Free markets have helped us meet our basic needs but can't fix everything.
- July 16, 2016
- CBR - Public Policy
Free markets have helped us meet our basic needs but can't fix everything.
There’s a story I keep returning to during this remarkable election season. When my cousin Elaine was four or five years old, her aunt presented her with an egg for breakfast. It was the height, or more appropriately the trough, of the Great Depression, and she was living in the western Michigan farmhouse where six generations of my family have lived (including me).
To say that times were tough would risk giving them a nostalgic glow. There was no electricity, no indoor plumbing, and, if you were a child, nothing to do beyond your chores. Without any toys and little in the way of what we would today call adult supervision, Elaine says she would sit in the barnyard and “pound dirt,” marveling at the dust clouds that would subsequently engulf her.
Simple though it was, such diversion helped distract the little girl from the menace of stubborn hunger. This was a world where fruits and vegetables were an indulgence, meat more or less a delicacy, so most meals involved a meager marriage of bread and lard. That’s probably why the egg seemed so remarkable to Elaine. She remembers eating it (greedily, one suspects) and asking if she might have another. The look her aunt gave her suggested that she was not insolent so much as slightly insane.
I think about this story from time to time whenever I hear friends who consider themselves apostles of free-market principles go on at great length about the utter incomprehensibility of the present US presidential election. One party, they observe, has a candidate who has promised to strengthen social-welfare programs, rescind trade deals, raise the minimum wage, and punish companies who send jobs abroad. The other had Bernie Sanders.
From the vantage point of my friends, the popular proposals of both parties reflect such a wanton disregard for how the economy actually works that those who peddle them must be either knaves or fools. Indeed, as my friends see it, when it comes to the current malaise afflicting the American economy, there is nothing wrong with capitalism that a little more capitalism can’t fix.
This is a fine sentiment so far as it goes. But watching the current election, I have begun to wonder if it misses the point entirely.
In my business-ethics class at Booth, I sometimes ask my students what problems capitalism can fix. The aim of the question is less to establish a comprehensive list than to remind them that capitalism can’t fix everything. Such an observation may seem superfluous—and with respect to my students, this is often the case—but insofar as we live in a world where free markets have done so much good, their most enthusiastic advocates can sometimes lose sight of the fact that they are always provisional in form, rather than a panacea.
The confusion is forgivable and easily explained. “[T]he economic problem, the struggle for subsistence, always has been hitherto the primary, most pressing problem of the human race,” John Maynard Keynes wrote not too long before Elaine received her egg. That struggle, he said, was one “not only of the human race, but of the whole of the biological kingdom from the beginnings of life in its most primitive forms. Thus we have been expressly evolved by nature—with all our impulses and deepest instincts—for the purpose of solving the economic problem.”
His brief sally into evolutionary biology notwithstanding, Keynes’s point about the primary significance of “the economic problem” is well taken. However many concerns one might have, a hungry belly tends to be the most pressing. Accordingly, for some time now the requirements of capitalism have earned pride of place for the system’s unique ability to supply the essential requirements of food, shelter, and clothing. Moreover, while it is true that many Americans still face considerable challenges gaining access to, let alone affording, a healthy diet—to wit, almost 45 million Americans, or 14 percent of the population, participate in the Supplemental Nutrition Assistance Program—when starvation has given way to the scourge of obesity as a primary public-health concern, the “struggle for subsistence,” by any conventional definition, seems more or less resolved.
Keynes anticipated this possibility. “[T]he economic problem is not—if we look into the future—the permanent problem of the human race,” he wrote in 1930. Indeed, he ventured that it might be solved within a century, in time for the grandchildren of his own generation to enjoy (albeit in the “lean and slippered pantaloon” of late middle age).
It seems unlikely that Keynes’s most famous prediction, the 15-hour workweek, will come about by 2030. Still, it is instructive to think through the consequences, as he saw them, of a resolution to “the economic problem” and their implications for what I am inclined to call a “postscarcity politics.” Above all else, Keynes said, we could expect a cultural crack up. Extreme poverty, even the dread thereof, has a tendency to focus the mind, conducing an armistice of sorts about the ultimate end of politics. Whatever else I might care about, if I cannot be confident of tomorrow’s supper, I will favor as a foremost priority any policy prescription that resolves that uncertainty. This does not mean that the details of the remedy will be obvious—a Marxist would contend the superiority of her solutions to those proffered by an adherent of Hayek. But the controversy makes for a politics of disputable means, rather than desired ends.
When, however, “the struggle for subsistence” recedes as an organizing crucible for politics, it may carry with it foundational assumptions about the role of government in our lives. That possibility provided a title to one of Keynes’s most famous essays, “The End of Laissez-Faire.” In the 18th century, he said, persuasive arguments about how an economy actually works reinforced a metaphysical fondness for how the human world ought to function. “To the philosophical doctrine that the government has no right to interfere, and the divine that it has no need to interfere, there is added a scientific proof that its interference is inexpedient,” Keynes wrote of the discoveries of classical economists such as Adam Smith. “The political philosopher could retire in favour of the business man—for the latter could attain the philosopher’s summum bonum by just pursuing his own private profit.”
The belief that one should be left alone, combined with evidence that interference was not only unnecessary but counterproductive, made laissez-faire the dominant attitude toward public affairs in the Anglophone world. And yet, Keynes foresaw, once free markets had worked their wonders, their success might be their own undoing. It wasn’t that all people would give up their faith in the beliefs we today associate with libertarianism, or that capitalism would suddenly stop providing the greatest advancements in efficiency and productivity. Rather, when the specter of scarcity had retreated from the forefront of our political imagination, we could turn our attention to other problems that could only be resolved by policies at odds, practically and philosophically, with laissez-faire.
Take income inequality. When a people decides that gross disparities in wealth corrode democratic deliberation, threaten individual advancement, and thwart mutual respect, the solution seems unlikely to be consistent with the requirements of capitalism. To be sure, many people would deny that income inequality is actually a problem—or would hold that, even if it is, the concern is beyond the ambit of government action. But saying as much is tantamount to taking sides in a debate about proper ends rather than preferred means. At the same time, while productivity is never an end in itself, it loses its preeminence as a supporting argument in public-policy debates when “the struggle for subsistence” recedes. Indeed, to put it crudely, one may believe that more capitalism provides more and better Cheetos without also believing that more and better Cheetos is a particularly pressing need.
Now, to be sure, more and better Cheetos would have been a blessing to my cousin Elaine, and in places around the world where the standard of living flirts with subsistence, unalloyed capitalism continues to make its strongest claim on observers and participants alike. Here in America, however, as in other parts of the well-developed world, the claim is increasingly tentative. Advancements in goods and services are hardly unwelcome, but as an argument in public-policy debates, it no longer seems dispositive. To the most-fervent Trump supporters in the woebegone areas of the Rust Belt, a little less productivity for the nation as a whole probably may seem like a small price to pay for protecting good paying jobs at home. Similarly, for boosters of the Clinton campaign, if raising the capital-gains rate by a few points allows them to finance universal pre-K, it seems unlikely that the prospect of a marginal loss in market efficiency fills them with primal fear.
Maybe it should. Like any social system, economies are fragile things, and just because we have entered a postscarcity world doesn’t mean we won’t pass out of it again. That said, I have a hunch that Keynes was onto something when he predicted that “the fiercest contest and the most deeply felt divisions of opinion are likely to be waged in the coming years not round technical questions, where the arguments on either side are mainly economic, but round those which, for want of better words, may be called psychological or, perhaps, moral.”
If he is right, debates over free markets will come to more closely resemble philosophical arguments about the requirements of a free people—rather than practical discussions that assume the preeminent importance of greater efficiency. If so, economists may find themselves in the unusual role of helping us cultivate our appetite for inefficiency. Indeed, when an affluent people concludes that capitalism has begun to impinge upon shared notions of decency or fray the social fabric, economists are uniquely positioned to help them think through the trade-offs between morals and markets, commerce and national character.
I don’t envy them this responsibility, and not only because it requires a precision of mind I simply don’t possess. It thrusts economists into the middle of the most contentious types of disputes, those beyond a reckoning of common denominators.
How much productivity should we trade away for higher wages? What level of inefficiency is tolerable to ease inequality? How much growth should we give up for the common good? I have no idea, but if past is prologue, such questions form the next frontier of American politics.
John Paul Rollert is adjunct assistant professor of behavioral science at Chicago Booth.
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.