Depressing as it is, politics
usually trumps economics. There’s nothing new in that, but
free-market advocates ought to learn some lessons and adjust their
strategy accordingly.

The politicians who run the government—and think they run the
country—are afraid to appear as though they are doing nothing. We
saw this when the recession hit. They were particularly worried
about seeming to put party above the public good.

As the Wall Street Journal put it back then,

The speed with which Washington hashed out the [stimulus] plan
was driven mostly by the drumbeat of bad economic news. Behind the
scenes, it was greased by other powerful motivations. Congressional
Democrats needed to demonstrate they were capable of results after
a year of gridlock. Republican lawmakers, up for re-election,
wanted to show sensitivity to voters’ economic woes. And the White
House didn’t want ‘recession’ added to its legacy.

Political interest was universally aligned against good economic
sense. The politicians could get away with this because most of the
public is economically illiterate. The “seen” overshadows the
“unseen.” Such is how we get economic policy. It’s happening
now.

As free-market economists point out, government cannot
affirmatively stimulate what we misleadingly call “the economy.”
(It’s not a machine; it’s people using their property to engage in
transactions.) All government can do is move money around. To make
some people able to spend more it must make other people spend
less. Politicians imply that they know who ought to have more and
who ought to have less, but beside the obvious injustice of the
matter, they simply can’t know.

Economists Fall Short

I said the government can’t affirmatively stimulate the
economy, but it can encourage productive activity. How? By not
discouraging it. Here is where some free-market economists
fall short in shaping the public debate. Too much of what they say
is along these lines: “The economy is fundamentally healthy.
Recessions are a necessary correction of errors. So just let the
economy work through its current problems. The government need do
nothing.”

That message should make advocates of individual liberty squirm
because it implies that the market today is essentially as free as
it needs to be. For example, a few years ago the news media
proclaimed that gasoline prices were at historic highs. In fact,
when adjusted for inflation they were not. But the economists
pointing this out sounded a little too defensive, as though they
were the defending the free market’s honor against its critics.
What should we say if next week gasoline does hit a historic high
and the anti-market folks blame the free market? I know what I’d
say: What free market? (With all the subsidies and
regulations on the books, can there possibly be a free market?)

The same
defensiveness can be seen whenever a left-statist charges that the
gap between rich and nonrich has widened or income mobility has
ceased. Whatever the truth of these charges, libertarians shouldn’t
react as though the free market’s honor is being
assaulted. The critics may think it’s the free market
they’re attacking. But—I say again— we have no free
market.

Similarly, if economic activity slows down, it can’t be the free
market’s fault.

What we have—and have had for a long time—is corporatism, an
interventionist system shot through with government-granted
privileges mostly for the well-connected–who tend to be rich
businesspeople. This system is maintained in a variety of ways:
through taxes, subsidies, cartelizing regulations, intellectual
“property” protections, trade restrictions, government-bank
collusion, the military-industrial complex, land close-offs,
zoning, building codes, restrictions on workers, and more. As a
result, people can get rich at the expense of the government’s
victims. Even some who have prospered apparently by market means
have actually done so through government intervention, such as
transportation subsidies and eminent domain. Wealth can be
transferred in many ways besides welfare and Medicaid, some of them
quite subtle. Most transfers are upward.

Overlooked Facts

 Free-market economists know this, but they often seem to
forget it, such as when they indiscriminately defend firms (such as
oil and pharmaceutical companies) in today’s corporatist economy.
These economists convey the message that since in a free market
people get rich and companies get big only by serving consumers,
anyone who is rich today and any company that is big
today must have gotten that way by serving consumers. The
flaw in the argument should be obvious.

Given the corporatist nature of the economy, it is a mistake—as
well as strategically foolish—to say the government should do
nothing when a recession might be coming on or when recovery is
disappointingly sluggish. There’s much it should do—or rather undo.
Freedom’s advocates must spell this out in detail, revealing how
existing government privilege harms the mass of people who have no
political connections. In contrast, when an economist who proclaims
his support for the free market says the current economy will fix
itself, he brands himself a defender of the statist quo and turns
his back on the State’s victims.