Tuesday, August 7, 2012

The Road to Freedom by Arthur Brooks

In The Road to Freedom, Arthur Brooks makes the moral case for capitalism. Too often, free-market enthusiasts burnish charts and graphs and numbers to support their claims, but as Brooks points out, the moral argument will defeat the numbers argument most of the time. Fortunately, the free-market case IS a moral argument. Not only do the numbers support capitalism, morality supports capitalism.

Why then is the free-market moral? Number one, it allows us to earn our success. Study after study shows that earned success leads to happiness far more so than being handed material wealth. The apologist of the free-market must first argue that this system is the most likely to produce HAPPINESS.

Second, it is the most FAIR system. Unfortunately our definition of “fair” can vary from person to person. If we are talking about equal distribution of wealth, capitalism produces decidedly unfair results. But, if we are speaking about keeping what you earn and what is rightfully yours, capitalism delivers. If a person is asked whether someone has a right to what they did not earn, the answer is usually a resounding, “no.” The free-market therefore leads to more fairness if less redistributive equality. Which definition should be used to shape public policy is the ability to keep what you earn. Redistribution is totalitarian and oppressive.

Third, capitalism leads to greater generosity and a higher standard of living. In short, a rising tide lifts all boats. One has only to consider the example of North and South Korea. Here, two very similar cultures and people groups went down two very different paths. Obviously, the path of the freedom of markets led to a better standard of living for all the citizens of South Korea, and the path of government enforced “equality” made everyone equally miserable. In addition, beneficiaries of free enterprise are far more generous. When the government takes care of everyone, no one feels the need to give. But a prosperous society will donate to charity, not only for the benefit of the recipient, but for the rewards to the giver. Free people learn, “it is better to give than to receive” rather quickly. 

Although it is the more moral system, our country is moving away from this most beneficial way of distributing scarce resources. Some facts:
  1. U.S. Government spending has massively expanded as a percentage of GDP.
  2. America’s tax system is highly progressive, with more and more people paying no income tax at all.
  3. The tax and regulatory burdens on American business are heavy by the world standards and growing.
  4. U.S. National Debt has grown steadily since 1980.
  5. Economic growth has been in general decline for 50 years.
Does this sound like a moral system, benefitting the citizens of the U.S.?

So where does the government have a role?

First, a very basic safety net is needed. The U.S. should not have it’s citizens dying in the street. However, with 1 out of 7 Americans on Food Stamps, the safety net has become extremely large.

Second, the government is needed in places where the market will not work. There are four areas of market failure:

  1. Monopolies
  2. Negative externalities (i.e. pollution)
  3. Public Goods (i.e. military)
  4. Asymmetric information
Any of these must be present before the government should get involved. Unfortunately, like the safety net, we have broadened these definitions to include far too much. Yet even in cases involving these four situations, the government may not need to act. It’s possible that market solution can be found. (As Mitch Daniels says, “If you can find it in the Yellow Pages, government should not be doing it.”) Sometimes the government solution is not reasonable. (i.e. shut down all factories to avoid pollution) Sometimes the cost of government intervention clearly outweighs the benefits (i.e. Kyoto treaty).

This is where worldviews come into play.  For those that believe man and the world are fallen, we recognize that some problems do not have solutions. Those that believe the world and mankind are perfectible will often look to the government to provide the utopia they believe possible. Utopian fantasies ALWAYS lead to totalitarianism. But people, working together in community can and do solve many problems thought to be intractable. As long as the government does not tear up our social fabric, many times, we can solve the problems ourselves.

“...the key to our success lies in free enterprise - the system our founders left us to maximize liberty, create individual opportunity, and reward entrepreneurship. Free enterprise creates the opportunities our ancestors came to America seeking - the opportunities that allowed them to pursue their happiness in a new land. It is the free enterprise system that treated them fairly for the first time; instead of being penalized for lacking a noble birth, they were rewarded for their hard work and personal responsibility. Free enterprise made a country of immigrants into the most powerful, prosperous nation in the history of the world.”

We are in danger of losing what made America great.

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