The Harder Question I Raise for James R. Rogers
By David Henderson
Over at our sister publication Law & Liberty, political science professor James R. Rogers has a piece titled “The Harder Question Tucker Carlson Raises for Conservatives.” If it were a question Carlson raises only for conservatives, I would be less interested than otherwise. But Professor Rogers makes clear in the article that Carlson raises this question for libertarians too.
I grant, as you’ll see soon, that Carlson does raise a good question and that Rogers does an excellent job of homing in on it. The problem, as you will also soon see, is that there is no good answer.
Here’s the kernel of value that Rogers extracts from Carlson’s monologue:
Conservatives have long recognized the existence of rent-seeking and crony capitalism. Carlson criticized a legal regime that, he suggested, allows companies to repudiate earned pension commitments, adopts tax systems that discriminate in favor of capital owners and against labor, supports government activity “to make the world safe for banking” and the creation of a “finance-based economy.” We can argue about how Carlson styled each of these policy issues, but none is obviously required by free-market commitments. All can plausibly be accounted for as outcomes of rent-seeking, which is the antithesis of a free market economy rather than its exemplar.
And at that, Carlson only scratched the surface of ways that America’s current economic system fails the free market test. Do we believe state and national regulatory regimes are neutral with respect to the interests of large capital interests? Even if they are, might even a “neutral” regulatory regime deter free market entry? For example, might the cost of complying with otherwise neutral regulatory requirements impose costs that deter market entry for new firms? Let’s say the cost of paperwork for regulatory compliance in a market is $100,000 a year. That’s a drop in the bucket to large, already-existing businesses. But those costs can deter the entry of new, small businesses; businesses that without the compliance expense might otherwise start, grow and compete with existing businesses.
I have more than a quibble with part of the second sentence in the first paragraph I quoted. The U.S. government has not adopted “tax systems that discriminate in favor of capital owners and against labor.” In fact, the U.S. government has a tax system that discriminates against capital owners, as any public finance economist, including Joe Stiglitz in his excellent public finance text, can tell you. The recent corporate tax cut simply reduced the discrimination against capital while keeping the principle of discrimination intact. (I don’t want to get sidetracked here, but if you’re wondering about it, notice this: When a corporation makes money, it gets taxed on corporate profits. Then when it distributes some of those earnings as dividends, owners of capital get taxed yet again. Then if they sell their assets, they get taxed on capital gains. It’s triple taxation.)
But Rogers nails it in the second paragraph. I’ve written before about economies of scale in regulatory compliance. It’s a real thing. It was large part of my 1976 Ph.D. dissertation and I’ve posted about it here.
That’s not the end of it. Rogers points to a tougher issue:
The tougher issue is the substantive implications for conservatives and libertarians if one were to grant that rent seeking and crony capitalism have been endemic throughout large parts of the American economy. The problem is this: Simply repealing rent-seeking policies would not necessarily reestablish the status quo ante of a free market system: One could believe businesses with real market power would never have arisen initially in a free market system while at the same time believing that capital accumulation that occurred in the past as a result of rent seeking would not be eliminated simply by repealing rent seeking policies and allowing markets to continue without further intervention from that point. The distribution of capital is different in economic systems that never accommodated rent seeking in the first place relative to economic systems that accommodated rent seeking but then, after allowing rents to be accumulated, eliminated the rent-seeking policy infrastructure.
That’s a really good point. But what do you do about it? Here’s how Rogers ends:
If, however, one believes the ills Carlson identifies result mainly from abuse of government power by capital owners (and others), it is nonetheless little more than utopian fancy to think merely repealing rent-seeking policies would reestablish the status quo ante as if privileged abuse of power in favor of capital never existed at all.
Justice might require implementation of policies to rectify the earlier injustices. Such rectifying interventions would be required by conservative or libertarian free-market principles rather than opposed by them. The implications of that possibility is [sic] a road much less traveled on the political right. (italics in original)
Notice the “and others.” Some of the others I immediately think of are union workers who gained from monopolizing the labor force, and capital owners and laborers who gained from restricting trade. How do you rectify those injustices, which is what Rogers “might” want?
Here’s the unfortunate answer: you can’t. Put aside the fact that rectifying those injustices might involve what seem to most of us to be pretty nasty solutions: garnishing wages of union members, imposing a special tax on General Motors because it gained from tariffs on trucks, and imposing heavy taxes on elderly people who paid little into Social Security and Medicare but got a huge amount out, to name three. In my view, those solutions are so nasty and so messy that we should not pursue them.
But here’s the other problem: Virtually all of those measures that were part of cronyism had deadweight losses. Deadweight losses are losses to some that are gains to no one. The gains to General Motors and its unions from tariffs were less than the costs to consumers; the losses to companies, excluded workers, and consumers due to union monopoly power exceeded the gain to union members; and the gains to elderly people from windfalls due to Social Security and Medicare were less than the losses to the young and middle-aged.
What that means is that even if you were willing to undertake the solutions that I have described as nasty, you can’t.
Professor Rogers has raised a good question, whether or not that is the question that Tucker Carlson raised.
Unfortunately, there is no good answer.