Free Markets -- Part 8
No matter how unpopular government gets, its failed programs tend to linger on.
Continuing this essay series on free markets using Milton Friedman’s classic book, Free to Choose, in this essay we’ll explore Friedman’s observations on how no matter how unpopular government gets, its failed programs tend to linger on.
Friedman, who was writing during the rise of President Ronald Reagan, a prominent critic of government programs, observes:
The failure of Western governments to achieve their proclaimed objectives has produced a widespread reaction against big government. The reaction may prove short-lived and be followed, after a brief interval, by a resumption of the trend toward ever bigger government. The widespread enthusiasm for reducing government taxes and other impositions is not matched by a comparable enthusiasm for eliminating government programs—except programs that benefit other people. The reaction against big government has been sparked by rampant inflation, which governments can control if they find it politically profitable to do so If they do, the reaction might be muted or disappear. We believe that the reaction is more than a response to transitory inflation. On the contrary, the inflation itself is partly a response to the reaction. As it has become politically less attractive to vote higher taxes to pay for higher spending, legislators have resorted to financing spending through inflation, a hidden tax that can be imposed without having been voted, taxation without representation. That is no more popular in the twentieth century than it was in the eighteenth. In addition, the contrast between the ostensible objectives of government programs and their actual results—a contrast that has been a persistent theme of earlier chapters—is so pervasive, so widespread, that even many of the strongest supporters of big government have had to acknowledge government failure—though their solution almost always turns out to be still bigger government.
Government tides ebb and flow, but the ocean of government seems to always swell larger:
The tide of opinion toward economic freedom and limited government that Adam Smith and Thomas Jefferson did so much to promote flowed strongly until late in the nineteenth century. Then the tide of opinion turned—in part because the very success of economic freedom and limited government in producing economic growth and improving the well-being of the bulk of the population rendered the evils that remained (and of course there were many) all the more prominent and evoked a widespread desire to do something about them. The tide toward Fabian socialism and New Deal liberalism in turn flowed strongly, fostering a change in the direction of British policy early in the twentieth century, and in U.S. policy after the Great Depression. That trend has now lasted three-quarters of a century in Britain, half a century in the United States. It, too, is cresting. Its intellectual basis has been eroded as experience has repeatedly contradicted expectations. Its supporters are on the defensive. They have no solutions to offer to present-day evils except more of the same. They can no longer arouse enthusiasm among the young … Late in the nineteenth century and on into the early decades of the twentieth, the intellectual climate of opinion in the United States—largely under the influence of the same views from Britain that later affected Indian policy—started to change. It moved away from a belief in individual responsibility and reliance on the market toward a belief in social responsibility and reliance on the government. By the 1920s a strong minority, if not an actual majority, of college and university professors actively concerned with public affairs held socialist views. The New Republic and the Nation were the leading intellectual journals of opinion. The Socialist party of the United States, led by Norman Thomas, had broader roots, but much of its strength was in colleges and universities. In our opinion the Socialist party was the most influential political party in the United States in the first decades of the twentieth century. Because it had no hope of electoral success on a national level (it did elect a few local officials, notably in Milwaukee, Wisconsin), it could afford to be a party of principle. The Democrats and Republicans could not. They had to be parties of expediency and compromise, in order to hold together widely disparate factions and interests. They had to avoid “extremism,” keep to the middle ground. They were not exactly Tweedledum and Tweedledee—but close to it. Nonetheless, in the course of time both major parties adopted the position of the Socialist party. The Socialist party never received more than 6 percent of the popular vote for President (in 1912 for Eugene Debs). It got less than 1 percent in 1928 and only 2 percent in 1932 (for Norman Thomas). Yet almost every economic plank in its 1928 presidential platform has by now been enacted into law. The relevant planks are reproduced in Appendix A [see end of this essay]. Once the change in the climate of opinion had spread to a wider public, as it did after the Great Depression, the Constitution shaped by a very different climate of opinion proved at most a source of delay to the growth of government power, not an obstacle … As A. V. Dicey, with remarkable prescience, wrote more than sixty years ago, “If the progress of socialistic legislation be arrested, the check will be due, not so much to the influence of any thinker as to some patent fact which shall command public attention; such, for instance, as that increase in the weight of taxation which is apparently the usual, if not the invariable, concomitant of a socialist policy.” Inflation, high taxes, and the patent inefficiency, bureaucracy, and excessive regulation stemming from big government are having the effects Dicey predicted. They are leading people to take matters into their own hands, to try to find ways around government obstacles.
But there’s always hope:
Pat Brennan became something of a celebrity in 1978 because she and her husband went into competition with the U.S. Post Office. They set up business in a basement in Rochester, New York, guaranteeing delivery the same day of parcels and letters in downtown Rochester at a lower cost than the Post Office charged. Soon their business was thriving. There is no doubt that they were breaking the law. The Post Office took them to court, and they lost after a legal battle that went all the way to the Supreme Court. Local businessmen provided financial backing. Said Pat Brennan, I think there’s going to be a quiet revolt and perhaps we’re the beginning of it … You see people bucking the bureaucrats, when years ago you wouldn’t dream of doing that because you’d be squashed … People are deciding that their fates are their own and not up to somebody in Washington who has no interest in them whatsoever. So it’s not a question of anarchy, but it’s a question of people rethinking the power of the bureaucrats and rejecting it … +The question of freedom comes up in any kind of a business—whether you have the right to pursue it and the right to decide what you’re going to do. There is also the question of the freedom of the consumers to utilize a service that they find is inexpensive and far superior, and according to the federal government and the body of laws called the Private Express Statutes, I don’t have the freedom to start a business and the consumer does not have the freedom to use it—which seems very strange in a country like this that the entire context of the country is based on freedom and free enterprise. Pat Brennan is expressing a natural human response to the attempt by other people to control her life when she thinks it’s none of their business. The first reaction is resentment; the second is to attempt to get around obstacles by legal means; finally, there comes a decline in respect for law in general. This final consequence is deplorable but inevitable. Each program takes money from our pockets that we could use to buy goods and services to meet our separate needs. Each of them uses able, skilled people who could be engaged in productive activities. Each one grinds out rules, regulations, red tape, forms to fill in that bedevil us all.
Government programs linger on because of an imbalance in time and resource concentration among those most vested in the continuance of government programs:
Such a system tends to give undue political power to small groups that have highly concentrated interests, to give greater weight to obvious, direct, and immediate effects of government action than to possibly more important but concealed, indirect, and delayed effects, to set in motion a process that sacrifices the general interest to serve special interests, rather than the other way around. There is, as it were, an invisible hand in politics that operates in precisely the opposite direction to Adam Smith’s invisible hand. Individuals who intend only to promote the general interest are led by the invisible political hand to promote a special interest that they had no intention to promote … Every movement to remove the government monopoly of first-class mail is vigorously opposed by the trade unions of postal workers. They recognize very clearly that opening postal service to private enterprise may mean the loss of their jobs. It pays them to try to prevent that outcome. As the case of the Brennans in Rochester suggests, if the postal monopoly were abolished, a vigorous private industry would arise, containing thousands of firms and employing tens of thousands of workers. Few of the people who might find a rewarding opportunity in such an industry even know that the possibility exists. They are certainly not in Washington testifying to the relevant congressional committee. The benefit an individual gets from any one program that he has a special interest in may be more than canceled by the costs to him of many programs that affect him lightly. Yet it pays him to favor the one program, and not oppose the others. He can readily recognize that he and the small group with the same special interest can afford to spend enough money and time to make a difference in respect of the one program. Not promoting that program will not prevent the others, which do him harm, from being adopted. To achieve that, he would have to be willing and able to devote as much effort to opposing each of them as he does to favoring his own. That is clearly a losing proposition. Citizens are aware of taxes—but even that awareness is diffused by the hidden nature of most taxes. Corporate and excise taxes are paid for in the prices of the goods people buy, without separate accounting. Most income taxes are withheld at source. Inflation, the worst of the hidden taxes, defies easy understanding … It becomes impossible for any large fraction of the citizens to be reasonably well informed about all items on the vastly enlarged government agenda, and, beyond a point, even about all major items. The bureaucracy that is needed to administer government grows and increasingly interposes itself between the citizenry and the representatives they choose. It becomes both a vehicle whereby special interests can achieve their objectives and an important special interest in its own right …
The huge length of legislative bills even separates elected representatives from their own understanding of what they’re voting for:
No federal legislator could conceivably even read, let alone analyze and study, all the laws on which he must vote. He must depend on his numerous aides and assistants, or outside lobbyists, or fellow legislators, or some other source for most of his decisions on how to vote. The unelected congressional bureaucracy almost surely has far more influence today in shaping the detailed laws that are passed than do our elected representatives. The situation is even more extreme in the administration of government programs. The vast federal bureaucracy spread through the many government departments and independent agencies is literally out of control of the elected representatives of the public. Elected Presidents and senators and representatives come and go but the civil service remains. Higher-level bureaucrats are past masters at the art of using red tape to delay and defeat proposals they do not favor; of issuing rules and regulations as “interpretations” of laws that in fact subtly, or sometimes crudely, alter their thrust; of dragging their feet in administering those parts of laws of which they disapprove, while pressing on with those they favor. More recently, the federal courts, faced with increasingly complex and far-reaching legislation, have departed from their traditional role as impersonal interpreters of the law and have become active participants in both legislation and administration. In doing so, they have become part of the bureaucracy rather than an independent part of the government mediating between the other branches. Bureaucrats have not usurped power. They have not deliberately engaged in any kind of conspiracy to subvert the democratic process. Power has been thrust on them. It is simply impossible to conduct complex government activities in any other way than by delegating responsibility.
As explored in a previous essay series, bureaucrats and other elites become devoted to narratives that promote their own well-being, regardless of the truth of those narratives:
The high-level bureaucrats who have been assigned these functions cannot imagine that the reports they write or receive, the meetings they attend, the lengthy discussions they hold with other important people, the rules and regulations they issue—that all these are the problem rather than the solution. They inevitably become persuaded that they are indispensable, that they know more about what should be done than uninformed voters or self-interested businessmen … Increasingly, success in business depends on knowing one’s way around Washington, having influence with legislators and bureaucrats. What has come to be called a “revolving door” has developed between government and business. Serving a term as a civil servant in Washington has become an apprenticeship for a successful business career. Government jobs are sought less as the first step in a lifetime government career than for the value of contacts and inside knowledge to a possible future employer.
Recalling our earlier essay series on the American legal system, Friedman writes:
A recent Wall Street Journal story (June 25, 1979) is headlined: “SEC’s Charges Settled by a Former Director” of a corporation. The former director, Maurice G. McGill, is reported as saying, “The question wasn’t whether I had personally benefited from the transaction but rather what the responsibilities of an outside director are. It would be interesting to take it to trial but my decision to settle was purely economic. The cost of fighting the SEC to completion would be enormous.” Win or lose, Mr. McGill would have had to pay his legal costs. Win or lose, the SEC official prosecuting the case had little at stake except status among fellow bureaucrats.
Friedman ends on a hopeful note:
When you enter a store, no one forces you to buy. You are free to do so or go elsewhere. That is the basic difference between the market and a political agency. You are free to choose. There is no policeman to take the money out of your pocket to pay for something you do not want or to make you do something you do not want to do … The two ideas of human freedom and economic freedom working together came to their greatest fruition in the United States. Those ideas are still very much with us. We are all of us imbued with them. They are part of the very fabric of our being. But we have been straying from them. We have been forgetting the basic truth that the greatest threat to human freedom is the concentration of power, whether in the hands of government or anyone else. We have persuaded ourselves that it is safe to grant power, provided it is for good purposes. Fortunately, we are waking up. We are again recognizing the dangers of an overgoverned society, coming to understand that good objectives can be perverted by bad means, that reliance on the freedom of people to control their own lives in accordance with their own values is the surest way to achieve the full potential of a great society. Fortunately, also, we are as a people still free to choose which way we should go—whether to continue along the road we have been following to ever bigger government, or to call a halt and change direction.
That concludes this essay series on free markets. In the next essay series, we’ll examine China, a nation run on much different principles than those of the free market, as well as China’s influence on the world around it.
And here is Friedman's reprinting of the 1928 Socialist Party Platform along with his commentary on how its policies had fared as of the writing of his book …
APPENDIX A -- SOCIALIST PLATFORM OF 1928
Herewith the economic planks of the Socialist party platform of 1928, along with an indication in parentheses of how these planks have fared. The list that follows includes every economic plank, but not the full language of each.
“Nationalization of our natural resources, beginning with the coal mines and water sites, particularly at Boulder Dam and Muscle Shoals.” (Boulder Dam, renamed Hoover Dam, and Muscle Shoals are now both federal government projects.)
“A publicly owned giant power system under which the federal government shall cooperate with the states and municipalities in the distribution of electrical energy to the people at cost.” (Tennessee Valley Authority.)
“National ownership and democratic management of railroads and other means of transportation and communication.” (Railroad passenger service is completely nationalized through Amtrak. Some freight service is nationalized through Conrail. The FCC controls communications by telephone, telegraph, radio, and television.)
“An adequate national program for flood control, flood relief, reforestation, irrigation, and reclamation.” (Government expenditures for these purposes are currently in the many billions of dollars.)
“Immediate governmental relief of the unemployed by the extension of all public works and a program of long range planning of public works ...” (In the 1930s, WPA and PWA were a direct counterpart; now, a wide variety of other programs are.)
“All persons thus employed to be engaged at hours and wages fixed by bona-fide labor unions.” (The Davis-Bacon and Walsh-Healey Acts require contractors with government contracts to pay “prevailing wages,” generally interpreted as highest union wages.)
“Loans to states and municipalities without interest for the purpose of carrying on public works and the taking of such other measures as will lessen widespread misery.”
(Federal grants in aid to states and local municipalities currently total tens of billions of dollars a year.)
“A system of unemployment insurance.” (Part of Social Security system.)
“The nation-wide extension of public employment agencies in cooperation with city federations of labor.” (U.S. Employment Service and affiliated state employment services administer a network of about 2,500 local employment offices.)
“A system of health and accident insurance and of old age pensions as well as unemployment insurance.” (Part of Social Security system.)
“Shortening the workday” and “Securing to every worker a rest period of no less than two days in each week.” (Legislated by wages and hours laws that require overtime for more than forty hours of work per week.)
“Enacting of an adequate federal anti-child labor amendment.” (Not achieved as amendment, but essence incorporated in various legislative acts.)
“Abolition of the brutal exploitation of convicts under the contract system and substitution of a cooperative organization of industries in penitentiaries and workshops for the benefit of convicts and their dependents.” (Partly achieved, partly not.)
“Increase of taxation on high income levels, of corporation taxes and inheritance taxes, the proceeds to be used for old age pensions and other forms of social insurance.” (In 1928, highest personal income tax rate, 25 percent; in 1978, 70 percent; in 1928, corporate tax rate, 12 percent; in 1978, 48 percent; in 1928, top federal estate tax rate, 20 percent; in 1978, 70 percent.)
“Appropriation by taxation of the annual rental value of all land held for speculation.” (Not achieved in this form, but property taxes have risen drastically.)