A Pro-Market and Pro-Social Economy

Gregg opens by examining the alignment between former President Donald Trump and Senator Elizabeth Warren on the need for greater government regulation of the economy. This may be one of the oddest “horseshoes” in American politics. Skepticism of free markets, which has historically been the province of the political Left, is increasingly embraced by thinkers and elected officials on the Right. An illustration comparing the ideas of self-labeled National Conservatives (“NatCons”) and President Biden’s tariff and subsidy policies would like more like a near-total eclipse than a Venn diagram.

Many on the populist right pine for an era in which America “made things” and had plentiful, family-supporting employment complete with generous salaries, benefits, and retirement plans. Nostalgia is nice, but it is important to remember that those jobs came at tremendous costs: injuries of the fast and slow types, the torpor of repetitive work, and pollution of the natural environment. These challenges were a necessary and integral part of the nation’s economic history, but hardly a paradise lost. How many of us would wish these types of jobs for our own children?

Nonetheless, this left-right economic policy pincer hasn’t come from nowhere. As Gregg notes, the years following the collapse of the Soviet Union, the rise of the “new world order” and economic globalization have unleashed a tremendous amount of economic change over a shockingly brief period. The onslaught of robotics-driven automation, the rise of China as a global low-cost (and low-wage) manufacturing power, and the teeth-rattling shock of the 2008 financial crisis have undermined confidence in the neoliberal consensus in favor of market capitalism and free(r) trade. While these observations are correct, it bears mentioning that, despite some setbacks, most Americans have benefited significantly from tighter integration with the global economy.

As tough as he is on NatCon policy proposals, Gregg doesn’t dismiss the NatCon criticisms of free trade and market orthodoxy. The downsides, he says, are both real and grave. He acknowledges that free-market advocates have often oversold their case, making predictions—about growth, peace, and China—that have either not been fully realized or turned out to be wrong. Curiously absent from Gregg’s concessions, however, is how the U.S. government failed to forward-position resources to buffer employment disruptions that neoliberal policies have caused or accelerated. While organized labor insisted on a reinvigorated Trade Adjustment Assistance program and increased investment in retraining as part of the North American Free Trade Agreement (NAFTA), much of this investment turned out to be poorly targeted, since the main culprit behind unemployment of manufacturing workers turned out to be automation, not trade. Mistakes, as they say, were made. As artificial intelligence bears down on jobs and skills, we should be careful not to make the same mistakes again when it comes to under-resourcing workers for the stresses, uncertainties, and strains of economic transitions.

These complexities and failures notwithstanding, Gregg makes the case that there’s no plausible alternative to the mostly free markets of neoliberalism. He insists on the obvious: the dynamism of the American economy has, for most people in most places, paid off in economic terms. “You’ve never had it so good” can be an extremely irritating stance, but that does not make it any less true.

In contrast to the wealth that free markets have produced, Gregg argues, state capitalism encourages unproductive rent-seeking behavior, elevates politics in picking winners and losers, and hinders America’s competitiveness and economic dynamism. No system of political economy is perfect; favoritism always finds its way into the laws and rules that govern it, and the owners of capital are just as inclined as ardent socialists to seek such favors. But only free markets have demonstrated the power to raise living standards over time. It is worth noting at this point that even the Nordic states, like that bastion of survival-of-the-fittest capitalism, Sweden, exhibit little patience with failing industries and actively seek to weed out low performing firms that would otherwise hinder growth. The Swedes just pair their commitments to markets with commitments to workers.

By contrast, state capitalism, plagued by cronyism, short-term thinking, and political opportunism may temporarily preserve some legacy industries and jobs, but only at the cost of stunting or strangling emerging ones. This economic sleight-of-hand is possible only because protectionism and industrial policy generate temporary relief, while their long-run costs are hidden and diffuse. Effectively, protectionism and subsidies amount to stealing from the future: creating a drag on economic growth, lowering incomes, raising prices, and ultimately reducing opportunity and mobility.

State capitalism, as Gregg recognizes, trips over the issue of complexity. The United States has a $26.3 trillion economy–with millions of firms, staffed by 160 million workers, spread across a continent-sized nation. The notion that such an unruly behemoth could be centrally planned and coordinated and produce better (or even equivalent) results is, well, hilarious. It has never worked for any country at any time, and it won’t work for us either.

As Gregg shows, strong, dynamic economies aren’t “built”; they emerge from countless decisions made by entrepreneurs, business owners, workers, and consumers. This “invisible hand” (if Adam Smith could see the way his metaphor has been abused and demonized, he’d probably demand its excision from his works) is unrivaled in its ability to allocate financial and human capital toward their best uses, precisely because it is not planned. Markets depend on price signals and highly localized and contextualized conditions and actors that seek to balance opportunity and risk in pursuit of profits—economic gains, which by any reasonable accounting, redound largely to the benefit of workers, shareholders, and, through philanthropy, future generations. Somehow, though it is no one’s specific intention, markets spread prosperity in ways that centralized planning never has. The late Tom Wolfe once wrote that an American plumber lives a life of luxury that would have made the Sun King blink. Market capitalism, not central planning, made that possible.

What sets Gregg’s defense of free markets apart, though, is how he pivots from economics to philosophy, sociology, and morality. Most fundamentally, Gregg contends that the best case for free markets is grounded in a broader narrative about America’s values and aspirations. According to Gregg, Americans throughout history have viewed the nation as a “commercial republic,” in which economic activity is the lifeblood of society. This economic activity, Gregg argues, is profoundly pro-social, inextricably tied to moral and social virtues that healthy societies need.

Framing the argument for free markets as an outgrowth of social preferences, behaviors, and American values allows Gregg to answer a core objection to the free market system: that it is rooted in, and reinforces, social vices—such as Machiavellianism, selfishness, and greed. On the contrary, Gregg insists, commercial republics are built around virtuous instincts, ones deeply ingrained in America’s DNA, which favor mutuality and community, entrepreneurship and problem-solving, and freedom and respect for individuals.

By engaging in free economic exchange, Gregg contends—contra Ayn Rand—people work together to solve problems and cultivate habits of social interaction that lead, over time, to healthy societies. Through free economic exchange, societies advance materially and socially because free markets require parties to consider the interests of their neighbors, friends, and competitors alike. Free markets encourage us to become more other-regarding and empathetic not less. This does not mean, of course, that self-interest disappears; rather it shows us how self-interest, by necessity, entails other-interest.

When individuals or businesses flout socio-commercial norms, the demands of mutuality and fairness—what Adam Smith called “loveliness,” our innate need to be regarded by others as honorable—reassert themselves in a variety of ways. The principles of justice that govern our most proximate relationships are embedded in norms—legal, social, and economic—that govern our relationships with others we may never meet. A system of free trade punishes those who discriminate against out-groups or treat customers and clients unfairly. “Bad actors”—those who take a sociopathic approach to human exchange generally, including in the market—often find themselves arraigned in courts of law and the court of public opinion. (For anyone in doubt, the executives of the company formerly known as Enron will be happy to explain.) Market mutuality, then, serves as the underlying source of the market mechanism—along with legislatures, laws and courts—for fusing self- and other-interest and enforcing the norms that guide the market process. In that process, both the individual good and the common good are nurtured and supported.

This understanding of the fundamentally social nature of market economics, as Gregg explained in his recent appearance on our Hardly Working podcast,2 is heavily indebted to the Scottish Enlightenment and one of its chief protagonists, Adam Smith. According to Gregg, the Smithian tradition discovered core “anthropological truths”—foremost, that people are by nature free, rational, self-interested, creative, and fallible, but also “sympathetic,” associational, and ethical. Smith, of course, is most well-known for his 1776 book The Wealth of Nations, which has rightfully established him as the father of capitalism. However, it is Smith’s 1759 work The Theory of Moral Sentiments that shows how the “gears” of human development drive the market. This lesser-known and underappreciated book does much to dispel the caricature of Smith and other free market advocates as proto-“greed is good” Gordon Gekkos. Much to the contrary, the Smithian tradition helps explain and celebrate the pro-social instincts embedded in the human tendency, as Smith put it, to “truck, barter, and exchange.”

The economic arrangement of free enterprise and limited government, Gregg contends, flows from Smith’s insights about human nature. Of all possible arrangements, this one is best suited to our self- and other-interested nature. These expressions of interest are like partners in a waltz: they work best when they focus on what they create together rather than what they contribute individually. Call it “coopetition”3 on the grandest scale, a dance America has mastered to a degree never equaled in human history. It would be a shame and tragedy if, by ill intent or simple misunderstanding, we stopped the music now.

Footnotes

[1] Samuel Gregg, The Next American Economy: Nation, State, and Markets in an Uncertain World. 2022.

[2] Podcast episode available online at Samuel Gregg on the Next American Economy with host Brent Orrell. AEI: Hardly Working Podcast, episode 104, September 14, 2023.

[3] For the origin of the term “coopetition” see “The Rules of Co-opetition,” by Adam Brandenburger and Barry Nalebuff. Harvard Business Review, Feb. 2021.