor Relations Act (NLRA), signatures collected on authorization cards are used as the basis on which secret ballot elections are called. Workers can avoid union intimidation by signing cards and then voting against the union on the secret ballot. Because of this unions now hesitate to request an election unless they get somewhere near 70 percent of the targeted workers to sign.

No Escape

Workers would have no such escape under the EFCA. Epstein writes that the NLRA was widely accepted because its infringement of individual workers’ common-law freedom of contract was thought to be adequately offset by democratic protections for workers–the very protections that EFCA would eliminate: the secret ballot and a ratification vote on collective-bargaining contracts. Therefore, he argues, EFCA may not withstand constitutional scrutiny.

EFCA provides that a firm must begin bargaining with a union for a first contract within ten days of a card-check certification. Bargaining then goes on for up to 90 days. If no agreement is reached, the dispute goes into mediation for 30 days. If they still don’t agree, the dispute is turned over to an arbitration panel that has the power to impose a two-year “contract” on both parties. The terms set by the arbitration panel would not be subject to judicial review or worker ratification.

The NLRA now imposes a duty on both parties to bargain in good faith over wages, hours, and other terms and conditions of employment. But they are not forced to come to an agreement. They each can exit the bargaining process and bear the consequences (strikes and lockouts). EFCA would eliminate the exit option. In ordinary contract law bargaining must be voluntary.  No one has a duty to bargain with anyone. Epstein says the duty to bargain in good faith was widely accepted because the exit option was preserved for both parties. This is another reason why the EFCA may not withstand constitutional scrutiny.

The NLRA also regulates employer speech during election campaigns. Employers cannot threaten to punish workers for voting for unionization, and they cannot offer to reward workers who vote against unionization; but they can point out the possible hazards of becoming union-impaired. EFCA would prohibit employer speech altogether. Epstein likens the distinction between regulating and prohibiting employer speech to the distinction in takings law between regulating the use of private property and government occupation of private property. Actual occupation of private property is subject to strict constitutional scrutiny, and so, too, may be the prohibition of employer free speech.

In the mid-1950s over one-third of private-sector workers were unionized. In 2008 only 7.6 percent were. Unions say their decline is due to weaknesses in the NLRA, which permit employers to thwart attempts to unionize. However, according to NLRB data illegal firings of union supporters occur in only 2.7 percent of representation elections. Moreover, unions won 56.8 percent of elections in 2000–2008. In 2008 they won 63 percent. If employers had as much power over elections as unions say, unions wouldn’t do nearly as well. Nor does it seem that employers try to wear workers down with prolonged campaigns. The average election campaign is less than six weeks.

Unions are losing members because the number of elections held each year and the number of workers involved in the elections are declining. Fewer and fewer workers are interested in unions. Union decline has nothing to do with employer misbehavior during elections. Union election wins add fewer newly unionized workers than the number of workers they lose due to the contraction of already union-impaired firms.

Senate Support

Although there are 60 Democrats in the U.S. Senate, several of them have said they will not support EFCA as currently written. Some congressional supporters, and the union bosses they serve, have suggested compromises to get 60 votes to avoid a filibuster. All would eliminate card check, shorten election campaigns, increase penalties on unfair labor practices, and impose “equal access” rules to force employers to allow union organizers on company property during work times and to grant unions the same amount of time to argue for unionization as employers use to argue against unionization. The CEOs of Costco, Starbucks, and Whole Foods have endorsed a compromise that includes all of the above and drops compulsory arbitration.

Mandating a uniform, short election campaign arbitrarily restricts the ability of employers to make their case against unionization. Increasing employer penalties for unfair practices further inhibits free speech because it is not clear what speech would be considered unfair. Whatever the degree of risk aversion among employers, they would choose to speak less.

Equal-access rules are especially problematic. For government to coerce employers to stand by while union organizers invade their property with the sole intent of imposing harms on them during time they have paid for seems to be an obvious government occupation of private property. Therefore it should be subject to strict constitutional scrutiny under the Fifth Amendment. Unions already have extraordinary access to workers during election campaigns. Employers are forced to supply unions with the names and addresses of all workers within seven days of the notice of an election. Union organizers may make unlimited visits to workers’ homes, contact workers by phone as often as they wish, and, unlike employers, make any promises they want to workers in pursuit of votes for unionization. The unions’ problem is not lack of access to workers; it is lack of any service that workers want to buy.

The biggest problem with any EFCA compromise is what, during the New Deal, came to be known as the camel’s-nose-under-the-tent strategy: First get what you can and then gradually grab the rest. Since President Obama seems determined to repeat and amplify the mistakes of Roosevelt, the only safe strategy against EFCA is to kill it outright.

Related posts:

1. Elections, Extortion, and Unions
2. How Bad Can it Get?
3. Neutrality Agreements: Bid for Union Power

I take it for granted that I can go to a foreign country, hand a piece of plastic to a total stranger who doesn’t speak English . . . and he’ll rent me a car for a week. Later,Visa or MasterCard will have the accounting correct to the penny.

Compare: Governments can’t even count votes accurately—or deliver the mail efficiently.

Yet now, somehow, government will run auto companies and guarantee us health care better than private firms? And the public seems eager for that!

If you think it’s mainly the political class and mainstream media that are clueless, listen to the doctors. Dr. Atul Gawande, in an otherwise interesting New Yorker article on health-care costs, disparages medical savings accounts and high-deductible insurance. First, he explains the theory behind this proposal to cardiologist Lester Dyke:
“[People would] have more of their own money on the line, and that’d drive them to bargain with you and other surgeons, right?”

Gawande comments, “He gave me a quizzical look.”

The doctors then dismiss the idea with a sneer.

“We tried to imagine the scenario. A cardiologist tells an elderly woman that she needs bypass surgery and has Dr. Dyke see her. They discuss the blockages in her heart, the operation, the risks. And now they’re supposed to haggle over the price as if he were selling a rug in a souk? ‘I’ll do three vessels for $30,000, but if you take four, I’ll throw in an extra night in the ICU’—that sort of thing? Dyke shook his head. ‘Who comes up with this stuff?’ he asked.”

I do. Adam Smith did. Market competition is what’s brought us most of what’s made life better and longer.

The Free-Rider Benefit

But the doctors have mastered the anti-free-market sneer: Markets are good for crass consumer goods like washing machines and computers, but health care is too complicated for people to understand.

That’s nonsense. When you buy a car, must you be an expert on automotive engineering? No. And yet the worst you can buy in America is much better than the best that the Soviet bloc’s central planners could produce. Remember the Trabant? The Yugo? They disappeared along with the Berlin Wall because governments never serve consumers as well as market competitors do.

Maybe 2 percent of customers understand complex products like cars, but they guide the market and the rest of us free-ride on their effort. When government stays out, good companies grow. Bad ones atrophy. Competition and cost-conscious buyers who spend their own money assure that all the popular cars, computers, etc. are pretty good.

The same would go for medicine—if only more of us were spending our own money for health care. We see quality rise and prices fall in the few areas where consumers are in control, like cosmetic and Lasik eye surgery. Doctors constantly make improvements because they must please their customers. They even give out their cell numbers.

Drs. Dyer and Gawande don’t understand markets. Dyer’s elderly woman wouldn’t have to haggle over price before surgery. The decisions would be made by thousands of 60-, 40-, and 20-year-olds, the minority who pay closest attention.

Word about where the best values were would quickly get around. Even in nursing homes, it would soon be common knowledge that hospital X is a ripoff and that Y and Z give better treatment for less.

People assume someone needs to be “in charge” for a medical-care market to work. But no one needs to be in charge. What philosopher F. A. Hayek called “spontaneous order” and Adam Smith called “the invisible hand” would make it happen, just as they make it happen with food and clothing—if only we got over the foolish belief that health care is something that must be paid for by someone else.

Related posts:

1. Medical Competition Works for Patients
2. Why Medicine Is Slowly Dying in America
3. The Consequences of Managed Competition

Gradually, however, as the original Roosevelt idolaters aged and died, more-balanced appraisals began to appear, and several good iconoclastic books have appeared recently, including: Thomas Fleming’s The New Dealers’ War, Gene Smiley’s Rethinking the Great Depression, Jim Powell’s FDR’s Folly, and Amity Shlaes’s The Forgotten Man. Now we can add Burton Folsom’s new book to the list.

Folsom builds his discussion around what he calls “the Roosevelt legend,” the handiwork of historians who idolize FDR, applaud the New Deal, and, if they cavil at all, do so only to lament that the New Deal did not create a socialist paradise. If Folsom does not give this legend a knockout blow, he certainly thrashes it severely, and no honest reader can come away from this well-documented book with a positive view of FDR or his economic nostrums.

Folsom presents a colorful overview of the economic events of the 1930s, drawing on the latest revisionist literature to strengthen his critique of the New Deal, but readers who want a strictly economic appraisal will probably do better by going directly to the new interpretive sources he employs. Where Folsom shines brightest is, first, in his appraisal of Roosevelt as a person and as a politician and, second, in his demonstration of the extent to which the vaunted New Deal was little more than a partisan political endeavor.

Roosevelt has always been renowned for his charm and charisma, and there is no gainsaying that many people were taken in by his ebullient self-confidence. Underneath this appealing surface, however, the real Roosevelt was anything but attractive. Instead, he was callous, self-centered, manipulative, and chronically dishonest. Having been an indifferent student, he was, in Folsom’s words, “no intellectual.” In particular, he knew little about economics and made scant effort to learn. Nevertheless, he pushed through his hugely unsettling economic policies largely to serve political ends, justifying his actions with the foolish idea that merely “trying something” made sense even though he had no idea of the economic effects this blind flailing would produce.

Folsom presents a valuable discussion of the great extent to which taxes were increased during the 1930s, especially excise taxes–on alcoholic beverages, gasoline, cigarettes, radios, movie tickets, and many other goods–that bore relatively heavily on lower-income people. From 1933 through 1936, federal excise taxes exceeded federal individual and corporate income taxes combined, and during the following four years excises always brought in at least 40 percent of federal revenue. After 1935 Social Security payroll taxes diminished poor people’s wages disproportionately.

Especially from 1935 onward, Roosevelt plunged into class warfare. He sought a variety of soak-the-rich taxes and got Congress to approve several of them, including an economically damaging tax on corporate retained earnings, a prime source of funding for new firms. He sent the IRS on punitive expeditions against political opponents Huey Long and Hamilton Fish, newspaper publishers William Randolph Hearst and Moses Annenberg, and former Treasury secretary Andrew Mellon, among others. At the same time, he instructed the IRS to back away from investigations of political favorites. The President also directed the FBI to investigate people he disliked.

Folsom gives an eye-opening account of various ways in which the Roosevelt administration used the billions of dollars of relief funds at its disposal for partisan political purposes. “If we probe deeply into Roosevelt’s popularity,” he writes, “we almost always discover the presence of patronage–the creating and the manipulating of federal jobs to strengthen his political support.” FDR did not invent patronage, but he greatly increased its scale.

After Roosevelt tried to pack the Supreme Court in 1937, the New Deal began to sputter, and new programs and taxes became more difficult to push through Congress. His attempt to “purge” uncooperative legislators in the 1938 elections failed, angering many senators and representatives in the process. “The president became resented more than adored,” writes Folsom, “and soon Congress was altering his legislation and overriding his vetoes.” The 1937–38 “depression within a depression” cost the president even more support.

Nonetheless, the bulk of the New Deal persisted. Indeed, much of it remains in effect today. Folsom concludes: “The myth that these programs were once valuable, that they helped end the Great Depression, and that they restored prosperity to the United States has been enough to keep them going.” Moreover, once a program has been created, “bureaucrats within the program flock to defend it, [and] those receiving benefits from the program strive to retain it.”

Related posts:

1. News Flash: FDR Didn’t Restore Prosperity!
2. Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy
3. Myths of the New Deal

Heller, who teaches property-law courses at Columbia Law School, summarizes his point this way: “Gridlock is a free market paradox. When too many people own pieces of one thing, cooperation breaks down, wealth disappears, and everybody loses.” I’m not convinced that this is really a “free market paradox.” If anything, gridlock is a state failure rather than a market failure.

The book’s main contribution to the literature on property rights and institutions is to show that private ownership is a necessary but not sufficient condition for the market to work its magic. When many people have private property rights that allow them to exercise veto power over more valuable projects, wealth dissipates because bargaining is dominated by holdup problems. Russian privatizations, for example, split rights across too many parties and erected veto points that created anti-commons resources.

Heller offers a wide-ranging discussion of regulatory pathologies leading to “gridlock,” particularly in the ways intellectual property is regulated in the biotechnology industry. He doesn’t, however, answer a question I had throughout the book. If it’s clear, as he says, that regulation cannot keep up with innovation (as we’ve seen in technology, medicine, and most recently high finance), why should we trust the state to regulate further? As a Hayekian, I’m skeptical of the notion that regulators can have the information they need to get the market as it is to function as it does on the blackboard in economics 101.

Since outside observers can’t articulate a theory of rights or a structure of institutions that will “work” a priori, it stands to reason that legal institutions should be flexible so as to allow for innovation across fields. While Heller looks for new ways to design institutions, perhaps we should find better ways to let these institutions evolve.

Heller notes that “judicial and political battles are overtaking the academic research” and that Congress is considering serious overhaul of the patent-law infrastructure. But will that solve the “gridlock” problem? Why should we expect members of Congress to know how intellectual property in biotech should be structured? We shouldn’t. I am afraid that Heller is too caught up in what James Buchanan calls “the romance of politics,” expecting politicians to solve problems of their own making.

It would be the height of folly for me as an economist in Memphis to presume to know how intricately detailed contracts in biotech firms should be structured, but we can see some of the pathologies of regulation in a dynamic economy emerging in high-tech enterprises. For example, Heller notes that the Federal Trade Commission arbitrarily dissolved the patent pool for laser eye surgery. He also points out a disturbing trend that deserves further investigation: “In telecom, competitors know that often the most profitable approach is not to innovate, but to stop others from investing.” He’s right. Patent law is often used in a rent-seeking fashion that burdens real innovators, but that has nothing to do with any market failure. Our system of intellectual property is a creature of the government.

Among the causes of gridlock Heller identifies is antitrust law. He writes, “For biotech pooling to have any chance, Congress may need to create special antitrust rules.” He seems not to see how such rules will be hard to adapt to further innovations. And again, he is too trusting of politicians to tinker with legislation to solve a problem. Outright repeal of the antitrust laws would be a much better move, solving numerous problems all at once.

There is much in The Gridlock Economy that could be explored in greater detail, but these are directions for further research rather than criticisms of the thesis. I expect that the book will find its way onto reading lists across campuses worldwide. It offers much food for thought, but readers should think skeptically about Heller’s eagerness to have politicians solve problems that are mostly if not entirely of their own making, not the free market’s.

Related posts:

1. Do Patents Encourage or Hinder Innovation? The Case of the Steam Engine
2. Tyrannical Wrecks
3. Perspective: On Innovation

The big message of the book is simple: If you want prosperity, leave people alone. The proper role of government is to keep the peace; it should not dictate what should and shouldn’t be produced; it shouldn’t impose tariffs or trade quotas; it shouldn’t interfere with the value of money; it shouldn’t give foreign aid or impede the flow of workers from place to place. The reader who pays attention will end up with a better grasp of global economics than the typical college economics major, whose professors often teach interventionist, anti-market nonsense.

Almost immediately, Hovey and Rehmke drive home the crucial point that economic freedom works far better than central planning–that is, domination and control by government authorities. That’s because knowledge is widely dispersed. Free markets tap into that knowledge while government authorities act in a state of ignorance and blindness. In a passage reminiscent of Leonard Read’s famous essay I, Pencil, the authors state, “What is amazing in the modern world is that we so easily benefit from vast knowledge distributed across the globe, from how to grow foods and spices, locate and mine minerals, cut and sew, design and assemble, carve and shape, program and debug, and all the vast range of skills that few of us possess but most of us use in finished products every day.”

Cognizant that many readers will have absorbed elements of what Ludwig von Mises called the anticapitalist mentality, the authors include numerous little “Warning, Pothole Ahead!” features in each chapter to deal with common misconceptions. For example, they confront the notion that profits are the evil consequence of greed and exploitation early on. They observe that profit just means obtaining benefits in excess of costs: “The saint who helps shelter the homeless and the cold-blooded bond trader both have profits in mind–that is, gains over and above the effort they invest.”

Perhaps the most persistent error in thinking about global economics is the idea that trade between nations needs to be balanced. Hovey and Rehmke attack that error at its roots, explaining, first, that trade really doesn’t take place between nations, but between people who happen to reside on different sides of a national border. If you think that individuals can and should manage their own buying and selling, then there is no problem, no matter what aggregate trade statistics show. But what about the menacing “trade deficit”? Don’t “we” lose jobs in the face of one? Relax, say the authors: “As much attention as is paid to job losses resulting from imports, little notice is given to how this promotes the creation of new businesses, jobs, and wealth.”

A favorite line of the anti-capitalists is that “globalization” is to blame for the poverty of underdeveloped nations. The authors show that’s pure bunk. International trade and cultural exchange do not keep poor people poor, but many formerly poor people have become pretty wealthy as a result of trade and cultural exchange. The crucial ingredients for economic progress, including freedom, stable money, and the rule of law, are not indigenous to most “third world” countries. Hong Kong and Singapore, to cite just two examples, are no longer poor thanks to globalization.

The authors ask if foreign aid is necessary for poor countries to break out of poverty. When people are poor, how can they save and invest? Isn’t foreign aid essential? No: Under the proper conditions for economic growth (noted above), even very poor people can save, invest, and progress economically. Foreign aid, by giving money to government officials, usually gets in the way of progress.

This book covers a lot of economic terrain and does so effectively. It would make enlightening reading for anyone who isn’t familiar with international economics (or economics at all) but wants to learn.

Related posts:

1. Book Review ~ Basic Economics: A Citizens Guide to the Economy by Thomas Sowell
2. Book Review: The Right Guide: A Guide to Conservative and Right of-Center Organizations Edited by Wilcox, Shackman, and Naas
3. Book Review: Facts, Not Fear: A Parents Guide to Teaching Children About the Environment by Michael Sanera and Jane Shaw

Wright, curator for the Museum of American Finance and author of 11 books, has dedicated years of research to the lives and times of those individuals who bought, sold, and held the variable forms of U.S. debt issuances of the day. Tedious as that might sound, it’s actually fascinating. By recounting the trading of early U.S. government bonds, the author deepens the reader’s understanding of why people accepted the debt obligations of a new nation without a track record for repayment. In so doing, Wright destroys some myths, such as that only relatively wealthy Americans purchased the new debt securities, that the debt was just held domestically, and that debt securities were concentrated in only a few states and urban locales.

Wright sees a template for all successful economic growth in the evolution of U.S. dependability. He portrays it as a baseball infield where home plate is the government protection of life, liberty, and property. First base is the all-important financial system; second base is the entrepreneurial firm; and third base is the cadre of management expertise. The more solid each base becomes, the easier it is for the nation to rack up runs on the wealth scoreboard.

And so it is with debt. America entered a century of enviable growth in which federal bonds were regarded as outstanding investments. Thanks to Wright’s painstaking research, the midsection of the book fully illustrates the lives and times of bondholders.We learn about the people who held the debt and why they bought and sold it.We learn how debt issuances helped Revolutionary War veterans settle the frontier. We also learn how modern the new American financial markets quickly became. It wasn’t long before “flight to quality” had become an international stamp of approval for U.S. debt.

All told, Wright contends that U.S. national debt became a “national blessing” because we had a “non-predatory” government. The debt system was workable and credible because Washington had not become the all-consuming leviathan it grew into during the twentieth century.

Wright does include warnings aplenty, explaining why public debt, while serving as financial cement and trust among people and nations, is also to be feared. He quotes Adam Smith: “When national debts have once been accumulated to a certain degree, there is scarce . . . a single instance of their having been fairly and completely paid.”

Even Alexander Hamilton noted that there was a tipping point beyond which additions to the national debt would be deleterious: “Where this critical point is cannot be pronounced; but it is impossible to believe that there is not such a point.” Before leaving office as Treasury secretary in 1795, his final report on public credit sought to rectify “and to prevent that progressive accumulation of debt which must ultimately endanger all government.” The danger, though, is not to government, but to the people. When politicians can borrow and spend without restraint, people’s liberty and property are imperiled.

Some of the Founders knew that, and Wright adds gravitas to his book by contrasting the Federalists’ advocacy of a centralized financial system with the stance of the Antifederalists. One Antifederalist in particular, writing under the pen name Brutus, provided one of the most sagacious, prescient, and potent predictions in American history when he warned in 1788 that the federal government eventually would use the “necessary and proper” clause of the Constitution [last paragraph of Article 1, Section 8] to greatly extend its powers, thereby subverting state authority. We would have avoided many national disasters if people had heeded that warning.

Wright notes, “Unlike Adam Smith, Hamilton believed that the issuance of bonds by government augmented rather than destroyed capital.” Considering how much government in 21st-century America uses debt to finance astounding amounts of wasteful spending and the erosion of capital, I’d say Smith had the more realistic long-term vision.

One Nation Under Debt provides valuable history on the origin and development of U.S. fiscal affairs and warns us about where we are headed. The author looks on our national debt as a good idea gone awry, but I believe that the better view is that Hamilton’s debt system was a grave danger from the very beginning.

Related posts:

1. Book Review: Principle & Interest: Thomas Jefferson and the Problem of Debt by Herbert E. Sloan
2. Book Review: Nation, State, Economy: Contributions to the Politics and History of Our Time by Ludwig von Mises (Translated by Leland B. Yeager)
3. Our Presidents and the National Debt