Genesis
Response
Penultimate
Finale
January 21st, 2020
In my book, The Economists’ Hour, I tell the story of a revolution that began in the United States in the late 1960s. Economists helped to convince policymakers to reduce the role of government in managing economic conditions, and instead to rely on market forces. Governments ended military conscription and floated exchange rates; slashed taxation of the wealthy and curbed public investment; and deregulated major sectors including finance, transportation and communications.
Proponents promised faster growth that would lift all boats. Instead, growth slowed and inequality rose – which is straining the very fabric of our democracy as “We the People” have less and less in common.
Prof. McCloskey has come both to praise and to bury me, which is certainly nicer than some of the available alternatives.
She writes that I’m wrong about the track record of “true liberalism” — that I’m insufficiently appreciative of markets, which “yield a spontaneous order that, in John Mueller’s phrase, is ‘pretty good’.”
Debates of this kind are too often framed as battles between proponents of markets and proponents of government. Prof. McCloskey says she is against the single-minded embrace of the market; she grants the need for governance. Well, I say to her that I am against the single-minded embrace of government. I grant the merits of markets. Indeed, I am an ardent believer in capitalism. I think market forces have played a critical role in lifting billions of people from abject poverty over the last few centuries. I am glad to live in 2020 rather than 1920, let alone 1820.
But the marketplace is not a state of nature; it is an artifact of society. There is no “spontaneous order.” Markets must be constituted, the rules must be enforced, and we all benefit if some gains are redistributed.
This is really a debate about calibration. The task before us is to decide which things government should do, and what rules should be imposed upon markets, and to what extent we should redistribute the fruits.
I suspect that Prof. McCloskey and I will differ on the answers to these questions. For example, I tend to think that government can play a productive role in driving innovation. The visible hand of government also is required to distribute the benefits, for example by forcing employers to accept an eight-hour workday and a five-day workweek.
On the other hand, some problems require greater reliance on markets: for example, the critical shortage of affordable housing in our most prosperous cities is caused by too much regulation.
Prof. McCloskey is an eloquent advocate for markets, and I am ready to be persuaded that in other areas, too, we should move in the direction of “true liberalism.” For me, however, the key point is that these battles cannot be fought in general terms. We agree that we need markets and government. Now we need to talk about the details.
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