The Right to Rise

Jeb Bush published an interesting op-ed in the Wall Street Journal last week, noting Congressman Paul Ryan's recent characterization of economic freedom as "the right to rise."  As Bush said, the right to rise entails the right to take risks.  Government needs to let people take risks, to let them suffer the consequences of bad decisions and, importantly, to let them enjoy the benefits of good ones.  Yet, government too frequently does the opposite. In the interest of protecting us from bad investments, losing a job, poor health--nearly anything negative that might befall us--it seeks to take away the rewards of work and investment, or the return on risks that pay off.

But when it comes to economic freedom, we are less forgiving of the cycles of growth and loss, of trial and error, and of failure and success that are part of the realities of the marketplace and life itself.

Increasingly, we have let our elected officials abridge our own economic freedoms through the annual passage of thousands of laws and their associated regulations. We see human tragedy and we demand a regulation to prevent it. We see a criminal fraud and we demand more laws. We see an industry dying and we demand it be saved. Each time, we demand "Do something . . . anything."

Bush rightly condemns over-regulation, but he does not go far enough, in my view.

AEI on the Moral Defense of Free Enterprise

Arthur Brooks, president of the American Enterprise Institute, today gave a speech to the Washington Lawyers' Chapter of the Federalist Society, on the moral justification for the free enterprise system. His bio is here.  He is a great speaker and gave a great defense for free enterprise, pointing out that convincing people of the virtues of "efficiency" and "liberty" are not sufficient to win their hearts -- they must be convinced that free enterprise is right and fair.  Free enterprise, of course, does more, and has done more, to lift millions out of poverty than any government program or statist economic regime, and because it most benefits the poor it is the just economic system that everyone should embrace and support.  He also points out, correctly in my view, that obtaining support for such a fundamental change takes decades, not a single election.  I have a feeling we are going to be hearing a lot more from Mr. Brooks in the years ahead.  I would be thrilled if he played a major role in economic policy in the next presidential administration.

Government Should Not Foster Unproductive Trade

I have pointed out before that transactions in a fair market benefit both buyer and seller, unless one is stealing from the other, and therefore create wealth.  An "unfair market" is one in which a buyer or a seller has artificially precluded competitors, and thereby can command a lower than fair market price (if it is the buyer) or a higher one (if it is the seller).  A monopoly or a labor union are examples of sellers who artificially preclude competitors. A monopsony is a buyer who precludes competitive purchasers.  Transactions with these types of traders do not benefit their trading partners, at least as much as they would be benefitted in a fair market, because the monopolist or monopsonist is able to set a price that benefits itself more.  Their trading partners still benefit to some degree, or else they would not trade.  Because these artificial restraints on trade do not promote efficient allocation of wealth or wealth creation, they have been viewed as moral wrongs and outlawed since the Sherman Act was passed in 1890.

Other transactions similarly take advantage of one side of the bargain artificially to enrich the other, and therefore also do not create wealth.  Selling drugs to an addict, for example, destroys the well-being of the purchaser and deprives him of wealth that could be put to productive use; this is not offset by the dealer's profit.  Casinos also take advantage of addicts, but even when they don't, they do not create wealth.  Taking money to play a game of chance, in which the odds are always in favor of the house, makes the casino owner rich, but paying it does not increase the well-being of the player, unless the player values the entertainment of playing the game more highly than what he loses by playing.  Many people can't stop playing, however, or hope to recover losses with "just one more game," or truly are addicted to the thrill presented by the risk, and pay much more than they receive in entertainment.  They are being robbed, but with their consent.

From a moral perspective, of course, recreational drugs and gambling are harmful to those who partake of them and to society in general, and therefore are rightly prohibited.  But they also destroy wealth, and at a minimum government, for that reason, should not promote them.  States and Indian nations that open or permit casinos for purposes of "economic revitalization" therefore have it completely backward.  Casinos do not revitalize anything.  By taking wealth from some (gamblers) and giving it to others (the casino owners), without making the gamblers economically better off, casinos engage in a form a wealth redistribution, making the poor poorer and the rich richer, but destroying wealth in the process.