Do Steps Toward Freedom Create Net Benefits?
By David Henderson
Noah Smith recently wrote a piece titled “Being an Ideologue Means Never Having to Say You’re Wrong.”
It starts out well. He writes:
“Communism would have worked, if the Soviet Union had only tried it for real.” I must have heard this argument a dozen times from die-hard leftist friends. Marxist economists such as Richard Wolff and Stephen Resnick even wrote a book making exactly this claim.
No doubt, true believers will be just as unwavering in the face of Venezuela’s collapse. That country, which embarked on a misguided “Bolivarian revolution” under Hugo Chavez and his successors, has imploded almost as spectacularly as the USSR — the country is in such dire straits that the government is now calling for forced labor. Yet there will be many who claim that the dramatic reversal of what some on the left hailed as an economic miracle just a few years ago tells us nothing about the efficacy of socialist revolutions.
Then Smith writes:
This demonstrates that for any political-economic ideology, there is always a hard core of believers who will never waver in their conviction that if only the program were tried in its pure form, it would succeed. Any failures — even debacles on a grand scale, including the fiasco of 20th century communism — will be chalked up to ideological impurity and improper application.
See what Smith did? He took two examples from the left and then concluded that this applies to “any political-economic ideology.” It may well apply to any political-economic ideology. But he doesn’t demonstrate that. He demonstrates it only for the left.
He then writes:
In economists’ models, humans are a rational bunch, willing to change their beliefs as soon as new evidence presents itself.
Actually, and, admittedly, this is a detour, that’s not totally true. Especially within Public Choice models, we often talk about rational ignorance. And co-blogger Bryan Caplan goes further, talking about rational irrationality.The point is that unless you have a strong incentive to change your mind, you tend not to, no matter how strong the evidence. Because your individual vote doesn’t matter, you lack the incentive to change your mind when presented with new evidence about the effects of various government policies.
But Smith tries to apply his idea, well-backed about the left, to people who are strong believers in free markets. How does he do it?
Here’s how. He writes:
The tendency toward ideological commitment is now being tested in the U.S., as free-market dogma — sometimes known as neoliberalism — is coming under increasing attack. Bernie Sanders’s presidential campaign gained a surprising amount of support from young people. Economists, both in the public eye and out of it, are focusing more on inequality and embracing a more activist role for the state. Business professors are starting to question the short-termism of financial markets and shareholder control. Some researchers at right-leaning think tanks are saying that Republicans need to move away from Reaganomics and its mix of tax cuts and deregulation.
Notice his introduction of the word “dogma.” Also notice something else. Although Smith points out correctly that many young people voted for Bernie Sanders, that many economists are embracing more government intervention, that some business professors are claiming that financial markets are too short-term, and that some researchers “at right-leaning think tanks are saying that Republicans need to move away from Reaganomics and its mix of tax cuts and deregulation,” none of this is evidence of free-market failures. At most it’s evidence that some people believe free-markets have failed. It’s not even close to being in the same league as the evidence on Communism and socialism.
So how will Smith make his case, which he hasn’t made yet: his case that believers in free markets are ideologues who don’t change their views with the evidence? Here’s how he tries. He writes:
Certainly, free markets haven’t produced dramatic failures on the level of the USSR or Venezuela, but “not as bad as communism” is a fairly low bar to clear, and there’s a definite sense that the reigning economic policies have run out of steam.
It’s true that “not as bad as communism” is a low bar. Perhaps then he will show us where free markets have failed. Can it be that his evidence is that “there’s a definite sense that the reigning economic policies have run out of steam.” Actually, yes, that’s about it. There are three problems with this:
(1) His passive “there’s a sense” doesn’t tell us who has this sense and what they base it on.
(2) The “reigning economic policies” are not free-market policies–they are a mix of free market policies, subsidies (would Smith say that subsidies to agriculture are “free market policies?), and heavy regulation (The FDA’s new regulations of e-cigarettes are an example; heavy state regulation in the form of occupational licensure that prevents various people from getting various jobs is another example), and a very distorting system of taxation. The White House recently published an excellent critique of occupational licensure. It wrote:
“There is evidence that licensing requirements raise the price of goods and services, restrict employment opportunities, and make it more difficult for workers to take their skills across State lines.”
That is a critique of a subset of “reigning economic policies.” Is it a critique of the free market? Obviously not.
(3) He still hasn’t given evidence. Which free-market policies have failed? Smith doesn’t tell us.
In the face of this wave of attacks, many proponents of free-market ideology will be tempted to double down. If we had only tried real laissez-faire, they will say, we wouldn’t be experiencing problems like declining median income, decreased economic dynamism and excessive health care costs. On Twitter, my friend Russ Roberts, host of the EconTalk podcast and a staunch free-marketer, opined that we should “actually try” free markets, “instead of just talking about it.”
I encounter sentiments like Roberts’s on a regular basis, when I call for a more activist government. Many people bought into the laissez-faire idea very strongly over the past few decades, and are not prepared to abandon it just because a socialist candidate wins some votes or an economist writes a paper suggesting we need higher taxes. They will chalk up our problems to insufficient rather than excessive free-marketism.
This is as close as Smith gets to making his case. He criticizes Russ Roberts for calling for more economic freedom but doesn’t actually show that the problems we have come from the economic freedom we have. So Russ Roberts is wrong in calling for more economic freedom only if the problems we have are due to too much economic freedom. Again, zero evidence from Smith.
Smith finally gets to something I agree with, writing:
That’s why I think there’s very little hope for political-economic programs whose benefits only become apparent after a very large dose. For an ideology to be successful, a moderate amount of it has to do a moderate amount of good. Relatively few nations have the unity and commitment to push through the doldrums in search of some grander success that’s just over the next hill.
He’s right. People want to see that a little more economic freedom leads to more net benefit. And that’s exactly what we can show and have shown. Take airline regulation. Please. When Fred Kahn took over the Civil Aeronautics Board in 1977, he started de facto deregulating airline fares and routes. Result: more competition and lower fares. Then Congress stepped in and deregulated further. Result: even more competition and lower fares. The next step would be “open skies,” whereby any airline in the world could compete in the U.S. market. The result would be even lower fares.
Or consider deregulation of surface transportation, particularly trucks and railroads. That deregulation, that happened in the late 1970s and early 1980s, brought more competition and lower rates to those sectors.
Deregulation of oil prices under Carter in his last year in office and Reagan in his first month in office undercut OPEC’s power and helped bring down world oil prices.
Freer trade in textiles has made clothing substantially cheaper for 300 million residents of America.
So the evidence that steps toward more freedom do bring more net benefits is strong.