The Road to Freedom Read online

  If you are a French intellectual you might say that this is evidence of some sort of “false consciousness” among the proletariat. But most people believe that America offers a decent chance to prosper, however they choose to define prosperity.

  Politicians have denied this core American truth at their peril, occasionally leading to comical moments in American politics. Back in 1972, Democratic presidential candidate George McGovern delivered a campaign speech to blue-collar workers at a rubber factory near Akron, Ohio. He announced his plan, if elected, to raise estate taxes and reduce inheritances dramatically—and redistribute the money to people like those assembled. He felt sure his message of redistributive fairness would strike a chord with his working-class audience. To McGovern’s shock, he was booed.

  We might make the (correct) observation that an inheritance is inconsistent with an heir’s earned success, and there is no evidence that inherited wealth brings any happiness to people who inherit. But people aspire to rise enough to leave something to their kids or to charity. That is why polls find Americans believe the estate tax is the most unfair tax in the entire system.31 It offends their sense of meritocratic fairness, not due to any merit on the part of heirs, but because people who honestly earn their money should not have it confiscated and redistributed, even after death.

  MAYBE YOU’RE THINKING at this point that, of course, opportunity is real in America. But it’s not the only thing. Some people are lucky, some people are born rich, and some people have access to better schools and colleges than other people. Other people are born poor, suffer from discrimination or handicaps, or live in areas where good schools are few. I was born into a family without much money but was lucky to have excellent parents who valued honesty, thrift, and education. I learned from an early age that hard work and self-discipline led to things I wanted. Other people aren’t so lucky in their upbringing.

  Good parents are only one kind of good luck. Studies show that good-looking people find it easier to get ahead in life. Throughout their careers, taller men have higher earnings than shorter men, and thin women with more attractive faces have the highest socioeconomic status all through life.32 (I’m not sure you need a study to figure this out, but there you are.)

  If equality of opportunity is not universal, should we throw out the whole idea of meritocratic fairness? Of course not. First, you’re living in a dream world (or you have tenure) if you really believe merit doesn’t matter. Everyone can think of times when things went well as a direct, observable result of hard work. Thinking a little harder, people can also come up with cases in which they were punished at work or in life for laziness, incompetence, free riding, or plain stupidity. I can think of lots of such cases in my own life.

  Second, we have to build our system based on our values and aspirations. Even if success sometimes comes down to connections and good luck, it would be a mistake to build our system on the idea that this is all that matters. Even if only half of the outcomes in life were due to merit—a dubious assertion—we need to gear our system to the part under our control. Otherwise, we have no incentive to be industrious, honest, innovative, and optimistic. Do we really want to teach our kids that if they’re not pretty and thin, they probably won’t get very far in life? Do we want to teach them that it’s alright to take things from others?

  Third, and most importantly, if we reject the ideals of opportunity and meritocratic fairness, we will get a system in which outcomes really are just based on luck or political power. In a 2005 study of twenty-nine countries, researchers at Harvard and the Massachusetts Institute of Technology found that where taxes are higher and money is redistributed through social programs, citizens are much more likely to believe that luck, not merit, is the driving force behind success.33 So, in countries like Italy, Spain, and Uruguay, at least half the population believes luck determines incomes and about twice as much of GDP is redistributed in social spending as in the United States.

  The link between redistribution and citizens’ cynicism isn’t just a coincidence. The same study showed that economic outcomes in countries like Italy and Spain are disconnected from merit and hard work precisely because citizens demand government social programs and wealth redistribution. If people believe that economic outcomes are a product of luck, birth, connections, or corruption, they demand more and more forced wealth redistribution. This rewards political power and connections, as citizens, corporations, and interest groups lobby for favors, not excellence in the marketplace.

  Simply put, if people believe they are rewarded for their merit, they’ll get a system in which that’s true. If they think it’s all rigged or based on luck, then the system will end up that way.

  Some politicians say that, for the sake of fairness, the U.S. needs to raise taxes on the entrepreneurial class—to make the “millionaires and billionaires,” pay their “fair share.” Unknowingly, these leaders are weakening America. They are damaging the possibility of achieving the kind of opportunity society they believe does not exist and moving the nation further and further away from the vision of the Founders.

  If the opportunity society is becoming a myth, it is not because of income inequality. It is because of the leaders who insist that opportunity is not real and encourage policies that redistribute more and more income. They are moving America from a culture of aspiration to a culture of envy.

  SOME OF MY progressive friends argue that my characterization of redistributive fairness is, well, not fair. Sure, progressives want more equality, they say, but all that really means is that they want to bring the bottom up, not bring the top down or equalize everybody. I don’t buy this argument because I don’t think it stands up to scrutiny. You simply can’t get much more income equality without bringing the top down.

  To many, it is an article of faith that income inequality in America is exploding, and the rich are getting richer while everyone else is stagnating or getting poorer. This seems certain to be one of the central arguments of the political left in the coming years. Yet a great deal of economic analysis today questions these “facts.”

  First, income inequality measures almost always neglect to consider things like changes in household size, the prices of goods and services people consume, and the value of services from the government. As a result, Northwestern University economist Robert Gordon states that the rise of inequality in America has been “exaggerated in both magnitude and timing.”34

  Second, the increases in inequality are not because the poor and middle class are worse off than in the past, according to Cornell University economist Richard Burkhauser. Inequality increases are mostly due to the fact that the top 1 percent of earners have gotten a lot more prosperous over the years.35 Using data from the government’s Current Population Survey, Burkhauser looks at the bottom 99 percent of earners to measure inequality growth in this group and finds almost none. Furthermore, the bottom 99 percent have not stagnated. According to the Congressional Budget Office, every income quintile has seen a real increase in purchasing power of at least 18 percent over the past thirty years.36

  So, there have been substantial income increases at the very top of the pyramid—the “1 percent” in the rhetoric of the Occupy Wall Street movement. But that growth hasn’t occurred at the expense of the 99 percent. Increasing income equality as a social goal means either you don’t understand the evidence, or you think it is desirable per se to punish people at the top because they are rich. There’s no way around this fact.

  This logic relies on a kind of zero-sum reasoning: that the rich are rich only because the rest of us are not and that the wealthy can only get better off if the rest of us get worse off. Such a world-view has been debunked by two hundred years of economic data. Virtually every economist since Adam Smith has demonstrated that productive activity grows the size of the pie. Entrepreneurs create new economic activity, which creates jobs, opportunity, and economic growth. A farm or a factory can create value and wealth for both owners and workers via products that co
me into existence through their combined effort. Obviously management can abuse labor (and vice versa). But were it not for capitalists, workers would have no jobs at all.

  THE REDISTRIBUTIONIST GOAL is not really one of bringing up the bottom, then. Effectively, it is to achieve economic sameness. The famous economist Arthur Okun, chairman of President Lyndon Johnson’s Council of Economic Advisers and one of the most influential economists in the past one hundred years, put it this way:

  . . . incomes that match productivity have no ethical appeal. Equality in the distribution of incomes . . . as well as in the distribution of rights would be my ethical preference. Abstracting from the costs and the consequences, I would prefer more equality of income to less and would like complete equality best of all. . . . To extend the domain of rights and give every citizen an equal share of the national income would give added recognition to the moral worth of every citizen.37

  This brings us to the most unfair aspect of this kind of anti-meritocratic thinking: To get to the ideal of sameness, somebody has to decide what and how much to take from whom and how to redistribute it. Who does that? You know the answer: The government does. The government decides how much of people’s money to take and in what form—income, investments, savings, transactions, or whatever. It decides whether to give it to others in a welfare check or farm subsidy, or whether to give them services like medical care.

  Everyone knows that America needs a functioning government and critical public services. I am happy to help pay for the fire department that puts out the fire in your house (and mine). The problem arises when the government takes from you and gives something to me, not to provide critical services, but just to make us more equal for reasons of redistributive “fairness.”

  I reject any argument that bureaucrats are fairer than markets. There is nothing fair about corporate welfare and bailouts, or pork-barrel government spending. Fairness has nothing to do with the billions of dollars to save General Motors and Chrysler from bankruptcy. It has nothing to do with the stimulus spending of the past three years.

  Finally, there is something radically depressing about the logic of redistributive fairness. Those who believe in it assume that simply by writing a check to increase someone’s buying power, the recipient will have a more fulfilling life. Notice that its proponents speak only rarely about inequality in the things that matter most to people, the institutions of meaning in life, like faith, charity, and happiness. They speak about the money.

  A MORAL SYSTEM requires fairness. A fair system in an opportunity society rewards merit. In contrast, an unfair system redistributes resources simply to derive greater income equality. That is a world in which, in the words of Rudyard Kipling, “all men are paid for existing and no man must pay for his sins.”38

  America does not have a perfect opportunity society. But if we want to move closer to that ideal, we must define fairness as meritocracy, embrace an economic system that rewards merit, and work tirelessly for more equal opportunity for all, rich and poor alike.

  The system that makes all this possible, of course, is free enterprise. When I work harder or longer hours in the free enterprise system, I am generally paid more than if I work less in the same job. Investments in my education translate into market rewards. Clever ideas usually garner more rewards than bad ones, as judged not by a politburo, but rather by large groups of citizens in the marketplace. True fairness makes free enterprise not just an economic alternative. It makes it a moral imperative.

  I want to emphasize two things that I am not arguing.

  First, I am not arguing for anything like corporate cronyism. I believe in the free enterprise system; I do not believe in the unjust allocation of rewards to anyone, rich or poor. I am wholly opposed to the corporate bailouts in 2008 and 2009, just as I am opposed to government subsidies for energy companies and tax loopholes to favored industries. Corporate cronyism, like statism, is just another way to wreck competition and freedom. Further, lurking behind almost every case of uncompetitive business practices are perpetrators who have a close relationship with government power.

  Second, I am not arguing that there is no role for government in this system. Private markets can and do fail, and the state may have a responsibility to act in some of these cases. Most serious economists also believe that a social safety net in a civilized country is appropriate to prevent the worst predations of poverty. When the government focuses on these things, it assists the free enterprise system. But when the government bails out companies suffering from poor business practices or redistributes goods, services, and income simply for the sake of “fairness,” it lowers opportunity and impoverishes people in many ways.

  Still, you might be asking, “What about the poor?” Distributing income according to merit might be good and just, but we all recognize that some people won’t be able to take care of themselves properly. Fair or not, we want to help with more than just a minimum government safety net.

  This brings us to the third moral promise of the free enterprise system and arguably its greatest achievement, helping the poor all around the world.

  4

  A SYSTEM FOR GOOD SAMARITANS

  One of the most famous parables in the Christian Bible is the story of the Good Samaritan.1

  Jesus was asked by a follower, “Who is my neighbor?” In response, Jesus told the story of a Jew traveling along the road from Jerusalem to Jericho. The man was attacked by thieves, who robbed him and left him stripped and beaten. As he lay there half dead, two Jewish religious leaders—a priest and a Levite—found him on the road. Instead of helping the man, they passed on the other side. After them came a Samaritan, who, seeing the man, had compassion and stopped to help. Despite many years of hatred between Samaritans and Jews, the Samaritan bound up the injured man’s wounds, fed him, clothed him, and took him to an inn. Before departing, the Good Samaritan left money and instructions for the innkeeper to ensure that the man was cared for.

  The point of the parable is clear: People have a duty to help those in need—not only those close to them, but also strangers and even enemies. Preoccupation with our own affairs is no excuse for ignoring the vulnerable. No matter what your religious beliefs, you probably agree with this, which is why everyone—Christian, Muslim, Jew, atheist, whatever—knows what a “Good Samaritan” is and believes there should be more of them.

  Today, many believe that political progressives are the Good Samaritans because they support government welfare programs that help the poor. During the heated federal budget battles of 2011, one liberal Christian group took out full-page ads in a national newspaper with the provocative question, “What Would Jesus Cut?”2 The ad asked readers to sign a petition asking Congress to oppose any policies that involved cutting domestic and international programs that benefit the poor, especially children.

  In this construction, of course, proponents of limited government and the free enterprise system are the priest and the Levite who just walk by as the poor and needy suffer. Capitalism creates incentives for people to be greedy and selfish, and to pursue their own economic interests regardless of the damage they cause. This may even be too charitable: Many argue that free marketeers are like the robbers. Free enterprise helps the rich get richer at the expense of the poor. Capitalism doesn’t just allow people to ignore the injured man in the ditch; the system throws him in and then makes people ever more likely to be unmoved by his plight.

  Supporters of the welfare state thus levy two related moral charges against free enterprise. The first is that it makes the rich richer and doesn’t help the poor. The second is that it is morally corrupting; it makes people indifferent to the suffering of others.

  The first charge is the easiest to debunk. While free enterprise may create significant income inequality, it actually helps everyone. True, the rich may get very rich in a free market economy, but the poor get much richer too. As Senator Marco Rubio of Florida has remarked, “the free enterprise system has lifted more people out of pove
rty than all the government anti-poverty programs combined.”3 The evidence shows that the senator is correct.

  The second charge is more interesting. Certainly, the economic collapse has exposed plenty of villains—from bailed out Wall Street CEOs with gold-plated exit packages to criminals like Bernie Madoff—whom progressives love to point to as examples of the moral turpitude of unfettered capitalism. But those are just easy potshots—crooks and corporate cronies are not part of a healthy free enterprise system. I will show that America’s everyday capitalists—the millions who work honestly and support free enterprise over government redistribution—are the real Good Samaritans in society.

  FREE ENTERPRISE has made life better today than at any time in history.

  Economic historians have established that in 1800, the average person had a standard of living no better than people living in the Stone Age.4 Of course, some people were better off than others. A handful of the world’s population in 1800 were rich (by the standards of the day) and lived in relative splendor, but the masses did not eat better, sleep more comfortably, clothe themselves more warmly, or shelter themselves from the elements more snugly than their ancestors did 100,000 years earlier.

  Life in 1800 was incomparably worse than it is today in every physical way: shorter, more dangerous, and filled with sickness. In the mid-eighteenth century, even in the world’s most advanced cities like London, only one-quarter of the population could expect to live beyond five years of age.5

  For the lucky few who made it out of childhood in the eighteenth century, the life that awaited them was difficult and short. According to one historian of the period, “violence, disorder, and brutal punishment were a part of the normal background of life.”6 Disease was rampant and food was short. In the great cities of London and Paris, “plague, disease, or famine would strike every decade or so, killing as many as 10,000 people in a few weeks.”7