Free Market Revolution
How Ayn Rand's Ideas can End Big Government
By Yaron Brook, Don Watkins
St. Martin's Press Copyright © 2012 Ayn Rand Institute
All rights reserved.
THE INCREDIBLE UNSHRINKING GOVERNMENT
IT HAS BEEN CALLED "THE RANT HEARD ROUND THE WORLD." After a month of nonstop bailouts and stimulus packages, the Obama administration had announced a new bailout plan, this one designed to rescue underwater homeowners. On February 19, 2009, CNBC's Business News Network editor Rick Santelli blared from the floor of the Chicago Mercantile Exchange, "The government is promoting bad behavior. ... We're thinking of having a Chicago Tea Party. ... All you capitalists who want to show up on Lake Michigan, I'm going to start organizing."
On April 15, 2009, cities all over the country witnessed the first large-scale Tea Party protests, as an estimated 268,000 Americans showed up at more than two hundred different locations. And that was only the beginning. The protests continued, peaking on September 12, 2009, when, by some estimates, more than 100,000 Americans marched on Washington, D.C.
What were they protesting? Their signs said it all:
Don't spread the wealth; spread my work ethic
Free Markets, Not Free Loaders!
HONK ... If I'm paying your mortgage
I Am Not Your ATM
If Dependence Is Your Idea Of HOPE, You Can Keep The CHANGE
If You Think Health Care Is Expensive Now, Wait Until It's Free
Liberty Is All the Stimulus We Need
Obamanomics: Chains You Can Believe In
Stop Punishing Success; Stop Rewarding Failure
You Can't Multiply Wealth by Dividing It
Your Mortgage Is NOT My Problem
The protesters were fed up with Big Government. "My thing with government is: smaller is better," said Jack Rice, a Tea Party activist and disillusioned Obama voter. "And so in that regard, [the government] taking control of health care and health insurance is just going to make government bigger. I don't think that they will do a very good job."
Rice was not alone. As much as a quarter of the electorate has declared its support for the Tea Parties. They are perhaps the most tangible sign of the widespread alarm at the rapid growth of government over the last few years.
In an October 2008 piece titled "Big Government Ahead," New York Times columnist David Brooks predicted that the financial crisis would help the Democrats win the presidency and expand their control over Congress. What would follow, he said, would be a flood of new spending, coming in four streams: bailouts, more stimulus packages, Keynesian-style government spending, and a new government health care plan. "When you add it all up," concluded Brooks, "we're not talking about a deficit that is 5 percent of G.D.P., but something much, much, much larger."
It doesn't happen often, but David Brooks was right. Since 2008, Americans have had to weather a parade of "stimulus" spending sprees, bailouts, regulatory shackles, and the passage of ObamaCare. The sheer numbers are chilling. A total of $862 billion on the stimulus, $30 billion expansion in the State Children's Health Insurance Program (SCHIP), and a 2011 budget that approached $4 trillion. As for the deficit, it exploded from 3.21 percent of GDP in 2008 (itself an unusually high number) to more than 8 percent in 2011.
In the long run, the picture looks even worse. In 2010, the president released his long-term budget, which called for $45 trillion in spending over the next decade, trillions in new taxes, and a public debt that amounts to 90 percent of GDP, double today's level. "President Obama would add more to the national debt than every other President in American history from George Washington through George W. Bush combined," one report concludes. Meanwhile, Obama has done nothing to address the looming entitlement crisis and the $66 trillion in unfunded liabilities we face.
The growth of state spending and state controls under Obama is disturbing, to say the least. But that growth didn't start with President 44. George W. Bush not only championed what was then the largest expansion of government regulatory power since the New Deal (Sarbanes-Oxley) and the largest expansion of the entitlement state since the Great Society (the prescription drug benefit), he managed to increase government spending by 50 percent in eight years. Bush has the distinction of being the first president to propose a $2 trillion budget (2002) and the first to propose a $3 trillion budget (2008). (We didn't get our first $1 trillion budget until Reagan.) But the trend toward greater government control over the economy didn't start with Bush either.
The American economic system is often referred to as free market capitalism. But for the last hundred years, and in particular since FDR's New Deal, America's market has been hindered by an elaborate web of government restrictions, interventions, controls, and wealth redistribution programs. Our once-free market has been replaced with a burgeoning regulatory-entitlement state.
In a 2010 town hall meeting, Congressman Pete Stark candidly admitted, "The federal government, yes, can do most anything in this country." It doesn't take a James Madison scholar to conclude that that is not what the Founding Fathers had in mind. The growth of government power — at the federal, state, and local levels — over the last century represents a break with our tradition of limited government, the very tradition that has made America the most prosperous nation in history.
THE WEALTH OF FREE NATIONS
In a memorable interview on Late Night with Conan O'Brien, comedian Louis C.K. observed that most of us take for granted the West's abundance. "[W]e live in an amazing, amazing world and it's wasted on the crappiest generation of just spoiled idiots that don't care." Telephones, he noted, had gone from rotary devices that would ring endlessly unless answered to mobile devices with voicemail. "Flying is the worst," C.K. added. We describe our flight experiences as if they are horror stories, ignoring how remarkable it is that we can fly. "People say there's delays on flights. Delays? Really? New York to California in five hours. That used to take thirty years! And plus you would die on the way."
America, and the West more broadly, is fabulously wealthy — not only compared to the rest of the world today but compared to any other civilization in history. The poorest Americans live better than the average Haitian — and in many ways better than even the wealthy elite did a few centuries ago.
Although C.K. didn't mention it, what makes possible today's "amazing, amazing world" is economic freedom — or, more precisely, the extent to which we've had economic freedom.
"Economic freedom" refers to people's ability to engage in production and voluntary exchange without government barriers. Although no nation has ever had complete economic freedom (the United States came the closest during the nineteenth century), on the whole, less government intrusion into the economy is associated with a higher standard of living.
Look at the world before capitalism. The medieval world was marked by unremitting famine, plague, and poverty. If you wanted to have a midlife crisis, you would have been well advised to do so when you were fifteen: Half the population never saw thirty. In the few cities of the period, animal and human waste filled the streets, and vermin were everywhere. Drinking water was so filthy that most people drank beer instead. The English would "drink no water, unless at certain times upon religious score, or by way of doing penance," Sir John Fortescue noted in the fifteenth century.
As late as the seventeenth and eighteenth centuries, vast swaths of the population were barely subsisting. From sunup to sundown people worked — arduous, grueling, backbreaking work. Forget tractors — most farmers (which was almost everybody) lacked even horses. Children worked as well, or they starved.
Then something changed. A famous graph based on the research of economist Angus Maddison marks this astonishing moment: It shows centuries of an unchanging standard of living that hovered just above the level of starvation, like the EKG of a lifeless patient — and then, without warning, a sudden spike, as if the patient had been brought back to life with a shot of adrenaline (see figure 1.1). That spike coincides perfectly with the birth of free market capitalism in the late eighteenth and nineteenth centuries.
Today, citizens of capitalist countries live about twice as long as our ancestors (and more than 50 percent longer than our Third World contemporaries). Many of the diseases that once ravaged mankind have been eliminated. If we do need medical attention, a vast array of medical technology can help diagnose and treat us — and we have access to anesthesia to help us through once-painful treatments. We have access to so much cheap, tasty food that the greatest danger we face is not starvation but obesity. Most of our "poor" own cars, and 30 percent of them own two. Gadgets like dishwashers, laundry machines, and gas-powered lawn mowers free up our time, allowing us to pursue the kinds of hobbies and leisure activities that didn't exist two hundred years ago. Then, only the wealthy few had access to great art and music. Today, they're a mouse-click away. Then, there was no such thing as a vacation. Today, luxurious Caribbean cruise ships are teeming with blue-collar workers. Then, there were no amusement parks, movie theaters, sports stadiums, or shopping malls. Today, we have so many pleasurable distractions that people pay to "get away from it all."
The power of capitalist freedom is confirmed when we compare more economically free countries to ones that are less free. Each year the Heritage Foundation and the Wall Street Journal release the Index of Economic Freedom. The results of the Index are striking.
According to the Index, free countries have on average a GDP per capita of $40,253, while moderately free countries have a GDP per capita of only $15,541 and repressed countries have a GDP per capita of a paltry $3,926. This means that by the time the average American pours a cup of coffee, chats with a colleague, and checks his email, he has earned as much as his unfree counterpart will earn that entire day.
Economic freedom leads to wealth and prosperity — and yet we're losing it. To take just one rough barometer, the United States fell from 80.6 percent free in 2008 to only 76.3 percent free in the latest Index. Unsurprisingly, economic commentators have started complaining about today's "Great Stagnation" and the decline of the American middle class. As economic freedom withers, our rate of economic growth declines, threatening our ability to live longer, more prosperous, increasingly enjoyable lives.
Thankfully, many Americans are determined not to end up like Italy or Greece and are rebelling against the attacks on economic freedom. But will this rebellion succeed? What can be done to reverse the trend of growing government power? Can anything be done?
One place to look for an answer is history. What happened the last time Americans rebelled against Big Government?
WHY THE LAST SWING TO THE RIGHT FAILED
You may have heard the American political landscape compared to a pendulum: Sometimes we swing to the left, other times we swing to the right, but never do we veer too far from a fixed center. Not true. The reality is that the "center" keeps moving — every step back from Big Government is canceled out by two giant leaps forward. But there have, nevertheless, been steps back.
The most recent was the swing to the right that came at the end of the 1970s. If we want to assess today's rebellion against Big Government, that swing is a phenomenon well worth examining.
The swing to the right has often been portrayed as a time when the country embraced capitalism. In reality, all it did was reject some of the disastrous policies of the left. The 1960s and 1970s were a time of incredible growth in government power. It was during this era that we established the massive entitlement state of the so-called Great Society, launching Medicaid and Medicare and greatly expanding sundry welfare programs. Government interference in the economy exploded: Industry was heavily regulated, from how much airlines could charge and what destinations they could service, to the routes trucking companies could use and how much they were allowed to charge for freight, to the commissions that stockbrokers could charge. The Federal Reserve dictated not only the interest rates at which banks could borrow from one another, as it does today, but also the interest rates that banks could pay on savings accounts.
As a consequence, inflation was rampant, in double digits for much of the 1970s. American industry struggled and became less competitive. The stock market, as measured by the Dow Jones Industrials, was basically flat from 1965 to 1982. Economic growth was nonexistent, with repeated recessions and high unemployment during the 1970s. And because the combination of inflation, stagnation, and unemployment was a phenomenon unanticipated by mainstream economists, a new term was coined: stagflation.
Jimmy Carter expressed the bleakness of the time in his famous "malaise" speech, claiming that America was suffering from "a crisis in confidence."
Human identity is no longer defined by what one does, but by what one owns. But we've discovered that owning things and consuming things does not satisfy our longing for meaning. We've learned that piling up material goods cannot fill the emptiness of lives which have no confidence or purpose.
The message? Stop desiring progress. Stop desiring prosperity. Stop aiming at productive achievement. Lower your expectations and try to find meaning in pursuing something other than your own happiness.
But instead of sharing Carter's sense of defeat, Americans rebelled. It began with a tax revolt. In 1978, California voters passed Proposition 13, a severe limit on property taxes, by a margin of 2 to 1. It "started a peasants' revolt that swept across the country," write journalists John Micklethwait and Adrian Wooldridge. "It reminded Americans that their country was founded by a tax revolt, and that politicians were the public's servants, not its masters."
Then came the presidency of Ronald Reagan. Reagan was elected under a banner of smaller government. "It is time to check and reverse the growth of government," he told Americans. The country was facing a crisis, and the problems were "parallel and ... proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth in government."
The rhetoric was inspiring. But Reagan's actual efforts to limit government were disappointingly feeble. His administration and conservative legislators repealed only some of the disastrous interventions strangling the economy. They lessened our crushing tax burden, rolled back a few of the most crippling regulations, undid some of the most destructive controls, and helped curb inflation — the effect of which was to help the economy. But Reagan failed to undo any significant elements of the New Deal or Great Society. Indeed, the entitlement state grew during his tenure — even though America had grown incredibly richer during that time. Far from ending Big Government, the best that can be said about Reagan is that in some ways he slowed down our march toward it.
The next and last chance to capitalize on the swing to the right came in 1994, when, for the first time in almost half a century, Republicans took control of the House, sweeping into power on the promise to reduce the size of government. The mastermind of this victory, newly crowned House Speaker Newt Gingrich, spoke boldly of Republicans' goals: "This is a genuine revolution. We're going to rethink every element of the federal government. We're going to close down several federal departments."
It didn't happen. The class of '94 did make an attempt to roll back the interventionist state, but as we shall see it encountered three walls of impenetrable resistance: opposition from colleagues in government, opposition from the American people, and the complete lack of a moral spine. (Continues...)
Excerpted from Free Market Revolution by Yaron Brook, Don Watkins. Copyright © 2012 Ayn Rand Institute. Excerpted by permission of St. Martin's Press.
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