Market Myths: The failings of conservative economics

Today, George W. Bush holds the White House, with a palace guard of corporate officers from oil, drugs, aerospace, and mining. Globalization has spawned a “cult of impotence,”in Linda McQuaig’s fine phrase, whose high priest is Thomas Friedman of The New York Times. The number four bestseller on Amazon.com is a fable about mice, mazes, and accepting impotence called Who Moved My Cheese? The morals of these facts, if facts have morals, are (1) the market really does rule, (2) you can’t do anything about it, and (3) you’d better not try.

And yet, after 20 years, the political magic of the market is played out. In his campaign, Bush recycled Reagan’s program, especially tax cuts and deregulation, and added a call for privatizing Social Security and for investing payroll tax dollars in corporate stocks. The voters recoiled, choosing the thematically tone-deaf Al Gore by over half a million popular votes. This was despite the fact that Gore had virtually no program beyond balancing the budget and defending Social Security and Medicare.

It also seems possible that we have now exhausted the potential of purely market-driven economic growth. The promise of the stock market has gone sour. The high-tech New Economy is collapsing, household and company debts are heavy, and it is possible that interest rate and tax cuts may not suffice to revive either the New Economy or the old. In the California electric-power crisis, we see a confessed failure of deregulation; in the new airline mergers we see monopolies forming. As unemployment rises, calls for government intervention will grow; meanwhile, the public strongly favors tough environmental protection and a higher minimum wage. The Republicans have thus inherited an economic task requiring tools that they oppose, while their free-market mantra has suddenly become, of all things, a liability with the American public.

How could this happen? James Arnt Aune, until recently affiliated with the George Bush School at Texas A&M University, summarizes the libertarian philosophy behind free-market political prescriptions:

“Libertarian policy prescriptions are based on just a few principles, outwardly appealing in their seeming simplicity …’simple rules for a complex world.’ The first … is that social problems can be resolved by creating a market. Are schools failing? Create a free market in education. Is there pollution or waste of resources? Create a market in the resource or the right to pollute; … Is there a shortage of human organs for transplants? Let people sell their body parts. Not enough babies for adoption? Allow people to sell their babies … ”

And with equal deftness, Aune fingers the trouble: “These principles of ‘economic correctness’ are increasingly mouthed in the universities and especially in conservative think tanks, but their obvious long-term implications may strike ordinary Americans as horribly cruel. They need to hear this economic gibberish first-hand… Free-market rhetoric is powerfully persuasive only to a certain kind of elite audience; uncoupled from nationalist appeals…it begins to lose its power to motivate general audiences in a positive way.”

Aune goes on to focus closely on the rhetorical practices of several major libertarians: the legal scholar Richard Posner, the novelist and Greenspan mentor Ayn Rand, the philosopher Robert Nozick, and the polemicist Charles Murray. He shows how the “realist style”of economic argument works, combining the definition of any “object, person or relationship as a commodity”; reliance on quasi-logical argument; appeals to irony (via reference to the “inevitable perversity of well-intentioned social programs”); failure to respond to opposing arguments (because “in real science, when fundamental questions are settled, only cranks dispute them”); and perhaps above all, the avoidance of empirical investigation.

Once one decodes these devices, cracking the arguments becomes a parlor game, not more difficult than crossword puzzles nor less routine. Having once “solved”the sophistry of, say, Nozick, or seen the contradictions built into the speeches of Newt Gingrich, you will put them down and never look at them again. The remaining mystery is only why they held up for so long. In the case of Rand, the answer, as Aune explains, lay partly in her romance-novel sensibility and in the sex. Murray’s underlying appeal was to “the superior morality and sense of social ‘place’ of the Old South”—to put the matter very delicately indeed. The others survived by shouting loudly from pulpits at Chicago, Yale, and in Washington, and for this, tenure is useful. Just as soon as Gingrich lost his, he disappeared, and the same will certainly be true of any other modern Republican political leader, including our new president, as soon as the trappings of high office are removed.

While Aune targets the free-market commanders with elegant precision, Thomas Frank has given us something else again: a sprawling assault on the vast armies of boosters in popular and business culture. If Aune is right, and the libertarian logic is unpopular, then how come the metaphor of the market dominates our cultural lives? Frank seeks the answer in magazines such as Fast Company and Wired, in television advertising, in the techno-hype books of Daniel Yergin and the later Gilder, in ordinary-folk-get-rich books by Joseph Nocera and many others, and in the stock market commentaries of James J. Cramer, founder of TheStreet.com (to which, let me confess, this reviewer contributes a column). And while one has to admire Aune’s handiwork, Frank’s is larger. One Market, Under God is a spectacular book.

Frank’s extraordinary ability is to digest and regurgitate second-rate material, in enormous volumes. He has, for instance, actually read through to the end of Thomas Friedman’s The Lexus and the Olive Tree. Here is how he summarizes the conclusion:

“In a closing chapter Friedman asked readers to wonder with him at how a ‘visionary geo-architect’ (i.e., God) would go about designing the ultimate nation, how He would insist that it had ‘the most flexible labor market in the world,’ how He would ensure that bosses were tolerant of every rebellious and zany lifestyle accessory white-collar people used to signify their creativity, but also (and only a few sentences away) how He would be sure to let the same bosses ‘hire and fire workers with relative ease.'”

On reading this, I thought, really? And the answer is: really. Frank isn’t entirely fair, because Friedman also spends a good many paragraphs celebrating other features of the American scene, including our fairly free white-collar immigration, flexible bankruptcy laws, and antitrust enforcement. And the actual promotion of the architect to God is by Frank, rather than Friedman.

Still, Frank has named our problem, not capitalism but “extreme capitalism”: the obsessive, uncritical penetration of the concept of the market into every aspect of American life, and the attempt to drive out every other institution, including law, art, culture, public education, Social Security, unions, community, you name it. It is the conflation of markets with populism, with democracy, with diversity, with liberty, and with choice—and so the denial of any form of choice that imposes limits on the market. More than that, it is the elimination of these separate concepts from our political discourse, so that we find ourselves looking to the stock market to fund retirement, college education, health care, and having forgotten that in other wealthy and developed societies these are rights, not the contingent outcomes of speculative games.

If I have a complaint with Frank, it’s that he doesn’t give either Milton Friedman (one mention) or Francis Fukuyama (one mention, no index listing) their right places in the pantheon he describes. Free to Choose and The End of History were pioneering. They defined, respectively, the identification of the market with freedom and the perception that no alternatives could no longer exist. On these foundations, much that came later was built.

Otherwise, the book is note-perfect, so far as I can tell. And therein lies a further problem. For the most part, I can’t tell. Personally, I do not live in the world Frank describes. In fact, it seems to me that America will be shortly divided into two groups. There will be those who buy the works of Gilder and Yergin and tear up at Paine Webber’s ads. This group will not read Frank.

Then there will be the rest of us—a minority who barely turn on the television; who do not check the status of our pensions; who send our kids to public schools; and who are aware that, for instance, real books on economics have been driven from the bookstore shelves by the “business section,”touting Beardstown Ladies and Seven Habits of Highly Effective People. We will get our information on this other world by reading Frank. We will be entertained, outraged, and convinced. And we will certainly feel no need to check whether Frank is being entirely fair—unless we happen to be writing a review.

How can this be? The answer lies partly in an increasing detachment of parts of the public from the media of mass culture. The fate that befell Marxism awaits the Bolshevism of the Right: as in the late Soviet Union, you close your door and shut out the offending noise. Thus Americans are quite capable of holding onto independent judgments for long periods of time—as they did by supporting Clinton through his impeachment and by voting for Gore.

The rest of the answer may be that for all of Frank’s brilliance, he is spending too much time at the office. In the actual United States, some 90 percent of children still attend public schools, unquestionably better off than they were a generation back, and with high-school football teams whose noncommercial games we faithfully attend. Sixty percent of the elderly get 80 percent of their incomes from Social Security alone. Half of a vast health-care system is publicly funded, and about half of a vast university system is, too. We live in a country where the public institutions may be psychologically beaten down, but for the most part they are still standing. As a cab driver in Knoxville put it to me last summer: “Plenty of socialism all around.”

And that brings me to recommend a third volume for these times: Norman Birnbaum’s great new essay, After Progress. Birnbaum, professor emeritus at the Georgetown University Law Center and one of Washington’s few intellects of the first rank, has written a history of social construction in Europe and the United States from the late 19th century to the present day. It is an extremely complex, morally ambiguous tale. But Birnbaum renders inspired service in reminding us just who, exactly, we really are, and how we got there.

Birnbaum’s large project is a comparative history of reform, a decisive refutation of the proposition that no alternatives exist. Many have, and do, and if you want to try to understand social dialogue in France, Spain, Italy, Germany, or Britain, this book provides one-stop shopping of a high order. The notion that the French are victims of some singular, incoherent, and incomprehensible anti-globalist stupidity—as American reporting over Gallic protests against McDonald’s, for instance, always seems to suggest—cannot survive Birnbaum’s remarkable discussions of Europe’s many debates over state and market in the past 50 years.

In all this, the United States figures for only one chapter. In it, Birnbaum manages to convey the particular complexity of movements for social change in America, particularly the confluence of our sense of international mission, New Deal legacy, civil rights, the antiwar movement, the movements for women’s rights and environmental protection—many of them in the vanguard when compared to the European left at a similar time. We are, he says, in what might be a hopeful response to Thomas Frank, “a democracy of manners. Traditions of disrespect for authority and convention, of systematic idiosyncrasy, live on. Odd segments of the nation are often energized by projects of protest…. The perpetual disorder, spurious rationality, and inauthentic transparency of our public sphere do not quite conceal the persistence of themes as old as the republic. Self and society; neighborhood and nation; race, region, religion and citizenship; avarice and minimal decency; arrogant power and resentful subordination; inequality in fact and equality in fiction—each and all are in constant collision and perpetual recombination.”

Birnbaum also notes how Republican presidents from Nixon to Reagan realized that they could not govern without adopting large parts of the left agenda, from expansion of the welfare state in Nixon’s case to the search for dtente under Reagan. Attempts to rule on the Republican base alone, as in 1981-82, were politically disastrous—and soon abandoned.

And now a new administration takes office, with the narrowest political base in memory, consisting of no more than corporate power, the professional military, and the Christian Right. Lacking theories or theorists, this coalition will attempt to govern without fresh rhetoric. Meanwhile, vast constituencies—including the African-American and Jewish communities, labor, environmentalists, feminists, and the intellectuals—have already withdrawn their consent to be governed. What Birnbaum seeks, “not a promised land, but a terrain of dialogue and experiment”could, just possibly, be about to open across the wide fissures of the American opposition, motivated in part by shared rejection of rule by markets alone.

James K. Galbraith is author of Created Unequal: The Crisis in American Pay. He teaches at the University of Texas at Austin and is a Senior Scholar of the Levy Economics Institute.

James K. Galbraith is author of Created Unequal: The Crisis in American Pay. He teaches at the University of Texas at Austin and is a Senior Scholar of the Levy Economics Institute.

James K. Galbraith is author of Created Unequal: The Crisis in American Pay. He teaches at the University of Texas at Austin and is a Senior Scholar of the Levy Economics Institute.

James K. Galbraith

James K. Galbraith is the author of Welcome to the Poisoned Chalice: The Destruction of Greece and and Future of Europe, forthcoming from Yale University Press.