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Friday, September 28, 2007

Pundit in Wonderland

When I use a word, Humpty Dumpty said, in a rather scornful tone, it means just what I choose it to mean, neither more nor less. –Lewis Carroll, Through the Looking Glass

In one of those boilerplate articles about the deteriorating American middle class, Washington Post columnist Harold Meyerson points out that a new Pew Research Center survey reveals that an increasing number of people think we live in a country divided into haves and have-nots and that more people now put themselves in the second group.

In 1988, fully 59 percent identified themselves as haves and just 17 percent as have-nots. By 2001, the haves had dwindled to 52 percent and the have-nots had risen to 32 percent. This summer, just 45 percent of Americans called themselves haves, while 34 percent called themselves have-nots, Meyerson writes.

He continued: Harder times have come to left and right alike: The percentage of Republicans who call themselves haves has declined by 13 points since 1988; the percentage of Democratic haves has declined by 12 points.

But curiously, while more people who identify with the two major political parties say their position is worsening, they nevertheless disagree over the divided-nation question. The percentage of Democrats who say America is divided between haves and have-nots has risen by 31 points since 1988; the percentage of Republicans, by just 14 points, Meyerson writes. Indeed, though that 13-point decline in Republicans who call themselves haves has occurred entirely since they were asked that question in 2001, the percentage of Republicans who say we live in a have/have-not nation has actually shrunk by one point since 2001. (It had increased 15 points from 1988 to 2001.)

Have and have-not what exactly? Meyerson has little to say about that rather obvious question beyond mentioning job stability and retirement security, as though being without those things is equivalent to being in poverty. Nevertheless, he offers an explanation for why Republicans are more reluctant to acknowledge this great division in our land: Apparently, so great is Republicans' loyalty to the Bush presidency that they're willing to overlook their own experience. And, in many cases, to attribute the nation's transformation solely to immigration, rather than to the rise of a stateless laissez-faire capitalism over which the American people wield less and less power (emphasis added).

Excuse me? Stateless laissez faire? Where is Meyerson living? Surely not in the United States in 2007. The U.S. economy — more precisely, the American population — has been laden with taxes, regulations, and the consequences of political privilege for decades — make that centuries. Republicans, if anything, have been more adept than Democrats at shoveling largess to favored interests. Corporations, rich farmers, and government contractors rake in billions of dollars every year. National security is the catch-all rationalization for all manner of subsidies. Trade restrictions, despite the heralded trade agreements, funnel tons of cash directly from consumers' pockets to business coffers. Taxes, regulations, and patents, at most an inconvenience to the legal and accounting departments of incumbent corporate giants, stifle small and would-be competitors, depriving consumers and workers of new products and opportunities. Monetary central planners manipulate economic behavior and distort relative prices for political ends. (See Alan Greenspan's revealing comments here.) Mixed economy, corporate state, neomercantilism — call it what you will, it's not laissez faire by a long shot.

Clearly, Meyerson's perceptions go no further than the public statements of politicians. For him, if a president talks about the benefits of the free market, that must mean we have a free market. No need to consult reality to see if word and deed diverge.


Crossing Borders

Stateless laissez faire would mean that people and goods could cross the borders unimpeded by Immigration and Customs Enforcement agents. Does Meyerson think that happens now? If it were happening, people from south of the border desperate to get here in search of a better life wouldn't have to risk life to avoid detection, and unreadable multi-page trade agreements would be superfluous. But goods and people can't cross borders merely in response to people's wishes because government officials have arrogated the authority to say who and what may cross. Some laissez faire. What would thoroughgoing intervention look like, Mr. Meyerson?

This intervention may help explain why people aren't better off than they are. But this is a different issue from the one Meyerson raises. He talks as if more and more people really have become have-nots. This is hard to accept when it is empirically falsified just by walking down the street. Has it escaped his notice that people from virtually every socioeconomic group are carrying iPods and multi-function cell phones, wearing up-to-date clothing, and driving nice cars? At home they enjoy products their grandparents would have regarded as high luxuries — if they could have imagined them at all.

There is no clear divide between rich and poor, despite what Pew and Meyerson say. There's a spectrum of wealth and income in the United States, with even the poorest end enjoying astounding affluence by historical and even current world standards.

But let me issue a caution that I've stated before: that living standards are climbing pretty much across the board in the United States does not mean we enjoy substantial economic freedom and justice. The market is a potent institution, and people with even a small degree of market freedom are capable of producing a prodigious amount of wealth that is bound to spread throughout society. The test of the justice of an economy is not primarily how great or widespread the wealth is, but whether people can exercise their rights unmolested by the state. To conclude that the economy is just on the basis of rising living standards is to mix categories. And there is no need to trade freedom and justice for material welfare. Not only would such a trade be morally questionable, it is unnecessary. We can expect the widest diffusion of wealth in a truly free market because government wouldn't be discouraging production or granting privileges to the well-connected. Working people, who often feel they are without economic power, would have maximum bargaining clout if government kept hands off. Clout comes from having alternatives, and government intervention reduces alternatives, including self-employment options.

Finally, Meyerson naively places a great deal of weight on people's self-description as have-nots. Such surveys tell us little about objective reality. As Bryan Caplan writes in The Myth of the Rational Voter, As a general rule, the public believes economic conditions are not as good as they really are. People tend to have what Caplan calls a pessimistic bias, that is, a tendency to overestimate the severity of economic problems and underestimate the (recent) past, present, and future performance of the economy. So surveys such as Pew's should be taken with more than a grain of salt.

We need no proxies to assess the justice of U.S. economic system. We can evaluate it directly by observing the extent to which individual rights are respected.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.