“I believe in free markets.”
“The rich are job creators, we shouldn’t tax them.”
“Let the free market decide, keep the government out of it.”
These are some of the typical sound bites that could be heard during a Republican primary debate or on Fox News. The problem here, though, is that these statements are categorically false.
The notion of a truly free market, that is, one that comes about through spontaneity, is a myth. Free markets do not exist in a state of nature; rather they are a social construct created by a stable government. Unfettered capitalism would inevitably lead to the dominance of monopolies and the stifling of competition, and as a result the free market would collapse upon itself. Government regulation is therefore necessary for a sustainable and prosperous economy.
Indeed, our government has played a large economic role throughout history. Our Constitution gives the government the explicit authority to promote the general welfare, to tax, and the power over interstate commerce and foreign trade.
In the nineteenth century, the government fulfilled this constitutional mandate through the “American system”. Promoted by Alexander Hamilton and Henry Clay, this involved tariffs to protect domestic industries and workers, a national bank, and federally funded infrastructure projects like the Erie Canal. Later on, Abraham Lincoln established land grant universities focusing on practical sciences in the wake of the Industrial Revolution. In 1890, the Sherman Antitrust Act was passed to curb the power of monopolies, and outlawed trusts and cartels.
But the government also provided subsidies to the coal and oil industries, and offered land to the railroads below market value. For the captains of industry and the robber barons, this government intervention suited them just fine, even though they publicly extolled the virtues of the free market.
The Progressive movement took hold by the turn of the century and shifted the focus towards making the market work more effectively and in favor of the public good. Teddy Roosevelt, America’s first Progressive president, promoted the “Square Deal,” breaking up monopolies, reducing railroad rates and establishing the Food and Drug Administration. The Federal Reserve and the progressive income tax were created under Woodrow Wilson. Even Warren G. Harding, regarded primarily as a laissez-faire president, greatly increased federal highway funding and tariff rates.
Franklin Roosevelt implemented the New Deal to combat the Great Depression. The minimum wage was established, public works programs were created to get people working again, Social Security has lifted millions of elderly retirees out of poverty since its inception, and labor unions were given the right to collectively bargain. In addition, the Glass-Steagall Act was signed into law, which separated commercial and investment banking, providing a safeguard against another depression.
From the presidency of Harry Truman to that of Richard Nixon, America experienced a tremendous economic boom. This broad prosperity was fueled by several factors: Stronger unions brought people into the middle class, thereby having enough disposable income to become consumers of the goods that they made. But direct government involvement was essential as well: the GI Bill allowed millions of veterans to enroll in college, get a degree, and earn a decent living.
The Interstate Highway system, authorized by Eisenhower in 1956, was vital to interstate commerce and was the largest public works program of the time. Social Security was consistently expanded. Lyndon Johnson signed Medicare into law in 1965, guaranteeing healthcare for the elderly. And Nixon expanded the role of government as well by creating the Environmental Protection Agency, took the dollar off the gold standard and instituted price and wage controls to deal with inflation.
Granted, a few of these government interventions in the economy were unwise: the subsidies to the fossil fuel industry and the price and wage controls under Nixon are two examples. But the vast majority of government interventions up until this time have benefited the public good, allowing the economy to work for everyone.
However, in the last thirty-five years or so, the status quo has drastically shifted. No longer was government tending towards policies benefiting the public good. Since 1979, the incomes of the richest 1% have skyrocketed while the rest have stagnated or fallen, creating income inequality unseen since the eve of the Great Depression.
Ronald Reagan embraced the false premise of trickle-down economics, cutting taxes on the rich and corporations in the belief that this would create jobs, while raising regressive taxes that primarily affect the middle class and the poor. Right to work laws primarily in Southern states weakened unions, traditionally the bastion of the middle class. Free trade agreements led to the outsourcing of jobs overseas in favor of cheap labor and increasing profit margins. The repeal of Glass-Steagall under Bill Clinton in 1999 allowed big banks and Wall Street to invest peoples’ savings into high-risk ventures, helping to create the Great Recession nine years later. The George W. Bush tax cuts and the two subsequent wars also turned a budget surplus into a deficit and did not help matters either.
In the wake of the 2008 stock market crash, most Republicans and neo-liberal Democrats supported the bailouts of the big banks and Wall Street, and progressive Democrats joined them supporting the bailouts of General Motors and Chrysler. Now, I supported the auto bailout (with strings attached that never were) because it saved millions of jobs and prevented the collapse of a vital industry.
But I was opposed to bailing out Wall Street, especially when it came out that many executives were leaving with golden parachutes (that is, millions of dollars in severance pay) for driving their companies into the ground, and AIG threw a lavish party after they were bailed out. Today, 95% of all income gains since 2009 have gone to the richest 1%, and most of this comes from capital gains rather than earned income from labor.
Most Democrats support government intervention in the economy when it promotes the general welfare and the public good, and oppose it otherwise. While they generally won’t promote themselves as being pro-free market, Democrats at least hold a consistent position of sustainable economic growth with appropriate safeguards that keep the market from collapsing upon itself.
But my problem with many Republicans nowadays is that they publicly use the guise of being for the free market to frame their position, yet for over the past thirty-five years they have supported the use of government power to benefit the rich at the expense of everyone else. This guise amounts to either hypocrisy or cognitive dissonance, I’m not sure which. But we can still see this farce even now in current events.
In Tennessee, workers attempted to organize a union in a Volkswagen plant. Volkswagen officially took a neutral stance, but implicitly welcomed the prospect of unionization because it has workers councils in most of its plants worldwide. Republican Senator Bob Corker, Republican Governor Bill Haslam, and right-wing, corporate funded interest groups like the ironically named “Center for Worker Freedom” campaigned against unionization.
In what most likely amounts to violations of the National Labor Relations Act, Senator Corker claimed that he had inside information that Volkswagen would expand production at the plant if the union was rejected. Governor Haslam in turn threatened to pull existing tax incentives if the union won, and secretly offered Volkswagen subsidies if the union lost. This coercion and intimidation from elected officials, who profess a belief in the free market yet interfere in the affairs of a private business, contributed to the union’s defeat.
Right now, the Trans-Pacific Partnership (TPP) and its equally sinister cousin the Transatlantic Trade and Investment Partnership (TTIP) are being negotiated in secret between various governments and multinational corporations. This is being done without input from labor and environmental groups, the public, or even Congress.
Now, I’ve already written at length about how the TPP would be dangerous for America. But what I’m getting at here is that both existing and proposed free trade agreements are not truly in the interest of the free market or the public good. Rather, corporate interests, with the willing hand of government, use free trade agreements to write the rules for their own benefit. That means continuing the destructive trend of outsourcing and weakening domestic labor and environmental protections, but also increasing the power of big banks and limiting internet freedom and the production of generic drugs through stricter copyright laws.
Sometimes, even other companies stand to lose too. This happened in Oklahoma, when the billionaire Koch Brothers, who claim to be pro-free market, successfully lobbied the state legislature to charge a surtax on private solar panels and wind turbines. Similar efforts are being undertaken by the Kochs and their allies in other states as well. Yet the Kochs derive most of their profits from the fossil fuel industry, and clearly don’t mind influencing government to hinder their competition.
In New Jersey, a law was passed under Republican Governor Chris Christie requiring auto manufacturers to have a franchisee, third party dealer to sell cars in the state. This new regulation is mainly aimed at Tesla Motors, which makes electric cars and sells through company operated dealerships.
These alleged "free market practices" are anything but. In his book The End of Loser Liberalism: Making Markets Progressive, economist Dean Baker of the Center for Economic and Policy Research writes,“the vast majority of the right does not give a damn about free markets; it just wants to redistribute income upward.”
As a result, conservatives are able to frame the debate, presenting the rich as the winners of the free market, yet they are taking advantage of favorable government policies. If they wanted to be honest, conservatives should just call a spade a spade and say what their policies actually do.
We can reverse these destructive trends. Progressives need to take the lead within the Democratic Party and push for economic policies that benefit everyone, not just the rich. Making the tax code more progressive, reinstating Glass-Steagall, increasing funding to education and infrastructure, raising the minimum wage, expanding Social Security, strengthening labor unions, and ending free trade will rebuild the middle class, and increase economic opportunity, upward mobility, and prosperity for all.