Rexford Tugwell and others drew what they thought was the obvious conclusion the Soviet Union was on the right track – and Hayek fought back.
A curious feature of both right and left postliberals is their repeated claim that the governing philosophy of America’s elites reflects, however inchoately, the ideals of Hayekian liberalism (or “neoliberalism”). Left-wing postliberals focus their concerns on neoliberalism’s autonomous market (this despite Hayek’s embrace of governmentally provided social insurance). Right-wing postliberals develop a parallelism, arguing liberalism’s commitment to individual autonomy erases boundaries in both social and economic realms. The parallelism does not answer, however. While individual autonomy is surely the underlying commitment of the social philosophy of America’s governing elites, American economic policy is a classic example of a “mixed economy.” By design, the American economy nests markets within a robust system of regulatory and redistributive state management.
There actually is a liberal philosopher who more accurately articulates the governing ideal that combines philosophical commitments to social autonomy and a mixed economy. It is John Rawls, in his signature book A Theory of Justice. But it is because Rawls’ mixed-economy principles broadly, if controversially, reflect the ideological “pull” of elite governing opinion relative to Hayek’s market minimalism that Hayek proves the more convenient target for postliberals. Not because American economic policy is Hayekian, but because arguing with the current mix of markets and management in the U.S. mixed economy requires detailed policy arguments. In attacking the red herring of Hayekianism, one’s arguments can remain general and abstract, and avoid pulling the commentator into the tangle of discussing the merits of actual policy changes.
I want to focus on the evidence for the elite governing commitment to social libertarianism and mixed-economy economics. But a word about Rawls first. Rawls stands solidly in the individualistic liberal tradition despite the economically redistributive regime he aims to justify.
Rawls’ argument is expressly individualistic and contractarian. Rawls draws on the familiar methodology of liberal social contract theory to provide a philosophical apologia for America’s post-War governing policy consensus. He basically attempts to provide a unified rationale on liberal premises to account for the dual commitments of America’s governing elites to social libertarianism and an economy with significant government intervention. To be sure, current economic policies do not go as far as required by Rawls’ “difference principle” (that economic inequality is justified only if the inequality improves the welfare of the least advantaged citizens). Yet the ideological tug toward economic equality in modern America partakes more of Rawlsian sentiment than it does truly socialist sentiment.
Critically, though, the economic part of America’s reigning governing philosophy is not Hayekian. It has never been Hayekian. To be sure, mixed economies by definition take seriously the role of markets in the economy. But the driving ideological force for that commitment is not Hayekian. Since at least the start of widespread national economic regulation during the Progressive era, and the redistributive policies of the Great Depression, economic policy debates in the U.S. have circled around finding optimal mixtures of markets and management. This commitment continues today, and it is this mixture Democrats and Republicans argue over.
Mixed economies exist in the broad middle of a continuum in which the “autonomous market” defines one extreme and a centrally-planned economy defines the other extreme. Tweaking the relative policy mix between markets and management does not change the fact that the fundamental commitment is to this mix. Policy tweaks that marginally increase the use of markets do not reflect the embrace of Hayekianism; alterations that marginally increase government management do not reflect a move to socialism.
We see broad expression of this dual commitment to social libertarianism and mixed-economy economics in different government venues.
Consider first Supreme Court doctrine. Initially the Court’s substantive due process doctrine—that the 14th Amendment’s liberty provision protected substantive liberties as well as provided procedural guarantees—was devoted to protecting early forms of both economic and social individualism. Take for example opinions in the 1925 cases of Pierce v. Society of Sisters (striking down an Oregon state law requiring children to attend government schools) and Meyer v. Nebraska (striking down a law forbidding foreign language instruction below a certain age). The Court struck down these states’ laws not only on the basis of the individual (social) rights of parents and students, but also on the basis of the contractual/economic rights of private schools and foreign-language instructors.
Within a generation, however, the Supreme Court ceased providing heightened protection for economic liberty. Yet it continued and expanded protections for social and political liberty. Different justices provided different theories for splitting these protections apart. Justice Stone provided two theories for doing so in Carolene Products footnote 4. In his opinion in Kovacs v. Cooper, Justice Frankfurter discussed Justice Holmes’ rationale for providing economic liberty less protection than political liberties.
Observing that commitments to “transient economic dogma” exist on “a different order” than commitments to “the search for truth” Frankfurter added:
[T]hose liberties of the individual which history has attested as the indispensable conditions of an open, as against a closed, society come to this Court with a momentum for respect lacking when appeal is made to liberties which derive merely from shifting economic arrangements.
Social liberties later shared the heightened protections accorded to political speech and activity. The significance of Holmes’ “right to search for truth,” for example, echoes in the key passage defining protected social liberty in the plurality opinion of Planned Parenthood of Southeastern Pennsylvania v. Casey:
At the heart of liberty is the right to define one’s own concept of existence, of meaning, of the universe, and of the mystery of human life. Beliefs about these matters could not define the attributes of personhood were they formed under compulsion of the State.
In providing protection to social and political autonomy but no generalized protection to economic autonomy, the Supreme Court’s doctrine exemplifies Rawlsian liberalism rather than Hayekian liberalism. It gives a free hand to the government to create a mixed economy while protecting individual autonomy in the social realm.
U.S. legislative actions have circled around the same poles. In the social realm, “autonomy” has been a dominant theme in public debates motivating policy changes that were not required by judges.
Consider, for example, the “no-fault” revolution in state divorce laws starting in the mid-1960s. Many also forget that states had begun to legalize abortion legislatively prior to the Supreme Court’s 1973 decision in Roe v. Wade. So, too, the decriminalization of sexual offenses occurred in many states legislatively rather than judicially. Not only homosexual sex and marriage recently, but, earlier, the decriminalization of adultery and sex outside of marriage. (Judicial fiat nationalized libertarian dictates on homosexual sex and marriage, but individual states were there before the courts.) The decriminalization of recreational marijuana has resulted mainly through direct ballot initiatives entirely at the state level (with a couple of states so far decriminalizing legislatively). The ideal of social autonomy forms the motive.
What about economic policy? Postliberals point to economic globalization and deregulation in the U.S. starting in the 1970s. But these reflect tweaks in the mix between markets and management; they do not reflect a Hayekian resurrection of the autonomous market. (In fact, we can debate just how Hayekian the autonomous market is. On the one hand, Hayek supported a robust, governmentally-provided social insurance system. On the other hand, Hayek argued that regulation, particularly regulation of prices, supply, or demand, makes informational demands that government officials typically cannot solve as well as markets.)
Both left and right postliberals approvingly cite Karl Polanyi regarding the rise of the autonomous market in the early- to mid-19th Century. But they ignore the last third of the book. There Polanyi discusses the decisive rejection of the autonomous market in the late 19th and early 20th Centuries. Nations adopted economic regulations and social insurance to re-encapsulate the market. These policies continue. Even with globalization, the U.S. (and the world) is not close to re-implementing the autonomous market.
For example, while the level of economic redistribution in the U.S. does not implement an unalloyed version of Rawls’ difference principle, U.S. tax policies, social insurance, and income transfers nonetheless reflect the egalitarian pull of the principle. From a summary I provided of a CBO study on income redistribution several weeks ago:
[A]verage income for the poorest 20 percent of Americans before taking account of taxes and transfers was $21,000. Taking into account tax policies, social insurance, and income transfers, average income for the poorest 20 percent of Americans was $35,000. That is, these policies increased the incomes of the poorest Americans by two-thirds over what incomes would have been without the policies.
Looking at the opposite extreme in income distribution, before taking these policies into account, average income for the richest 20 percent of Americans was $291,000. After factoring in taxes and transfers, average income for this group dropped to $214,000—a decline in income for this group of over 25 percent.
This surely does not fully implement of Rawls’ difference principle. Nonetheless, U.S. policies significantly redistribute income from the wealthiest Americans to the poorest. This outcome reflects the significant and persistent pull of economic egalitarianism in the U.S.
Accounting for the impact of regulations is difficult. A briefly-worded regulation can impose a far larger economic bite than a verbose regulation. Nonetheless, while there has been significant Federal deregulation in specific economic sectors since the 1970s, data show that Federal regulatory activity has continued to increase overall. Measuring state level regulations is even more difficult given the diversity among states, but rigorous efforts have begun. Even with President Trump’s recent de-regulatory initiative—which is ironic given the apparent desire of many right-wing postliberals to align themselves with Trumpian populism—the U.S. is a central-case example of a mixed economy, one that combines markets with significant levels of government management.
The U.S. economy is a mixed economy. It does not come close to exemplifying Hayekian neoliberalism. There’s a reason postliberals point to Hayek instead of Rawls. It allows right-wing postliberals to assert a non-existent parallel between economic and social autonomy. And it allows both right and left postliberals to substitute ideological argument for data and analysis of specific policies.