April 13, 2008

The Problem with Giving All the Power to the Nice Guys

Justin Katz

What a jumble has politico-economic thought become in America! It's as if so much access to information (and ability to propagate it) has served mainly to allow us all to slip into ruts of prepared thoughtlines. Consider this interesting comment from Evan, at RIFuture (emphasis added):

What most "free market" bozos ignore is that most of those at the very top of the pyramid are born into wealth, and don't have to strive for it whatsoever.

If you're born poor, you aren't born on a fair playing field in this country anymore. That may have been less true in years past, but it certainly is not true anymore.

"Free Market" idiots are going the way of the dodo, let them clog this blog with their nonsense, it doesn't make a bit of difference.

According to the Economist Magazine, the majority of Americans want LESS Free Trade and MORE Protectionism. This actually is the opposite of our cousins in the British Isles! But if you turn on the TV Media in this country you'd never know it.

Now I'm not advocating protectionism, but we do need to alter free trade to make it fair. "Free Marketers" act like they hold a common sense and unchallenged position - but the truth of the matter is they are fast becoming the minority - (for better or worse) and are loathe to even realize this since they glean all their economic information from echo chamber media.

Put aside the distraction of public opinion (which is more a measure of persuasion than truth). The key thread is Evan's statement of the obvious observation that those born with advantages have advantages and his suggestion that "we" can "alter free trade to make it fair." In the context of a discussion about income inequality and taxes, the "we" can be presumed to mean "the government."

Now a quotation from Madison's Federalist 10 entered into the debate by Thomas Schmeling:

AMONG the numerous advantages promised by a well constructed Union, none deserves to be more accurately developed than its tendency to break and control the violence of faction....the most common and durable source of factions has been the various and unequal distribution of property.

Schmeling translates this as the recognition "that extreme wealth inequalities pose a threat to the stability of a society," and (owing to a lack of familiarity, as well as a subsequent Madison quotation) I won't dispute that aspect, but I would note that the object of the sentence is "the violence of faction," of which unequal property distribution is just a leading context for factionalism. Property, in this regard, is notable as a measurement of power, and inequality is violent in its allowance of one faction to subject another to its will.

Schmeling's second Madison quotation cites as a "great object" the limitation of parties' development by, for one thing, "withholding unnecessary opportunities from a few, to increase the inequality of property, by an immoderate, and especially an unmerited accumulation of riches" (National Gazette, January 1792). Readers should spend some time with that first phrase — "withholding unnecessary opportunities from a few" — because it is crucial to an understanding of how Schmeling's editing of the following down to points 1 and 2 enables the Evans of the Left to slip into the rut of centralized control. Take particular note of points 4 and 5:

In every political society, parties are unavoidable. A difference of interests, real or supposed, is the most natural and fruitful source of them. The great object should be to combat the evil: 1. By establishing a political equality among all. 2. By withholding unnecessary opportunities from a few, to increase the inequality of property, by an immoderate, and especially an unmerited, accumulation of riches. 3. By the silent operation of laws, which, without violating the rights of property, reduce extreme wealth towards a state of mediocrity, and raise extreme indigence towards a state of comfort. 4. By abstaining from measures which operate differently on different interests, and particularly such as favor one interest at the expence of another. 5. By making one party a check on the other, so far as the existence of parties cannot be prevented, nor their views accommodated. If this is not the language of reason, it is that of republicanism.

As is often a necessity of communication, Madison lists these as five separate instructions, but they are really five aspects of a single mandate for freedom, which I would apply to contemporary economic debate as encouraging an abstinence from regulations that, because of established players' imbalanced ability to overcome them, serve as opportunities to exclude up-and-comers who would act as checks on immoderate behavior. As I put it (with incidental reference to legislation related to construction) in the Providence Journal last August:

Registration/licensure, continuing education, various industry-specific and even minimum-wage requirements all dam the flow of competition, while doing little more than adding administrative costs for corporations, category killers, and Big Box stores. Established players can pass on those costs to customers with an ease of inverse proportion to the difficulty that upstarts and up-and-comers have addressing the same necessities. Moreover, in a world of rapid transportation and instantaneous communication, the capability of moving facilities overseas makes larger companies the ones that benefit from the possibility of excising regulatory baggage.

Notwithstanding the good intentions of those who would wield the law to protect the little guy, nothing is so much to his advantage as freedom.

That includes the freedom to make bad choices, as well as the freedom to profit from others'. Immoral and unfair business practices can be prosecuted; complaints can be filed and posted for the public. More importantly, businesses can leverage the poor behavior of their competition.

Jonah Goldberg traces the line in his investigation of modern liberalism's fascistic roots in his book:

Just because business thrives under capitalism doesn't mean businessmen are necessarily principled capitalists. Businessmen — at least those at the helm of very large corporations — do not like risk, and capitalism by definition requires risk. Capital must be put to work in a market where nothing is assured. But businessmen are, by nature and training, encouraged to beat back uncertainty and risk. Hence, as a group, they aren't principled capitalists but opportunists in the most literal sense. ...

Now imagine you are the CEO of Coca-Cola. Your chief objection to [the Americans with Disabilities Act] is that it will cost you a lot of money, right? Well, not really. If you know that the CEO of Pepsi is going to have to make the same adjustments, there's really no problem for you. All you have to do is add a penny — or really a fraction of a penny — to the cost of a can of Coke. Your customers will carry the freight, just as Pepsi's customers will. The increase won't cost you market share, because your price compared with your competitor's has stayed pretty much the same. Your customers probably won't even notice the price hike.

Now imagine that you own a small, regional soft drink company. You've worked tirelessly toward your dream of one day going eyeball-to-eyeball with Coke or Pepsi. Proportionally speaking, making your factories and offices handicapped-friendly will cost you vastly more money, not just in terms of infrastructure, but in terms of the bureaucratic legal compliance costs (Coke and Pepsi have enormous legal departments; you don't). Plans to expand or innovate will have to be delayed because there's no way you can pass on the costs to your customers. Or imagine you're the owner of an even smaller firm hoping to make a play at your regional competitors. But you have 499 employees, and for the sake of argument, the ADA fully kicks in at 500 employees. If you hire just one more, you will fall under the ADA. In other words, hiring just one thirty-thousand-dollar-a-year employee will cost you millions.

The ADA surely has admirable intent and legitimate merits. But the very nature of such do-gooding legislation empowers large firms, entwines them with political elites, and serves as a barrier to entry for smaller firms. ...

This is the hidden history of big business from the railroads of the nineteenth century, to the meatpacking industry under Teddy Roosevelt, to the outrageous cartel of "Big Tobacco" today: supposedly right-wing corporations work hand in glove with progressive politicians and bureaucrats in both parties to exclude small businesses, limit competition, ensure market share and prices, and generally work as government by proxy.

In short, the only practicable way in which "we" can make the market more fair is to avoid the natural tendency to reach in and manipulate things, because those who already hold the advantage will have imbalanced influence in building the hurdles. Somewhere between some Evan's declaration of unfairness and the successful accumulation of sufficient power to force change, the unfair playing field will have already been tilted such that the new regulations will actually increase the inequity.

Contrary to popular belief, recent economic history hasn't been one of free-market experimentation. It's seen an unwieldy blend of carefully selected free-market principles with strategic gates constructed by an ostensibly benevolent political class. Hence astonishing executive salaries. Hence outsourcing. Hence megacorporations.

The discouraging thing is that, by his language, Evan makes it explicitly known that his mind is already closed to the observation that he and we idiotic free-market bozos really do have the same ends in view. And if you share my understanding of the world, the added injury to that insult is that we've got better directions to the shared goal.

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I'm still waiting for you to explain how the unseen hand of the market will swoop in and heal the wounds of the underclass when the unseen hand of the market has put them there in the first place. Forty eight million of our citizens, living in a free market economy, have inadequate or non existent health insurance, millions have lost their homes, children are being left behind in droves, unemployment is rising, and we are staring at economic depression or worse.

Please tell me how the benevolent hand of the market will swoop in and manage these problems. It's like trying to cure cancer by injecting more cancer.

Your silence here speaks volumes.

Posted by: OldTimeLefty at April 13, 2008 9:43 PM


If you'd given any indication that you'd read what I've already written, I might bother to respond.

Posted by: Justin Katz at April 13, 2008 9:54 PM

Ahhhh.. that old tired class envy drivel of the left.

"What most "free market" bozos ignore is that most of those at the very top of the pyramid are born into wealth, and don't have to strive for it whatsoever."
"If you're born poor, you aren't born on a fair playing field in this country anymore. That may have been less true in years past, but it certainly is not true anymore."

Would ask Evan when in history has being born poor made ones playing field fair or level with that of the inherited wealthy? Must have missed that chapter in world history. Evan seems to think this is some new phenomenon? lol How many working class Soviets owned dacha's Evan? Nothing free market about that society Evan. Who had the toys? Certainly wasn't the worker bees sititng in their drab cookie cutter government housing. How to explain it Evan?
Would ask Evan does the underclass in this nation in 2008 strive for it (wealth) like past generations or are many made lazy by 'Great society' interventions from 'we' the government? May not have health insurance but do have cable TV.
Can only surmise by Evan's comments that he's a bullish advocate for genuine reform for our horrendous public education system particularly in the urban centers where so many of our born poor live? Or is Evan the local fish peddler who much prefers that 'we' the government give out the fish rather than teaching the poor how to fish for themselves? Education not reducing Tyson chicken's profit margin is the key to elevating the poor. Education!
Outlandish corporate greed plays little role in preventing anyone from fulfilling their dreams in this life through hard work and goal setting.
Evan must also be a huge advocate for sealing our borders and deporting all illegals. The robber barons use the cheap labor of the illegals to generate their wealth and those same illegals take jobs and housing that belong to America's underclass. Evan must be standing shoulder to shoulder with Gov. Carcieri and his modest proposals to ID illegals. Better yet perhaps Evan is outraged the governor is not going far enough? Would seem to me those who love playing the class warfare card as they demonize the wealthy and advocate for our poor would lead the charge to stop illegals since illegals help the wealthy and hurt the poor.
What say you Evan?
I say Evan is the typical liberal that First Lady Sue Carcieri so accurately described when slapping down loony lib Charlie Bakst.
Evan suffers the bigotry of low expectations.

Posted by: Tim at April 14, 2008 7:34 AM

Quote from Krugman in the NY Times:
"But my impression is that the subprime crisis — with its revelation that titans of finance were dealing in funny money and its tales of failed executives receiving hundred-million-dollar going-away presents — has resurrected the sense that something is rotten in the state of our economy. And this sense is adding to the general gloom." And you blame the problem on regulation??? The comeuppance will happen in November.

Posted by: OldTimeLefty at April 14, 2008 8:55 AM
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