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Classical Liberalism Does Not Play Favorites

The ideal of neutral laws applied without favoritism is a hallmark of classical liberalism. Historically, the beginning of liberalism was defined by its effort to prevent the state favoring one religion over another. The result of religious neutrality in the West has not only been greater religious freedom but less political strife and therefore more prosperity.

Government favoritism of the secular as well as religious kind continues to undermine economic growth, generates rent-seeking, creates a culture of cronyism, and sows divisions within the nation. Unfortunately, some of President Trump’s policies move the Republican party away from classical liberalism’s ideal of benign neutrality.

The most important such divergence is the President’s trade policy. Imposing tariffs on select industries and making exemptions for some nations or products have inevitable elements of favoritism. Trump’s trade policy is sustaining full employment for lobbyists as they try to direct tariffs against competitors and, once tariffs are imposed, gain exemptions for their clients. After the Civil War, the Republican party became the party of tariffs and crony capitalism. The historical consensus has not been kind to that part of its program and the culture of corruption led in part to the movement for a federal income tax to replace tariffs.

Now the Trump administration is also being tested by a purely domestic effort at favoritism.  A bankrupt Midwestern utility company that relies on coal is petitioning the executive branch to use extraordinary discretionary authority to require that energy users make purchases of its higher priced energy. The company argues that its failure will put pressure on coal producers. Exercising this authority would payoff a particular energy industry. Lest one think this concern over favoritism is not warranted, the Energy Secretary, Rick Perry, has already attempted to intervene in the market to provide higher rates for coal driven power plants.

To be clear, the opposition party to the President indulges in favoritism too. The Obama administration bailed out auto companies with preferences for unions that they would not have gotten in a normal bankruptcy reorganization. Moreover, Democratic administrations remained committed to racial and ethnics preferences that are even more divisive than economic preferences. The Trump administration is happily not expanding them, as Secretary Clinton surely would have, and is in some cases rolling them back.

But the fact that favoritism lies at the heart of progressivism makes this Republican administration’s lurch to economic favoritism more troubling. It is perfectly possible for both parties to become largely coalitions of rent-seekers. It has happened in other nations. That development would create a more divided America where classical liberals have no political home.

Reader Discussion

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on April 04, 2018 at 09:11:40 am

Yes it does... to those with the highest IQ

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Otto
on April 04, 2018 at 10:57:09 am

For now I see these new tariffs as an opening move to get certain parties to the negotiating table. The U.S. has been taking it in the shorts for some time now. I think this is because until now the U.S. negotiations have been handicapped by a "we need to share the wealth mentality", allowing others to take advantage of us. Reversing this pattern to a healthier posture will not be painless. It's like having surgery to cut out a cancerous growth.

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JD Bryant
on April 04, 2018 at 17:58:34 pm

Nice essay. But I'm curious:

After the Civil War, the Republican party became the party of tariffs and crony capitalism. The historical consensus has not been kind to that part of its program and the culture of corruption led in part to the movement for a federal income tax to replace tariffs.

Is McGinnis saying that the US should finance itself via tariffs rather than a federal income tax?

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nobody.really
on April 04, 2018 at 18:09:24 pm

Who knows what McGinnis is saying - then again, in the hands of a truly excellent tax attorney, one can deploy the tax code in such fashion as to make it appear that a tariff has been placed upon a competitor.
So tell me - what is the difference. Cronyism may be found in many places and is practiced, more skillfully by some, by all parties at the table.

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Guttenburgs Press and Brewery
on April 04, 2018 at 21:23:39 pm

In his own threads, James Rogers is weighing in on Spady's
Economics as Ideology, which criticizes classical liberalism for failing to play favorites in the marketplace. Maybe McGinnis would care to offer some thoughts?

I suspect McGinnis and I have different views regarding the allocation of wealth, but pretty similar views regarding its creation.

In particular, I'd be curious to hear McGinnis's thoughts about which regime he'd prefer: A world of free trade, but with explicit wealth transfers to compensate losers; or a world of implicit wealth transfers via protectionism.

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nobody.really
on April 04, 2018 at 21:46:56 pm

Several observations on McGinnis' commentary:
1) It sounds like the Wall Street Journal;

2) He accepts that "neutral laws applied without favoritism" is an IDEAL of classical liberalism yet scolds Trump's practical resort to legal favoritism in the areas of tariffs and energy.

Yet, a case can be made that what McGinnis calls Trump's legal "favoritism" is in fact the application of rationa, defensible and arguably neutral principles that are a) in the case of threatened tariffs aimed at defending the nation against Red China's aggressive, decades-long war sub silentio of economic imperialism and crypto-piracy and b) in the case of potential government interventions on behalf of nuclear and coal, aimed at partially restoring to market health two segments of the energy market that (UNLIKE their energy industry competitors: big oil, natural gas, bio-fuels and solar) have NEVER received government subsidy or special assistance, but that were badly and unjustly injured by years of unparalleled, unprecedented, crushingly costly, unwarranted government regulatory abuse and punitive environmentalist extortion and c) in the case of market assistance for coal, aimed at compensating a discrete and insular minority (Appalachians) who are dependent on coal and who were historically singled out for invidious exploitation (read Harry Caudill's "Night Comes too the Cumberlands") by external corporate forces, and who were economically and culturally abused and who were then politically abandoned and ignored, while EVERY OTHER such abused, discrete minority in America has for 50 years received mountains of special federal government intervention, aid and legal assistance ranging from educational benefits, employment and housing subsidies to affirmative action special preferences.

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timothy
on April 05, 2018 at 09:48:08 am

To bowlderize Barry Goldwater, favoritism in the interest of economic growth is no crime. If the government knows a sector of the economy is essential to increasing productivity (stagnating under classical liberalism for the past decades), it should be obligated to act to promote it. Your Perry example is exemplary, I think. He asked for protection of the nuclear and coal industries from "free market" rules which are actually biased by public subsidies in favor of inefficient renewables. And we need to promote nuclear, in particular, as a way to the energy of the future, fusion energy.
I would suggest your looking at my blog, americansystemnow.com, for more on this line, especially from Alexander Hamilton's seminal thinking on economics and industrializaton. You might find https://americansystemnow.com/the-steel-tariffs-whats-an-american-system-approach-to-saving-u-s-industry/ particularly responsive to your concerns.
Nancy Spannaus

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Nancy Spannaus
on April 09, 2018 at 13:26:18 pm

[…] Less government interference and more personal choice and responsibility. They’re three ways to describe limited government — some might say classical liberalism. Writing at libertylawsite.org, John McGinnis lay out […]

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Laws and Policies That Don’t Play Favorites - The Locker Room

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.