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How Markets Make the Common Good Possible

Of all the divisions splintering the American right these days, disagreements about economic policy are among the deepest. They are also central to understanding those conservatives who invoke the phrase “the common good” to explain why they believe more state intervention in the economy is necessary. For too long, such conservatives contend, the prioritization of free market policies has inhibited necessary government action to realize social and foreign policy goals essential for America’s general welfare.

In some cases, invocation of the common good by these conservatives refers to the need for state economic action to secure certain goals. A good example is employing tariffs to try to protect American manufacturing jobs from foreign competition. Such policies, it is argued, promote broader ends like preventing particular communities in parts of America from descending further into social dysfunctionalism. On other occasions, reference to the common good is about rehabilitating a long tradition of thought about the ends of politics which goes back to Aristotle.

To my mind, renewed attention to the common good—especially the political common good as understood by the natural law tradition—is a worthy enterprise. Not only does it provide a more coherent framework for thinking through the foundations of politics than alternatives like utilitarianism, Rawlsian liberalism, and social democracy. Attention to the political common good also helps identify principled limits to government power.

Unfortunately, much of the present agenda associated with those conservatives calling for more activist economic roles for the state would, I’d suggest, significantly damage the economic dimension of the sum total of conditions that allow individuals and groups to pursue human flourishing freely. But, just as significantly, it is also obscuring clear thinking about the state’s economic role in societies that believe liberty and justice matter.

Reinventing Broken Wheels

One feature of the economic policies advocated by common good conservatives is their piecemeal character. They are not arguing for something as sweeping as LBJ’s Great Society. Instead, the picture is one of selective application of industrial policies, regulations, tariffs, etc., to parts of the economy with the aim of producing better results in different sectors than would otherwise be delivered, they believe, by markets.

Sometimes the policies are narrowly targeted. A recent American Affairs article argued for entrusting “a federal agency with the power to decide how the votes associated with index fund shares are cast” in shareholder meetings of publicly traded companies. Other proposed policies have a broader scope. A good example is the advocacy of European-style corporatist arrangements whereby unions who represent workers in specific industries would negotiate wages, conditions, productivity goals, etc. with trade associations that represent employers.

But the area which animates many conservatives who favor more interventionist positions in the name of the common good is trade. In articles like “Make America Autarkic Again” and in policies like the Trump Administration’s imposition of 25 percent levies on imported steel and aluminum, free trade is presented as often (if not usually) inimical to America’s general well-being or downright harmful to specific American communities and industries.

In responding to these arguments, free traders have not made life easier for themselves by exaggerating trade liberalization’s benefits (there is, in fact, no strong correlation between free trade and peace) or by letting themselves become associated with Davos Man imagery and rhetoric. Many were also slow to acknowledge that China’s compliance record with WTO rules has been poor and that Beijing has, if anything, deepened its commitment to neo-mercantilist policies.

Notwithstanding these failures, there is a formidable amount of empirical and historical evidence that highlights protectionism’s negative effects upon countries adopting such policies. And these harms often fall on the particular groups they are intended to help. Consider, for instance, the aforementioned steel and aluminum tariffs.

The trade economist Douglas A. Irwin points out that the costs of these tariffs were borne by American consumers. They ended up paying “more either directly for imported consumer goods or indirectly for imported intermediate inputs that increase production costs and ended up raising consumer prices.” As far as those who work in manufacturing are concerned, Irwin writes, “the steel and aluminum tariffs reduced overall employment in manufacturing by 75,000 workers.” These tariffs imposed higher costs on those American companies which extensively use steel, thereby “harming their competitive position in domestic and foreign markets.” That translates into fewer jobs as a way of reducing costs and improving their market position.

The tragedy is that this was very predictable. The long-term damaging economic effects of tariffs and related policies are clear. This is not a matter of spouting libertarian ideology. It’s a question of the steady accumulation of empirical evidence and the development of sound theory over a long period of time. At a minimum, anyone who claims to be concerned about the common good should take all this into account.

What about Justice?

But, some conservatives may counter, the common good goes beyond economics. Surely economic life is as much about the provision of work as lower prices for consumers. After all, work is something good in itself and lends itself to all sorts of morally and culturally beneficial behavior. Perhaps, the argument goes, every American should be willing to pay an extra 20 dollars a year to help keep manufacturing workers—their fellow Americans—in particular parts of America employed.

Should the state really be prioritizing the interests of one segment of the employment market over the overall well-being of 330 million American consumers?

One difficulty with this position is that it downplays the ways in which tariffs damage the common good by facilitating cronyism, incentivizing rent-seeking, discouraging adaptation to wider economic and technological changes, and promoting the highly-questionable proposition that technocrats can outguess markets. As far as jobs are concerned, tariffs cannot protect an industry and those it employs over the long-term if that industry’s comparative advantages are fading. Government intervention is a costly and generally ineffective way of trying to impede or reverse such changes and thus an ineffectual way of trying to save jobs. Indeed, if we really care about employment, we should question the wisdom of using government to indirectly encourage people to enter occupations that aren’t going to be there in ten years or that won’t be available in the same quantities.

Then there are issues of fairness. These are illustrated by the same manufacturing industry example. If the goal is to use the state to promote work as something good in itself, what is it about low-skill manufacturing jobs that merits special treatment compared to, say, work in low-skill retail?

Or, to approach the fairness issue from another angle, should the state really be prioritizing the interests of one segment of the employment market over the overall well-being of 330 million American consumers? As Richard M. Reinsch observes, “We are all consumers, but we are not all manufacturing workers.” One of Adam Smith’s crucial insights was that it is through meeting consumer demand that economies grow and adjust as humans are incentivized to specialize and exercise their creativity in light of people’s changing needs and wants.

An important side-effect of this process is that employment markets develop and mature over time. This not only provides more and different types of work for people with varying talents, needs, and wants. It also helps ensure that someone who grows up in, for instance, a manufacturing town in Ohio may have many other job possibilities if they decide, like millions of other Americans, they want to follow a different line of work than that of their parents and grandparents. That is just one way in which markets indirectly contribute to the realization of goods like work.

What Should Government Do?

For all the weaknesses of conservative proposals for particular state economic intervention to protect the common good, the subsequent debate has created space for conservatives to consider a related question: what can governments do to advance the economic dimension of a society’s common good in ways that avoid the problems detailed above?

One way to think through this question is to consider what government institutions must do if markets are going to meet consumer demand and thereby create wealth, jobs, etc. Some immediate responsibilities that come to mind, and which were spelled out with varying degrees of explicitness in Book V of Smith’s Wealth of Nations, include: upholding the rule of law; protecting property rights; maintaining monetary stability; adjudicating contractual disputes; providing public works; establishing law and order; and securing national defense. To this list, some would add a minimal welfare safety net (hardly a minor or inexpensive undertaking) and enforcing basic health and safety standards.

Some might view this as rather minimalist. Yet none of these are small, simple, or inexpensive tasks. Determining the particular rights and obligations of all parties embroiled in contractual disputes requires courts and the development of a body of law that helps judges to make just rulings. Establishing conditions that help protect us from criminals and enable us to go to work every day requires police forces. Protecting America and its economy from hostile powers necessitates a military and national security apparatus.

Truth be told, the present involvement of federal, state, and local governments in the U.S. economy goes way beyond all the tasks listed above. Just over the past three years, government spending has averaged 38.1 percent of America’s GDP while government welfare and healthcare spending has increased. The number of pages in the Federal Code of Regulations has been growing for decades. Nor can anyone claim that there is a shortage of industrial policies in America.

Put bluntly, this is not limited government. Nor should we forget that much of this is funded by public debt. Even before the coronavirus, public debt as a percentage of domestic GDP amounted to 106.68% in the last quarter of 2019.

If we truly want to promote the economic dimension of America’s common good, perhaps we should ask ourselves the following question: how would this aspect of the common good be enhanced by even more government intervention than we already have, even if it is of the selective, targeted type being suggested by some conservatives? Would it not be better to think about how to focus government on those tasks that it is uniquely able to address instead of steadily expanding its potential to produce sub-optimal outcomes or, worse, make serious mistakes?

The ways in which such reflection would cash out in terms of specific policies wouldn’t resolve intra-conservative policy debates. What, for example, qualifies as public works in the early 21st century? Or consider the challenges involved in trying to resolve real conflicts between good but not always compatible options, such as the demands of national security versus commercial freedoms. Adam Smith’s dictum was that “defense . . . is of much more importance than opulence.” Few conservatives (or, I suspect, classical liberals) would disagree. But how do we determine what constitutes a genuine national security imperative, especially given many businesses’ proclivity to seek government protection from competitors—including American competitors—by asking for national security exceptions on flimsy grounds?

Such are the inexactitudes with which political leaders must grapple every day. Yet focusing on those objectives that only the state can accomplish, I’d argue, would produce a far more constructive discussion about the role of politics vis-à-vis markets and the common good than the arguments currently preoccupying many conservatives. It is also a debate that is long overdue.

Reader Discussion

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.

on January 18, 2021 at 07:35:44 am

Excellent! This kind of analysis is badly needed.

Hardly anything is more astonishing to me than listening to “national conservatives” such as Oren Cass, Michael Anton, or David Azzerad warn of the dangers of the administrative state, and then propose tasking the administrative state with designing and managing our economic lives with industrial policy.

Hardly anything, unless maybe free market advocates who are nearly as happy with tasking the administrative state in managing the bureaucratic and regulatory mess of “free” trade areas, find it impossible to even see government protection of monopolies (e.g. Section 230), and are blind to enemies (e.g. China) exploiting trade to undermine and attack the United States.

Adam Smith’s analysis of the issue of free trade has never been topped, I think. Smith soberly and cautiously analyzes possible exceptions, regards a couple of them as worth considering on rare occasions. Unfortunately no one pays serious attention to him any more.

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Charles N. Steele
on January 18, 2021 at 11:11:32 am

Protectionist, long term, defensive tariffs are a proven mistake. However, one could argue that when tariffs (or quotas and embargoes) are used as an offensive weapon to punish bad trade practices (not to protect favored industries), and are designed to be temporary and inflict pain, they may be a useful weapon to actually achieve freer trade.

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Billy Kaubashine
on January 18, 2021 at 13:17:13 pm

How many times must I say this?

whether our "free" market friends wish to acknowledge it or not, we DO have an industrial policy. Far more frequently than not, this amorphous and wildly "contingent" policy ENCOURAGES the loss of American jobs, capital and capital assets.
See below, where we find that the Tax Cut and Jobs Act enabled, if not encouraged further offshoring by eliminating the tax on offshore corporate assets generating profits.

https://thefactcoalition.org/wp-content/uploads/2018/12/Experts-Agree-TCJA-Will-Incentivize-Offshoring-Final.pdf

The same may be said for tax provisions providing incentives to offshore the manufacture of new products, or, more fairly stated, a lack of incentives to develop AND produce domestically. Incidentally, this is at the heart of some of the Biden (and John Kerry) family business ventures with the ChiComms.

Gregg is correct when he asserts that Government has grown far too large, far too intrusive and enveloping of the market. Yet, while he intimates the destructive and corrosive effects of such interference in an effort to support his "free" market preferences, he obscures more than he illuminates. We all deplore, as does Gregg, the practice of crony capitalism. Yet, so much of this interference is the result not of cronyism, corporate favoritism but of broad-stroke policy preferences favored by the very same "free" market types, One example is the preference for ever lower corporate tax rates. The link above provides just one example of how "free" market policy preferences result in INDUSTRIAL POLICIES destructive of American manufacturing prowess and, not incidentally, "the common good."
Gregg is also correct when he argues against any technocratic expertise or superiority in "choosing" winners.
BUT, an effective industrial policy that would encourage American manufacturing, a precondition for effective national defense, BTW, need NOT "select" winners and losers; it need not be susceptible to "cronyism", nor even contain a bias toward "scale." All it need do is encourage, via the tax code, the development AND domestic manufacture of new (and even existing) technologies. The winners will work themselves out. I believe this to be a "good" - even if the average American will pay "another twenty dollars per year."
Where do I send my check?

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gabe
on January 18, 2021 at 13:24:36 pm

An important question posed clearly. The logical and empirical arguments in favor of free trade have been pretty clear since Adam Smith. But their proponents need to acknowledge that every economic system or policy advantages some and disadvantages others. Pretending that "everybody" benefits only undermines proponents credibility. Moreover, there are clear reasons why manufacturing jobs are especially important in considerations of trade policy. They pay much better than low-skill service sector jobs. In fact, the development of the American middle class after WW II is largely due to the abundance of good-paying manufacturing jobs. The elephant in that room is unions. They played a key role in securing high-wage, high-benefit programs for manufacturing workers. But unions have been steadily undermined and destroyed and trade policies have encouraged American companies to seek the cheapest labor they can find elsewhere on the globe. More broadly, the issue is whether the "common good" can be defined in solely or overwhelmingly economic terms? Markets are very good at increasing wealth and assuring efficiency, though one would have to acknowledge that, as Adam Smith observed, "manufacturers and merchants" always try to use government power to advantage themselves by constraining markets. And at least one important sector, defense, is conducted almost entirely without anything like a market mechanism--with consequences for costs that are evident. But aren't there social goods that government has a special or even unique capacity to promote and should do so that aren't measurable in economic terms? For one example, is racial equality or more narrowly civil rights an economic issue? I don't see offhand how a market can help with that issue.

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Donald Marshall
on January 18, 2021 at 13:49:31 pm

This endless discussion of the virtues and vices of regulation versus deregulation and of free trade versus protectionism and of government intervention versus non-intervention can only be discussed in the vast context of legal, political and economic realities and as applied to specific social circumstances and their historical origins, not as an abstract matter, even one which relies on generalized use of Adam Smith's economic principles or the political philosophies of conservativism and classical liberalism.

Otherwise, the discussion is mere vanity. The US is now dominated and about to be ruled by the politically-powerful, repressive forces of crypto-Marxism-cum- progressivism. These majority forces are intent on crushing the minority class and discrediting opposing theories and political principles, and on eliminating political debate of the majority class's new policies, programs and plans, and on the writing and rewriting of history so as to justify its actions and to comport with the triumphant majority class's ascendant ideology. In the context of the nightmare of that overwhelming reality, it's worse than intellectual vanity, it's self-destructive, for those resident in the threatened minority class opposed to neo-Marxist totalitarianism to pick silly fights with their allies over whose principles are more principled and effective, as Mr. Gregg does.

I can agree with Gregg's principles, in theory, argue with him as to particular political circumstances and economic necessities, but oppose him completely for forming yet another of the right's infamous, suicidal circular firing squads. Under assault by hostile Indians, our pioneer forefathers circled their Conestoga Wagons as a defensive barrier against the enemy and fired their weapons against the attacking force, not at each other.

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paladin
on January 18, 2021 at 15:46:00 pm

In the short term, tariffs certainly increase costs. However, the essence of free trade is non-politicized trade, not the absence of tariffs. During the 19th century, we had a tariff but an almost entirely de-regulated domestic economy with a straightforward legal and proper tort system. The notion that our economy was neither dynamic nor that "consumers" paid higher prices due to the tariffs is clearly false, so clearly there is more involved in a healthy economy than tariffs. In the current environment, with a massively regulated and politicized domestic economy, an unnecessarily complicated legal system, fiat money, huge deficits, entitlement programs and low savings - none of which existed in the past (and many of which didn't much exist prior to WWII or even the 50s), simply opening up to foreign companies won't solve anything. It will just provide American workers cheap goods to purchase while ever more of them transition to permanent welfare dependency. Tariffs are a proper tool to reclaiming our economy, but only if combined with systematic deregulation, reduced spending, and legal reform. Such a course is not industrial policy nor should it favor any particular industry.

The notion contained in the "no tariffs" approach is that we otherwise have a free market and that responses to a hampered market, many elements of which are dictated by political fiat - ours and foreigners - can therefore be ignored while the market responds. In fact, what we've done is create a policy that avoids difficult domestic political debates while keeping the white collar, managerial, professional class (left and right) happy through tax breaks, off-shoring blue collar jobs, and uncontrolled immigration while letting the left lock in national failure by ceding all the major intellectual and cultural institutions to them.

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ADM64
on January 18, 2021 at 16:48:54 pm

true dat!

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paladin
on January 18, 2021 at 17:57:40 pm

Absotively!
Gregg conveniently forgets that for the first 150 years of our history, we not only survived on tariffs but we somehow managed to build a rather powerful and dynamic economy.
ADM64 is correct - OTHER countries also impose tariffs with a political or geopolitical objective in mind. In fact, history demonstrates that the US is invariably in a "reactive" posture to other countries political tariffs.
He also is correct in implying that we would be (and HAVE BEEN) foolish to not respond.

But no, let us have our free market ideology while the citizens falls into a sedentary and dependent lifestyle. After all, as Gregg asserts, "Why is a low paid manufacturing job (which they are NOT low paid, BTW) any better than a low paid retail job?"
Clearly, Gregg has never produced anything, nor known anyone who has produced products.
Sure, why be a manufacturing process engineer, a tool and die maker, etc when YOU, TOO, can sling hamburgers? or drive for Amazon?

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gabe
on January 19, 2021 at 00:20:02 am

I give you Mircea Eliade:
"The primitive... cannot conceive of an unprovoked suffering; it arises from a personal fault... or from his neighbor's malevolence... but there is always a fault at the bottom of it[.]"
That's the problem with free markets and law. When something goes wrong, people think someone is to blame and they want government to fix it. With force.

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Christopher Chantrill
on January 19, 2021 at 11:57:54 am

"That's the problem with free markets and law. When something goes wrong, people think someone is to blame and they want government to fix it. With force."

As Z9 has previously quoted Einstein:
"Explanations should be simple. But not too simple." (or words to that effect).
It may be too simple to argue that since people have a tendency to blame others that we should therefore dismiss all attributions of blame as misplaced and misinformed.
People may be to blame as much as are laws, regulations and tax codes. The trick is sorting out which inputs are at work.
The example I cited of a change in the tax code that encouraged further offshoring is a case in point. SOMEONE is to blame for that. One could cite numerous other regulations that adversely affect the prospects of the American working class / middle class.
Chantrill is correct. We do blame others; let us first specify what is in need of being fixed before we either blame others or so cavalierly dismiss all such attributions of blame.
I suspect there is a sufficient amounts of blame to go around.

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gabe
on January 20, 2021 at 10:56:56 am

And here is another example of how the Tax Code adversely affects manufacturing:

https://www.nationalreview.com/2021/01/how-corporate-tax-rules-hurt-american-manufacturing/?utm_source=recirc-desktop&utm_medium=blog-post&utm_campaign=river&utm_content=more-in&utm_term=first

Is this "blame" or just stupidity?

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gabe

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