The top news story in Washington and with big media nationwide is that the multi-billion dollar mis-named Inflation Reduction Act and other policy victories will not only solve inflation but everything from global warming (or is that climate change?) to universal health and free college — resulting in the election of Democrats in November because they prove they get results.
The bill promised a mere $740 billion over a decade but it was on top of multiple trillions of dollars in earlier spending bills. How could it fail to Build America Back Better?
In his new book, The Next American Economy, Samuel Gregg demonstrates the problems with today’s “state capitalism” and the damage caused by its century-long progressive control of Washington economic policy.
And the new 87,000 IRS tax agents will get the rich to pay it all back, right, just like it inadvertently posted 120,000 confidential files on its public website for all to see?
Unfortunately, the past record of results — even for America’s most deserving — was summarized by the Washington Post as “Millions spent to retrain veterans yielded few jobs”; and reported $45 billion fraud in unemployment insurance payments. More important, as columnist Megan McArdle warned readers, public debt now equals national GDP wealth and is sure to increase, ending the easy money available since the 2008 Great Recession.
What is the conservative response? Until recently most would have said, “Cut spending and rely on the market.” Now it’s more like, OK, we know government mostly does not work well and markets do better, but contrary to the old rhetoric the answer is not simply to spend less money and support the private sector.
It turns out that General Motors’ Mary Barra and other automobile CEOs not only supported President Joe Biden’s spending spree but lobbied for $30 billion in loans, tax credits, and privileges for their own companies. And they were not the only ones. Indeed, rightist critics from Sen. Marco Rubio to intellectual Oren Cass now say the need is not freer markets but to direct government money better to the “common good” by supporting rightist programs.
The critics are correct that the market cannot do everything. Yet, the answer cannot be more government programs that do not work. A forthcoming book by American Institute for Economic Research political economist Samuel Gregg, The Next American Economy, takes up the challenge by demonstrating the problems with today’s “state capitalism” and the damage caused by its century-long progressive control of Washington economic policy.
What is most appealing is that Gregg both recognizes what freer markets can accomplish but also that this does not mean perfect markets, following economist Adam Smith rather than David Ricardo. Too many on the right preach the market as if it is a machine rather than free human decision-making. But recognizing that critics on the right are rejecting rigid ideological answers, he explains that even supporting free trade does not mean there are no other considerations about foreign and domestic policymaking that also need to be kept in mind.
It is not merely a coincidence for Gregg that the Declaration of Independence and Smith’s The Wealth of Nations both appeared in 1776, or that America unlike most nations is to a great degree defined by its economy, which to the world basically is Capitalism. But the U.S. 1930s Great Depression “brought America to its economic knees” and to a significant degree resulted in a greatly expanded role for government in directing the economy, a roll that expanded dramatically again with the 2008 Great Recession. Today one must understand that the U.S. is far from being a Smithian free-market economy.
Gregg believes the U.S. now has only two choices, what he labels “state capitalism” and a real “market economy.” The former with its widespread market controls has become dangerously close to the dominant force in the American economy today. The latter requires a fundamental change in direction to become “what some of the most influential Founders thought should be America’s political destiny: that is a modern commercial republic.”
State capitalism aims to manipulate the market to promote “fairness” through statuary and regulatory power. Contrary to critics, Gregg demonstrates that even the 1890s tariffs actually held back industrial growth, as did later ones until the Great Depression of the 1930s. And prosperity did not explode again until the freer trade that followed World War II. But the economy became increasingly restricted again in the 1960s until the Great Recession, whose effects still restrict prosperity today. The increased business regulation, economic protectionism, industrial policy, and favoritism simply have not worked for the good of society.
The problem is that government experts cannot know enough to micro-manage such complex phenomena that include every transaction by billions of people worldwide and hundreds of millions of Americans. The relevant information is too disbursed for centralized expert regulators and can really only be understood by those deciding whether a trade is in their own interest. Under these conditions governmental decisions are based too much upon bureaucratic and business interests that generally redistribute from the middle to the more powerful.
As Gregg demonstrates in his book, most regulation “has nothing to do with the common good and everything to do with businesses wanting to avoid competition and legislators happy to oblige them.” His answer to crony capitalism is to reestablish consumer sovereignty by reducing regulation and limiting its negative effects, and he gives examples of how this can be done. While noting actual trade agreements often produce as much protectionism as freeing, he also concedes that much of the productive freeing is also socially disruptive. So, he suggests freedom-friendly ameliorations.
There are also national security, property theft, and labor infraction considerations in foreign trade negotiations that properly limit even free trade, especially with nations like China. Some like Sen. Rubio suggest generally supporting worldwide free trade means not caring about making America great, but Gregg insists that free national commerce and its republicanism are the epitome of what America is all about.
Gregg introduces a “Commercial Republic” ideal as model for a positive America-first political economy based upon commercial principles derived from the U.S. Founders. He especially relies upon The Federalist Papers by James Madison, Alexander Hamilton, and John Jay to defend our Constitution, citing multiple Papers to make the commercial case. But the Commercial Republic also rests on the Jewish, Christian, natural law and rights elements inherent in the founding documents. Gregg especially relies upon George Washington’s Farewell Address that he gave when stepping down as president, confirming Gregg in his use of our founding President to make the case in spades, although you will have to read the book to get the case in full.
Gregg explains how creativity, competition, and trade are what make real capitalism work. But what is so important about his book is that it presents these issues in their full complexity in order to respond to the “common good” critics directly and to show how true commercial markets can handle many of the problems they consider essential. In fact, the author is clear that there are legitimate limits to markets, especially regarding what Nobel Laureate F.A. Hayek called the rule of law within which real free markets must operate.
Gregg recognizes the difficulty of returning to a true Commercial Republic and that to do so “economic truth is not sufficient” in itself. Real reform also requires “a renewal of faith by Americans with America,” which is his challenge to his readers, and to you.
Donald Devine is senior scholar at the Fund for American Studies. He is the author of The Enduring Tension: Capitalism and the Moral Order, new from Encounter Books; America’s Way Back: Reclaiming Freedom, Tradition, and Constitution; and Political Management of the Bureaucracy. He served as President Reagan’s director of the U.S. Office of Personnel Management during his first term and can be followed on Twitter @donalddevineco1.