Free-Market Capitalism
First of all, I no longer embrace "free-market capitalism" as my my choice of economic theory, especially with regards to the business cycle. This doesn't mean, of course, that I am a Marxist or any kind of socialist. What I have come to embrace, instead, is something I term fair-market capitalism. Fair-market capitalism is an alternative to free-market capitalism in the sense that it advocates 1.) fair wages, 2.) fair taxes, and 3.) a fair prices. However, before I get into discussing fair-market capitalism, I want to explain why I am no longer an advocate of "free-market capitalism", which is very popular in the GOP, especially among conservatives.
On the face of it, "free-market capitalism" seems like a very wonderful and attractive approach to economics. All individuals, freely pursuing their own economic self-interest, are able to engage in market transactions and these market transactions are based on a voluntary mutual exchange. There is no unnecessary government intervention wasting tax-money, no police state to dictate the terms of the exchange, and no force or fraud perpetuated by anyone to force both buyers and sellers to engage in a certain way. Sounds great, doesn't it? In fact, that is what I suspect the free in "free-market capitalism" refers to: it refers to negative freedom. Negative freedom is to be free of any force or fraud, whether perpetuated by another party or by a state force, to do something that you clearly do not want to do for an unnecessary reason. This seems wonderful and necessary, so what could be wrong? Doesn't everyone want to be free?
I have nothing against free, voluntary exchanges between two consenting parties, especially if one party is a consumer and another party is a seller. Heck, I do that myself: I am both a consumer and a seller. The problem is that negative freedom can lead to horrible consequences, in my opinion. As I see it, negative freedom will not only encourage some sellers to overprice products and services, but it will encourage them to underpay their employees. Without a standard minimum wage, some business owners or corporations will, if they are given negative freedom, will be happy to exploit their workers by paying them very low wages. I have known some conservatives who want a very lightly regulated economy, if any regulations at all.
But if we have very few to no regulations, what is going to stop some businesses or corporations from operating sweat-shops, paying so-called "starvation wages", and operating very unsafe and hazardous work places? What is to stop some businesses from overworking their employees for very little pay? What is to stop them from forcing entire families, including children into the work place, to work long hours with very minimum pay? I am convinced that "free-market capitalism" is what we had when we went through the "Gilded Age". So, in contrast to "free-market enterprise", I believe that we need fair wages, fair taxes, and fair prices This is contrast to very low wages, a tax system that benefits the wealthiest Americans at the expense of everyone else, and price gouging that is caused by greed.
Supply-Side Economics
Supply-side economics has become the doctrinaire school of economics among most conservatives. This is despite that most academic economists, that I know of, do not embrace it. Heck, I read that former President Bush, even though he became Ronald Reagan's choice for Vice-President, referred to it as "voodoo economics". Supply-side economics, with a few modifications, is essentially the classical theory of the business cycle, based as it is on something known as "Say's Law of Markets". The modifications seem to have been introduced by the economist Arthur Laffer. Laffer is especially famous for his "Laffer Curve". In my right-wing days, I read that this curve was to show the "Law of Diminishing Returns" as it applied to taxes. One of Laffer's allies and disciples, Judge Wanniski wrote a book titled The Way the World Works. In it, he explicated the Laffer Curve and defended it. Wanniski went further than this: he introduced his own hypothesis as to the cause of the Great Depression. It was the result of the "Smoot-Hawley" tarrif".
I never knew any of this when I was a kid in high school. My dad, for instance, never knew who Laffer, Wanniski, or any of the other intellects behind supply-side theory were. Heck, I never heard it mentioned in college when I attend meetings of the Las Positas College Republicans, of which I was at one time a Treasurer and then later, Vice-Chairman. I don't think anyone in that club knew of Laffer, Wanniski, and others, such as Bruce Bartlett. The biggest news of the day, for us, was that Bill Clinton was on the road to being impeached and we were happy that a Democrat was going to be ousted from office and that this perverted son-of-a-bitch was going to be packing and sent back to Arkansas with his loathsome wife. A buddy of mine, had a book economics that was a must-read for conservatives, but he never discussed any of it with me. It wouldn't be until years later that I would actually read any "conservative classics".
I got into reading about supply-side theory when I was a university student. I was looking for books on Keynesian economics when I came across a book titled Say's Law and the Keynesian Revolution. This was a book that defended Say's Law of Markets and the classical business cycle theory. This book, written by Steven Kates, was not intended as a defense of modern supply-side theory. However, it got me interested in the subject. Some time after I graduated from California State University, East Bay, I discovered Wanniski's book and I started reading it. It had an explanation of the Great Depression that sounded reasonable but, then again, Milton Friedman also had an explanation that sounded reasonable. Friedman was not a supply-sider; he had his own approach to economics that was as contrary to Keynesian economics as supply-side theory was. Friedman's approach was known as "monetarism". However, as I continued to read and looked for other books online about the subject, I came across something that would strongly contribute to me leaving the conservative movement for good.
This was a book titled The New American Economy by Bruce Barlett. Bartlett has some impressive credentials. He was an economic adviser to Ronald Reagan, he had worked in the Treasury Department under George Bush, he had helped to write the "Kemp-Roth" tax bill, which was the piece of legislation that introduced Reagan's tax cuts. Barlett had worked for the Heritage Foundation and other think tanks. He would also write a book that ruined his professional career: Imposter, which was a critique of George W Bush. This book cost him his job and his friends. I purchased both books and both proved extremely insightful for me. I read The New American Economy (hereafter NAE) in roughly a week's time. I read it in the morning and evening on train rides to and from work. This book, while probably boring to many Americans, was a page-turner for me! It was fascinating and enlightening.
As I read it, I realized that Bartlett had come to the annoying conclusion that John Maynard Keynes had been right about the economy. But it seems that Keynes was also largely misunderstood, even by both politicians and economists who were, otherwise, his disciples. Keynes advocated for deficit spending when depressions hit but, after the storm passed, we should go back to implementing classical economics. For a number of conservative critics, Keynes's theory of the business cycle was refuted by "stagflation" of the 1970s. Bartlett argued to the contrary; most people reading Keynes' major work The General Theory of Employment, Interest, and Money might get the impression that deficit spending is the magic motor that will keep the economy running but that wasn't true. Bartlett succeeded in clearing up some serious misconceptions about Keynes.
However, what impressed me most was the ending of the book. Bartlett argued that Keynes, in his later writings, endorsed many of the insights that conservatives accepted in their advocacy of supply-side economics. In other words, what was true about supply-side economics was already anticipated and argued for by Keynes in his later writings. Keynes wasn't repudiating his earlier theory about the business cycle or the need for deficit spending to cure a depression; Keynes was simply arguing that deficit spending should get us out of a depression and when it worked, we can then return to a classical approach. Furthermore, everything that is true about supply-side theory has been incorporated into modern economic theory. "Conservatives" according to Barlett, "should declare victory and go home". In other words, all of the important insights that conservatives had to offer, which was everything that was true about supply-side theory, became a part of mainstream economics; the wheat made its way into the bread while the rest of it was just kooky nonsense.
Another takeaway from this book, was that the "Smoot-Hawley tariff" was an important, contributing factor to the Great Depression but wasn't the sole cause of it. Wanniski was right to a large extent, Barlett seemed to be arguing, but overstated his case because he failed to understand Keynes' critique of Say's Law of Markets. Furthermore, as much as it annoyed him, Barlett found himself in large agreement with the liberal economist Paul Krugman and endorsed Krugman's policy prescriptions. When I finished reading Bartlett's book and began to digest what I read, trying to incorporate its insights into my own knowledge, I came to realize that many conservatives were clinging to supply-side theory out of doctrinaire loyalty to their anti-state philosophy and not because of any serious and informed study of economics. To date, I have never seen a conservative pen an informed study of Keynes writings, showing what is wrong with Keynes critique of Say's law. I have read a few critiques such as Henry Hazlitt's book The Failure of the "New Economics" but Hazlitt's treatment of Keynes technical and mathematical critique struck me as very inadequate.
Bartlett's book had the affect of ultimately breaking me away from the conservative movement. Among other things, it led me to conclude that the right, for the large part, is antiintellectual. Conservatives need not be total Keynesians. They need not agree with everything or anything Keynes wrote but I doubt that a lot of conservatives have seriously engaged with Keynes' body of work and I doubt most of them have the advanced training, both economic and mathematical, to successfully evaluate his work. I am not saying that I am a Keynesian myself right now; there is a lot of Keynes work that I have to study for myself. But I suspect that so many people on the right stubbornly cling to dogmas and do not take mainstream theories of any kind seriously. They cling to supply-side theory for the same reason that they will cling to creationism. They have no more use for the writings of Keynes than they have for Darwin or modern evolutionary biologists.
I still have a lot of unresolved questions left after having finished Bartlett's book. I understand that Bartlett thinks that Keynes has been largely vindicated by modern economics. If so, what are we to make of Milton Friedman's school of thought, "monetarism". I have read from Krugman that Friedman predicted that "stagflation" would occur (on logical grounds) before it hit and monetarism is a serious school of economic thought. Supply-side economics, then, according to Bartlett is dead and all that has been useful is a part of mainstream economics ( the so-called "necoclassical theory" I am assuming). Is monetarism dead? Has there been anything insight about it that has, likewise, been incorporated into mainstream economics? I have a good idea of where Bartlett agrees with Krugman but I am not sure about where they disagree if they still do. I get the impression that while Bartlett thinks that supply-side insights have been incorporated into modern economics, Krugman thinks that there was never anything insightful that conservatives in general, supply-siders in particular, have ever contributed to modern economics. In other words, I get every impression that Krugman thinks that supply-side economics is, to borrow a phrase from Bush. "voodoo economics" through and through.
Conclusion
I am a fair-market capitalist. I am not a supply-sider and now that I have a better understanding of this theory and of Keynesian economics, I lean more towards Keynes these days than anyone on the right. I lean more towards the "neoclassical" theory. I take mainstream theories of every kind very seriously although I don't always agree with what may pass for "mainstream" in any given academic context. But suppose that Barlett is wrong. If Bartlett is wrong about this or that point, or worse, entirely wrong in concluding that Keynes was right about deficit spending, then it's no big deal for me. However, I wouldn't embrace conservatism again. Unlike many conservatives, I don't have any philosophical or religious allergies when it comes to government intervention, whether it's a health regulation like clean air and clean water or regulating the business cycle so that we don't slip into a completely avoidable recession. In the end, it's the "anti-academic" or the "anti-intellectual" attitude of the right that bothers me the most. I don't have to agree with Bartlett about Keynes to realize that the right is intellectually bankrupt and will embrace supply-side dogma even if this theory contains intellectual rot.
Bruce Bartlett used to be a Republican but is a self-declared independent. I, too, used to be a fellow Republican; I was a Reagan conservative in my youth and for a period of time, I considered myself a "secular conservative" years after I renounced my religious beliefs. I don't know that Bartlett would agree with my self-descriptive label "fair-market capitalist" although he may be very sympathetic to it. I don't know. I am acquainted with him on social media. Bartlett wrote an article called the "Revenge of the Reality-Based Community" that described his evolution from a conservative-libertarian in the GOP to an independent who is without a home. Maybe Bartlett might prefer to think of himself as a "conservative-in-exile". I don't think of myself as a conservative at all anymore. I think of myself as a moderate and a centrist. In fact, embracing a Keynesian outlook, including Keynes later writings about returning to a classical approach after deficit spending has cured us of a recession, maybe the most moderate position a person can take with regards to the economy in general and the business cycle in particular.
In concluding this post, I am not a conservative anymore, partly because I consider the modern conservative community to be intellectually bankrupt. My suspicion is that many conservatives simply do not realize what havoc a truly "free-market" approach to economics will unleash on society. They want to be "free" but I don't think a lot of conservatives have an idea just how unfair their approach to the economy is. As Americans we should be forever done with sweatshops, the exploitation of labor and children, long work weeks, a lack of regulation that can damage our air and water supply as well as other environmental damage their approach may cause. Yet this is exactly what I am convinced that a free-market approach will result in. I am also not a conservative anymore because Bartlett has convinced me that many conservatives are living in the dark; their antiintellectual attitude has resulted in them ignoring mainstream economics, how it got to be that way, and whether or not John Maynard Keynes has anything important to say about the economy. If Keynes is right, how would conservatives ever know if they ignore him because their dogmas are more important than facts?
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