As Dracula recoiled from the cross, liberals shrink in horror from the phrase “laissez-faire.” The thought of a world without government control of capitalism sends them screaming into the night. But dark night is where we are, with coronavirus closing the economic life of America.
This sentence from a Wall Street Journal story sends a chill down the spine: “Large chunks of the U.S. economy froze in March as the coronavirus pandemic closed malls, restaurants, factories and mines, causing Americans to cut retail spending by a record amount and the country’s industrial production to plunge at the steepest rate in more than 70 years.”
Coronavirus is a grim reaper, an indiscriminate destroyer leveling businesses large and small. Some cultural institutions and colleges face ruin. Unemployment is measured as “millions,” but each government-forced job loss is an immeasurable tragedy.
It is time for a radical solution equal to the need. Bring back laissez-faire capitalism.
Before my liberal readers slam their laptops shut in disgust, some obvious caveats. Basic worker protections, built over a century by law and practice, won’t go away. As to the innate amorality of laissez-faire capitalism, the coronavirus itself has proven, or revived, the moral underpinnings of the social contract. Public-private collaborations are flourishing. Praise for health-care workers and concern for the elderly are everywhere.
Laissez-faire capitalism, with an upgrade for the 21st-century economy, is an idea for our time. What might that mean?
First, we upgrade the phrase itself. As commonly (mis)understood, “laissez-faire” stands for a tooth-and-claw economy captured by millionaires in top hats and spats. But histories of the idea note that the original French phrase was “Laissez-nous faire,” which can be translated as, “Let us do it.”
“Let us do it” should be the rallying cry and motto of the American people for the years ahead, and nothing is more obvious than that they want to do it, once freed from lockdown and if—it’s a big if—they get the chance and space to restore work to the center of the nation’s daily life.
Analysts speculate every day on whether we’ll get a V-shaped recovery or a flatter U-shaped one. A slow, flattened recovery will leave many crushed individuals behind and create intolerable political tensions between the haves and have-nots.
We should clear away every identifiable impediment to making the recovery as sharply V as possible. The Paycheck Protection Program was a political impulse to do good, but its implementation has shown the unavoidable complexities of running recovery through the government. It’s just too slow for the current, stark reality.
What we need is the laissez-faire spirit of the California Gold Rush to revive risk-taking, investment and as many individual opportunities as possible.
The goal should be to clear all identifiable impediments to the restoration of old jobs and the creation of jobs that didn’t exist two months ago.
Many of the laid-off are midcareer workers with the smarts and skill sets to start new enterprises. Liberate as well minority entrepreneurs, whose neighborhoods have been hardest hit (this should have been done decades ago).
States and cities should maximize creators’ share of the revenue flow produced by their single-minded 16-hour days. New hires will keep their jobs only if their employers can profit and get free of the usual middlemen and Mickey Mouse—facilitators, fines, fees, lawyers, lawsuits, wage rules and licensing requirements.
I asked Carl Schramm, former head of the Kaufman Foundation and an expert on why new enterprises succeed, what elements would support a grassroots economic revival:
“Startups less than five years old with fewer than, say, 50 employees should be exempt from labor rules, including the federal minimum wage and, in nonmanufacturing situations, OSHA compliance. States should cover the costs of workers’ compensation, unemployment benefits and catastrophic health coverage for young companies.
“The federal government should deny recovery money to cities and counties that do not eliminate pointless regulation for startups.”
I’d offer a sunset provision on regulatory relief in return for a regulatory holiday now.
By the way, the contradiction between social distancing and a functioning economy needs to be addressed, not ducked, as governors such as California’s Gavin Newsom are doing with early reopening guidelines.
One can predict who will oppose a “let us do it” economy:
Democrats, because at heart they’re French: Dirigisme (state control) is their raison d’être(oxygen). Madame Pelosi is knitting new rules by the hour.
Business Roundtable types will oppose radical relief from status quo regulation because status quo businesses will try to suppress new competition after the crisis.
Neopopulist and protectionist Republicans will starve startups of access to export markets. Memo (however hopeless) to Donald Trump and Peter Navarro: Free trade was a laissez-faire principle.
There is an alternative: Bernieism. Support for Sen. Sanders’s promise of security-blanket statism, which Joe Biden seems to be embracing, could rise if people lose patience with economic restoration. “Let us do it” will give way to “Let somebody else do it for us.”
Washington and the states have ordered a bare-bones economy. It’s time for them to give back with bare-bones government.
Because its denial is incessantly repeated, the following truth must be incessantly restated: we ordinary Americans are fabulously rich and getting richer. The irony is that we are so very materially prosperous – with a prosperity that is shared by nearly all Americans – that we take our happy condition for granted.
Most of us don’t see this prosperity, at least not for what it is. Our material prosperity, although historically unprecedented, is now so commonplace that, for us Americans in 2020, this prosperity appears to be the natural state of the world. It appears simply to exist – to happen like rainfall happens in the tropics. But of course, widespread material prosperity doesn’t just happen. It didn’t happen for 99.9 percent – literally 99.9 percent – of human existence. The prosperity that we all today enjoy must be not only created but, also, continually recreated.
Entrepreneurs must be inspired to innovate. Investors must be motivated to take risks. Countless individuals must have incentives to save, to work hard, to daily cooperate productively with people whom they do not know, and to avoid using scarce resources wastefully. Yet it is only in the past two or three centuries that most of us have been led most of the time to mostly act in these ways that generate the tremendous shared material bounty that most of us take for granted.
Be More Amazed…
The ‘Wow!’ factor of a tiny fraction of this bounty becomes obvious immediately when pointed out. In 2020 it’s not difficult to inspire someone to marvel at relatively recent innovations such as smart-speakers, GPS, streaming music, and hip-replacement surgery. But these new marvels are hardly the whole story.
The real measure of our prosperity is in what, for us, is mundane: running drinkable water over a wide range of temperatures, hard roofs and floors, refrigeration, artificial lighting, inexpensive garments and bedding made with machine-woven cloth that withstands being cleaned with powerful inexpensive detergents in powerful affordable machines, widespread literacy, mastery at using the electromagnetic spectrum, liability insurance for drivers and for homeowners, well-stocked supermarkets, fresh blueberries in New York in January, ice cream in New Orleans in July, air travel, automobiles, air-conditioning, aspirin, antibiotics…. You, Mr. or Ms. Reader, will have no trouble extending this list for pages.
Accustomed to constant access to an abundance of such marvels, we fail to recognize them for the marvels that they are. Instead, we focus only on the failure of this marvelous reality of ours to be even more marvelous. With our glass 99 percent full – and with this fullness seemingly produced and guaranteed by some mysterious laws of nature – many of us are apoplectic both that the “distribution” of this bounty isn’t as ideal as we can imagine, and that our glass has yet to be filled even further.
Such complaints would be more tolerable if those who issue them were to reveal some appreciation for just how minor are today’s economic problems relative to the enormous good that economic growth has already brought about and continues to bring about. But no such appreciation is apparent.
And just once, I long to be surprised by a “social-justice warrior” conceding that at least some of today’s alleged problems might actually be mirages conjured by the market economy’s successes.
… But Don’t Be Shocked
Consider, for example, the much-noted reduction over recent decades in Americans’ geographic mobility. This reduced mobility is said to be a major reason why increased trade with China inflicted on Americans what is now known as the “China shock” – namely, a slower than expected adjustment of American workers to increased imports of goods from China. (There is, by the way, some confusion about exactly what the “China shock” finding is. Some people interpret this finding in the manner in which I describe it in the previous sentence. Yet other people interpret it to be a finding that increased trade with China caused a permanent reduction in net American employment. The “China shock” researchers themselves are unclear on this matter. For purposes of my essay here, however, nothing much turns on which interpretation is correct.)
While Americans’ reduced geographic mobility might reflect real problems – such as housing costs in booming cities made artificially high by land-use restrictions – it might also, at least in part, reflect increased prosperity.
Most people prefer to live in some locations over other locations, but to satisfy such ‘locational preferences’ is costly. And so just as when we become richer we are more likely to satisfy our preferences for nicer automobiles and larger homes, as we become richer we also are more likely to satisfy our preferences for living in our favorite locations.
A blue-collar resident 50 years ago of Allentown, PA, might have had a strong attachment to that locale but, having lost his job, couldn’t afford to keep living there. His best economic option was to move. But suppose that today we see a blue-collar worker remain in Allentown despite being unemployed. What should we conclude? The conclusion leapt to by many pundits is that today’s unemployed worker is so much less likely than was the typical worker in the past of finding a new job elsewhere that today’s unemployed worker sees no point in moving. Out of despair, today’s unemployed worker simply stays put.
Perhaps. But given that there’s been no long-term uptick in the national rate of unemployment, this pessimistic conclusion is likely mistaken. A more plausible conclusion is that unemployed Americans today can better afford to stay put in their preferred locales and wait for new jobs to come to them rather than them move to different locales in search of new jobs.
This increased affordability of staying put might come in the form of greater purchasing power of workers’ savings, or in the form of more generous family, private, and public assistance for unemployed workers. Regardless of the source of this increased affordability of locational preferences, such increased satisfaction of locational preferences is evidence that ordinary Americans are today richer than were ordinary Americans in the past.
No sensible observer argues that the American economy is free of problems and flaws, or that ordinary Americans face no real economic challenges, some of which are daunting. But the incessant drumbeat of negativity about the U.S. economy and about globalization – and the blinkered focus on problems (real and only apparent) divorced from the larger context of the economy’s successes and of Americans’ stupendous prosperity – gives us a dangerously inaccurate sense of the state of the economy and of ordinary men’s and women’s relationship to it. And this inaccurate sense, in turn, will fuel policies that destroy rather than promote our ability to continue to prosper.
Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University.
A groundbreaking study by Just Facts has discovered that after accounting for all income, charity, and non-cash welfare benefits like subsidized housing and food stamps, the poorest 20 percent of Americans consume more goods and services than the national averages for all people in most affluent countries. This includes the majority of countries in the prestigious Organization for Economic Cooperation and Development (OECD), including its European members. In other words, if the US “poor” were a nation, it would be one of the world’s richest.
Notably, this study was reviewed by Dr. Henrique Schneider, professor of economics at Nordakademie University in Germany and the chief economist of the Swiss Federation of Small and Medium-Sized Enterprises. After examining the source data and Just Facts’ methodology, he concluded: “This study is sound and conforms with academic standards. I personally think it provides valuable insight into poverty measures and adds considerably to this field of research.”
The “Poorest” Rich Nation?
In a July 1 New York Timesvideo op-ed that decries “fake news” and calls for “a more truthful approach” to “the myth of America as the greatest nation on earth,” Times producers Taige Jensen and Nayeema Raza claim the US has “fallen well behind Europe” in many respects and has “more in common with ‘developing countries’ than we’d like to admit.”
“One good test” of this, they say, is how the US ranks in the OECD, a group of “36 countries, predominantly wealthy, Western, and Democratic.” While examining these rankings, they corrupt the truth in ways that violate the Times’op-ed standards, which declare that “you can have any opinion you would like,” but “the facts in a piece must be supported and validated,” and “you can’t say that a certain battle began on a certain day if it did not.”
The Times is not merely wrong about this issue but is also reporting the polar opposite of reality.
A prime example is their claim that “America is the richest country” in the OECD, “but we’re also the poorest, with a whopping 18% poverty rate—closer to Mexico than Western Europe.” That assertion prompted Just Facts to conduct a rigorous, original study of this issue with data from the OECD, the World Bank, and the US government’s Bureau of Economic Analysis. It found that the Times is not merely wrong about this issue but is also reporting the polar opposite of reality.
Poor Compared to Whom?
The most glaring evidence against the Times’ rhetoric is a note located just above the OECD’s data for poverty rates. It explains that these rates measure relative poverty within nations, not between nations. As the note states, the figures represent portions of people with less than “half the median household income” in their own nations and thus “two countries with the same poverty rates may differ in terms of the relative income-level of the poor.”
The OECD’s poverty rates say nothing about which nation is “the poorest.” Nonetheless, this is exactly how the Times misrepresented them.
The upshot is laid bare by the fact that this OECD measure assigns a higher poverty rate to the US (17.8 percent) than to Mexico (16.6 percent). Yet World Bank data show that 35 percent of Mexico’s population lives on less than $5.50 per day, compared to only 2 percent of people in the United States.
Hence, the OECD’s poverty rates say nothing about which nation is “the poorest.” Nonetheless, this is exactly how the Times misrepresented them.
The same point applies to broader discussions about poverty, which can be measured in two very different ways: (1) relative poverty or (2) absolute poverty. Relative measures of poverty, like the one cited by the Times, can be misleading if the presenter does not answer the question: Poor compared to who? Absolute measures, like the number of people with income below a certain level, are more straightforward and enlightening.
Unmeasured Income and Benefits
To accurately compare living standards across or within nations, it is necessary to account for all major aspects of material welfare. None of the data above does this.
The OECD data is particularly flawed because it is based on “income,” which excludes a host of non-cash government benefits and private charity that are abundant in the United States. Examples include but are not limited to:
Health care provided by Medicaid, free clinics, and the Children’s Health Insurance Program
Nourishment provided by food stamps, school lunches, school breakfasts, soup kitchens, food pantries, and the Women’s, Infants’ & Children’s program
Housing and amenities provided through rent subsidies, utility assistance, and homeless shelters
The World Bank data includes those items but is still incomplete because it is based on government “household surveys,” and US low-income households greatly underreport both their income and non-cash benefits in such surveys. As documented in a 2015 paper in the Journal of Economic Perspectives entitled“Household Surveys in Crisis”:
“In recent years, more than half of welfare dollars and nearly half of food stamp dollars have been missed in several major” government surveys.
There has been “a sharp rise” in the underreporting of government benefits received by low-income households in the United States.
This “understatement of incomes” masks “the poverty-reducing effects of government programs” and leads to “an overstatement of poverty and inequality.”
Likewise, the US Bureau of Economic Analysis explains that such surveys “have issues with recalling income and expenditures and are subject to deliberate underreporting of certain items.” The US Census Bureau says much the same, writing that “for many different reasons there is a tendency in household surveys for respondents to underreport their income.”
There is also a wider lesson here. When politicians and the media talk about income inequality, they often use statistics that fail to account for large amounts of income and benefits received by low- and middle-income households. This greatly overstates inequality and feeds deceptive narratives.
Relevant, Reliable Data
The World Bank’s “preferred” indicator of material well-being is “consumption” of goods and services. This is due to “practical reasons of reliability and because consumption is thought to better capture long-run welfare levels than current income.” Likewise, as a 2003 paper in the Journal of Human Resources explains:
“[R]esearch on poor households in the U.S. suggests that consumption is better reported than income” and is “a more direct measure of material well-being.”
“[C]onsumption standards were behind the original setting of the poverty line,” but governments now use income because of its “ease of reporting.”
The World Bank publishes a comprehensive dataset on consumption that isn’t dependent on the accuracy of household surveys and includes all goods and services, but it only provides the average consumption per person in each nation—not the poorest people in each nation.
However, the US Bureau of Economic Analysis published a study that provides exactly that for 2010. Combined with World Bank data for the same year, these datasets show that the poorest 20 percent of US households have higher average consumption per person than the averages for all people in most nations of the OECD and Europe:
The high consumption of America’s “poor” doesn’t mean they live better than average people in the nations they outpace, like Spain, Denmark, Japan, Greece, and New Zealand. This is because people’s quality of life also depends on their communities and personal choices, like the local politicians they elect, the violent crimes they commit, and the spending decisions they make.
For instance, a Department of Agriculture study found that US households receiving food stamps spend about 50 percent more on sweetened drinks, desserts, and candy than on fruits and vegetables. In comparison, households not receiving food stamps spend slightly more on fruits & vegetables than on sweets.
The fact remains that the privilege of living in the US affords poor people more material resources than the averages for most of the world’s richest nations.
Nonetheless, the fact remains that the privilege of living in the US affords poor people more material resources than the averages for most of the world’s richest nations.
Another important strength of this data is that it is adjusted for purchasing power to measure tangible realities like square feet of living area, foods, smartphones, etc. This removes the confounding effects of factors like inflation and exchange rates. Thus, an apple in one nation is counted the same as an apple in another.
To spot-check the results for accuracy, Just Facts compared the World Bank consumption figure for the entire US with the one from the Bureau of Economic Analysis. They were within 2 percent of each other. All of the data, documentation, and calculations are available in this spreadsheet.
In light of these facts, the Times’ claim that the US has “more in common with ‘developing countries’ than we’d like to admit” is especially far-fetched. In 2010, even the poorest 20 percent of Americans consumed three to 30 times more goods and services than the averages for all people in a wide array of developing nations around the world.
These immense gaps in standards of living are a major reason why people from developing nations immigrate to the US instead of vice versa.
Why Is the US So Much Richer?
Instead of maligning the United States, the Times could have covered this issue in a way that would help people around the world improve their material well-being by replicating what makes the US so successful. However, that would require conveying the following facts, many of which the Times haspreviously misreported:
High tax rates reduce incentives to work, save, and invest, and these can have widespread harmful effects.
Abundant social programs can reduce market income through multiple mechanisms—and as explained by President Obama’s former chief economist Lawrence Summers, “government assistance programs” provide people with “an incentive, and the means, not to work.”
The overall productivity of each nation trickles down to the poor, and this is partly why McDonald’s workers in the US have more real purchasing power than in Europe and six times more than in Latin America, even though these workers perform the same jobs with the same technology.
Family disintegration driven by changing attitudes toward sex, marital fidelity, and familial responsibility has strong, negative impacts on household income.
In direct contradiction to the Times, a wealth of data suggests that aggressive government regulations harm economies.
Many other factors correlate with the economic conditions of nations and individuals, but the above are some key ones that give the US an advantage over many European and other OECD countries.
“The Truth Is Worth It”
In reality, the US is so economically exceptional that the poorest 20 percent of Americans are richer than many of the world’s most affluent nations.
The Times closes its video by claiming that “America may once have been the greatest, but today America, we’re just okay.” In reality, the US is so economically exceptional that the poorest 20 percent of Americans are richer than many of the world’s most affluent nations.
Last year, the Times adopted a new slogan: “The truth is worth it.” Yet, in this case, and others, it has twisted the truth in ways that can genuinely hurt people. The Times makes other spurious claims about the US in this same video, which will be deflated in future articles.
James Agresti is a contributing writer at Intellectual Takeout.
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