All Commentary
Monday, October 17, 2011

Getting the Protest Right

The anti-Wall Street protests, Occupy Wall Street, are picking up steam. Listening to the protesters, one can’t help but think: They are getting something right but oh so much wrong. They are right in the sense that there is something amiss. The elite of this country are doing things at the expense of everyone else, and yes, the big corporations are involved. Even some libertarians are admitting that “capitalism” is the problem. The problem, however, is that the protesters solution is either outright socialism or some other form of increased government involvement. The difference is that libertarians are attacking “capitalism” not the free market. But let’s come back to that.

What seems to be motivating the protests? At least in part the goal seems to be equality. The protesters apparently think it as unfair that only a small percentage, the very rich, has so much while everyone else has much less. Today’s document, an article from 1948 by economist Wilhelm Ropke titled “Crusade Against Luxuries,” is relevant. Ropke’s article shows the fallacies related to the prohibiting of luxuries in order to provide more for the poor. Similarly the protesters are revolting against the wealth of the “fat cat” bankers and other large corporations, while most people can’t get simple jobs, afford health care, or pay off their student loans. True, there are individuals with yachts while others barely making a living. The fallacy, however, is in the solution.

Ropke shows that prohibiting certain luxuries does not translate into more for the poor but instead “substitutes” certain luxuries for other less desired luxuries. What we end up with is the same amount of luxuries, or only slightly less, with lower utility throughout society. If the Wall Street protesters get their way, however, things could be even worse. The socialization of industry and banking would be a disaster and overregulating would simply incentivize businesses to produce less, which would mean higher not lower prices. Again we would all be worse off, not better.

So what is the solution? It’s all in the institutions. As David Hume put it, we need to assume all men are knaves. Thus we should want a society were bad men can do the least harm. Right now government power is backing the large corporations and large banks, protecting them from the difficulties of competition. This is the “capitalism” libertarians are attacking. It is crony capitalism, the use of government coercion to back certain individuals and businesses at the expense of everyone else. We want to eliminate this cooperation between government and business. Let free markets and real competition reign. This competition will result in a process that will produce more and more products at lower and lower prices.

The hurdle we need to get over is exactly what Ropke brought up back in 1948: Public Choice problems. There are a lot of vested interests that will not give up their power without a fight. But as a first step we need to recognize the true enemy to progress and freedom: government involvement in the economy. We need to realize that voluntary interactions are superior to any form of coercion, including by government. The protesters want to fight fire with fire and in doing so, they ignore Public Choice issues to their own detriment.

Download “Crusade Against Luxuries” by Wilhelm Ropke here. 

  • Nicholas Snow is a Visiting Assistant Professor at Kenyon College in the Department of Economics, and previously a Senior Lecturer at The Ohio State University Economics Department. His research focuses on the political economy of prohibition.