The Revolution

CHAPTER 4

Economic Freedom

Economic freedom is based on a simple moral rule: everyone has a right to his or her life and property, and no one has the right to deprive anyone of these things.

To some extent, everyone accepts this principle. For instance, anyone going to his neighbor's home and taking his money at gunpoint, regardless of all the wonderful, selfless things he promised to do with it, would be promptly arrested as a thief.

But for some reason it is considered morally acceptable when government does that very thing. We have allowed government to operate according to its own set of moral rules. Frédéric Bastiat, one of the great political and economic writers of all time, called this "legal plunder."

Bastiat identified three approaches we could take to such plunder:

1. The few plunder the many.

2. Everybody plunders everybody.

3. Nobody plunders anybody.

We presently follow option number two: everyone seeks to use government to enrich himself at his neighbor's expense. That's why Bastiat called the state "the great fiction through which everybody endeavors to live at the expense of everybody else."

Now here's a radical idea: what if we pursued option number three and decided to stop robbing one another? What if we decided that there was a better, more humane way for people to interact with each other? What if we stopped doing things we would consider morally outrageous if done by private individuals but that we consider perfectly all right when carried out by government in the name of "public policy"?

By "legal plunder" Bastiat meant any use of government that enriched one group of people at the expense of another, and which would be illegal if private individuals tried to carry it out themselves. He was not speaking only or even primarily about programs that are supposed to help the poor. Bastiat was a keen enough observer of the human condition to realize that people of all classes are happy to use the machinery of state, if they can get away with it, to benefit themselves instead of earning their way in the world honestly.

The rich are more than happy to secure for themselves a share of the loot—for example, in the form of subsidized low-interest loans (as with the Export-Import Bank), bailouts when their risky loans go sour, or regulatory schemes that hurt their smaller competitors or make it harder for new ones to enter an industry. Of course, industry leaders will portray such regulation as being for the public good, and media outlets, inclined to give all regulation the benefit of the doubt, will do their best to make sure Americans buy it.

This simple idea, that government should stay out of the looting business and leave people to their own pursuits, has had great moral appeal throughout U.S. history. The American poet Walt Whitman urged that "no man's benefit [be] achieved at the expense of his neighbors. . . . While mere politicians, in their narrow minds, are sweating and fuming with their complicated statutes, this one single rule . . . is enough to form the starting point of all that is necessary in government; to make no more laws than those useful for preventing a man or body of men from infringing on the rights of other men."

Likewise, William Leggett, a Jacksonian editorial writer, believed that government should be restricted to "the making of general laws, uniform and universal in their operation," for the sole purpose of protecting people and their property.

Governments have no right to interfere with the pursuits of individuals, as guaranteed by those general laws, by offering encouragements and granting privileges to any particular class of industry, or any select bodies of men, inasmuch as all classes of industry and all men are equally important to the general welfare, and equally entitled to protection.

Whenever a Government assumes the power of discriminating between the different classes of the community, it becomes, in effect, the arbiter of their prosperity, and exercises a power not contemplated by any intelligent people in delegating their sovereignty to their rulers. It then becomes the great regulator of the profits of every species of industry, and reduces men from a dependence on their own exertions, to a dependence on the caprices of their Government. Governments possess no delegated right to tamper with individual industry a single hair's-breadth beyond what is essential to protect the rights of person and property.

In the exercise of this power of intermeddling with the private pursuits and individual occupations of the citizen, a Government may at pleasure elevate one class and depress another; it may one day legislate exclusively for the farmer, the next for the mechanic, and the third for the manufacturer, who all thus become the mere puppets of legislative cobbling and tinkering, instead of independent citizens, relying on their own resources for their prosperity. It assumes the functions which belong alone to an overruling Providence, and affects to become the universal dispenser of good and evil.

Consider a single, almost trivial example of government favoritism: sugar quotas. The United States government limits the amount of sugar that can be imported from around the world. These quotas make sugar more expensive for all Americans, since they now have fewer choices as a result of diminished competition. The quotas also put at a competitive disadvantage all those businesses that use sugar to produce their own products. That's one reason that American colas use corn syrup instead of sugar: American sugar, thanks to the quotas, is simply too expensive. (And it's also a reason that colas in other countries taste so much better.)

The number of people who work in the American sugar industry is of course very small when compared to the American population as a whole. How, then, did they manage to get a government policy enacted that harms the vast bulk of their fellow citizens? The answer is that the benefits are concentrated while the costs are dispersed. The small number of people who work in the sugar industry benefit substantially from the quota. It makes sense for the sugar industry to employ professional lobbyists first to get and then to continue this concentrated flow of benefits.

On the other hand, since the costs of these policies are spread out across the entire American people, the cost to any one purchaser of sugar or products containing sugar is very minor. It makes no sense for the general public to marshal resources to lobby for the repeal of the program; it is hardly worth their time even to be informed about it. Each consumer might pay an extra fifty to one hundred dollars per year thanks to the program—a pittance compared to what industry earns from it, and not nearly enough to make it worthwhile to hire lobbyists or launch any serious effort to abolish it. And so the tendency is for this fleecing of the public to get worse and worse: the concentrated benefits it brings are too hard to resist, but the dispersed costs are too small to justify any effort against it.

Multiply this modest example by about a million, to account for the countless other predatory schemes that special interests have imposed on our economy, and you have some idea of the impact of legal plunder.

If we believe in liberty, we must also remember what William Graham Sumner called "the forgotten man." The forgotten man is the one whose labor is exploited in order to benefit whatever political cause catches the government's fancy.

The type and formula of most schemes of philanthropy or humanitarianism is this: A and B put their heads together to decide what C shall be made to do for D. The radical vice of all these schemes, from a sociological point of view, is that C is not allowed a voice in the matter, and his position, character, and interests, as well as the ultimate effects on society through C's interests, are entirely overlooked. I call C the Forgotten Man. . . .

They therefore ignore entirely the source from which they must draw all the energy which they employ in their remedies, and they ignore all the effects on other members of society than the ones they have in view. They are always under the dominion of the superstition of government, and, forgetting that a government produces nothing at all, they leave out of sight the first fact to be remembered in all social discussion—that the state cannot get a cent for any man without taking it from some other man, and this latter must be a man who has produced and saved it. This latter is the Forgotten Man.

Once government does become involved in something, intellectual and institutional inertia tends to keep it there for good. People lose their political imagination. It becomes impossible to conceive of dealing with the matter in any other way. Repealing the new bureaucracy becomes unthinkable. Mythology about how terrible things were in the old days becomes the conventional wisdom. Meanwhile, the bureaucracy itself, with a vested interest in maintaining itself and increasing its funding, employs all the resources it can to ensuring that it gets a bigger budget next year, regardless of its performance. In fact, the worse it does, the more funding it is likely to get—exactly the opposite of what happens in the private sector, in which those who successfully meet the needs of their fellow men are rewarded with profits, and those who poorly anticipate consumer demand are punished with losses.

Take arts funding, for example. Some Americans appear to believe that there would be no arts in America were it not for the National Endowment for the Arts (NEA), an institution created in 1965. They cannot imagine things being done any other way, even though they were done another way throughout our country's existence, and throughout most of mankind's history. While the government requested $121 million for the NEA in 2006, private donations to the arts totaled $2.5 billion that year, dwarfing the NEA budget. The NEA represents a tiny fraction of all arts funding, a fact few Americans realize. Freedom works after all. And that money is almost certainly better spent than government money: NEA funds go not necessarily to the best artists, but to people who happen to be good at filling out government grant applications. I have my doubts that the same people populate both categories.

Alexis de Tocqueville was very impressed, when he visited our country in the nineteenth century, to see how many voluntary associations Americans had formed in order to achieve common goals. "The political associations which exist in the United States are only a single feature in the midst of the immense assemblage of associations in that country," he wrote. "Wherever, at the head of some new undertaking, you see the Government in France, or a man of rank in England, in the United States you will be sure to find an association." De Tocqueville admired "the extreme skill with which the inhabitants of the United States succeed in proposing a common object to the exertions of a great many men, and in getting them voluntarily to pursue it."

That may be all well and good for the arts and the like, some may say, but private efforts could never substitute for gigantic government budgets for various forms of welfare. But private assistance would not need to match these budgets dollar for dollar. As much as 70 percent of welfare budgets has been eaten up by bureaucracy. Moreover, government programs are far more easily abused, and the money they dispense more readily becomes a destructive habit, than with more local or private forms of assistance.

Why would we expect a system based on legal plunder, as ours is, to be a net benefit to the poor or middle class, in whose name so many government schemes are enacted? Every one of the special benefits, on behalf of which hundreds of millions of dollars are expended on lobbyists every year, makes goods more expensive, companies less efficient and competitive, and the economy more sluggish. Given that the politically influential and well connected—neither of which includes the middle class or the poor—are the ones who tend to win privileges and loot from government, I do not understand why we take for granted that the net result of all this looting is good for those who are lower on the economic ladder. And when the loot is paid for by printing money and causing inflation, which (as I show in the chapter on money) disproportionately harms the most vulnerable, the suggestion that the least prosperous are helped by all this intervention collapses into outright farce.

To get an appreciation for the difference between public and private administration in terms of bureaucracy and cost-effectiveness, consider this. The Brookings Institution's John Chubb once investigated the number of bureaucrats working in the central administration offices of the New York City public schools. Six telephone calls finally yielded someone who knew the answer, but that person was not allowed to disclose it. Another six calls later, Chubb had at last pinned down someone who knew the answer and could tell him what it was: there were 6,000 bureaucrats working in the central office.

Then Chubb called the Archdiocese of New York, to find out the figure there. (The city's Catholic schools educated one-fifth as many students as did the government-run schools.) Chubb's first telephone call was taken by someone who did not know the answer. Here we go again, he thought. But after a moment she said, "Wait a minute; let me count." Her answer: 26.