Among the Intellectualoids

The High Price Economy

Obama allies to the world's poor: Stop this greed. Low prices won't set you free.

By and 1.20.12

What is to blame for Americans' economic woes? Why, Americans' selfish desires, according to a school of thought that appears to be currently dominant in the White House. An excellent example of this line of thinking is former presidential economic advisor Robert Reich's recent article in the Financial Times, in which he claims America's "insatiable consumers" have destroyed the economy and the "hubs of our communities" with their relentless pursuit of "great deals." The "lure of the bargain," suggests Reich, is a destructive force.

Well that's rich -- Berkeley professor Reich, clearly a member of the 1 percent, attacking the 99. While Reich consider low prices a great evil, he ignores what they actually mean. Low prices indicate that a good or service has become more abundant -- that is, more available. This availability of goods and services is the very definition prosperity. The pursuit of low prices, which so offends Reich, is just the pursuit of prosperity -- the pursuit of happiness that the Declaration of Independence called "unalienable."

Reich blames Americans' desire for lower prices, prosperity, and happiness for sending jobs "elsewhere." But he ignores the fact that those lower prices mean we have more money available to buy other, costlier goods and services here in America. So rather than make snow globes and t-shirts, Americans develop advanced technology, manufacture airplanes and cars, and provide the world's best financial, health, and education services. They use iPads that put enormous competitive pressures on laptop manufacturers and publishers to provide more creative services to people who want them.

It is enough to make on wonder whether Reich has ever read Schumpeter, who in 1942 pointed out: "The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort." (Capitalism, Socialism, and Democracy, p. 67)

Trade freed Americans from the sweatshop and now it is freeing them from the factory floor. It will do the same for Asians and Africans. Yet Reich would end trade with poor countries, since their environmental and working conditions "offend common decency." Does Reich truly believe these workers' usual alternative, subsistence farming, can gain them a "decent" standard of living? Does he really believe he knows better than the poor in developing countries what is best for them? Not allowing those workers to decide for themselves would keep them in poverty. Meanwhile, middle-class Americans are made worse off by higher prices.

Reich isn't the only Obama ally who wants higher prices. Treasury Secretary Timothy Geithner wants more subsidies to raise housing prices -- even after those policies created a housing bubble that led to the current financial crisis. Commerce Secretary John Bryson has championed the cause of higher energy prices since the 1970s, telling Justice Stephen Breyer during a 2010 panel discussion that "energy prices are going to have to go up." Breyer responded by saying, "We better get away from oil. That'll help us.… Raise the price of oil! Raise it through the roof, and then people will look for substitutes."

It's easy for rich liberals to ask for higher taxes and higher prices, but these policies dramatically damage Americans' standard of living. President Obama's cap and trade bill would have cost each American family $1,761 per year, according to the White House's own figures. While that bill failed, Obama's anti-drilling, anti-pipeline, anti-energy agenda is already forcing Americans to spend more on gas as a percentage of their income last year than at any point in the last three decades. Higher prices can and do kill the American dream.

Reich wants to "protect jobs and wages" with "democratic institutions that shape and constrain markets" -- the very same institutions he claims are controlled by corporations. The reality is that large corporations do benefit from government meddling in markets. Regulations increase costs that large companies can absorb but that can drive small companies out of business.

Low prices mean abundance and prosperity. High prices mean scarcity and privation. The dynamic capitalism that works to drive prices ever lower has helped make America the most prosperous nation on Earth. The high price economy the Obama administration and its supporters want will benefit no one -- except, ironically, some of the 1 percent.

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About the Author

Iain Murray is Vice-President for Strategy at the Competitive Enterprise Institute.

About the Author

David Bier is a research associate at the Competitive Enterprise Institute.