Why Countries Never Thrive Without Activist Government Investment


William Berkson is a Philosopher and Director of the Jewish Institute for Youth and Family.

If there is one national goal that Americans can agree on, it is opportunity for all. However, the political parties have been sharply divided over the role of government in creating economic opportunity.

Since President Ronald Reagan, Republicans have advocated a simple and beautiful theory of how to grow the economy: the more you reduce government involvement in the economy, the more efficient markets become, and the more the economy grows. However, a beautiful theory can, as T. H. Huxley put it, be “killed by an ugly fact.” The beautiful theory of ‘free market’ or ‘laissez faire’economics has, in the past 35 years, been killed not by just one fact, but by a torrent of contrary facts. Both Democratic administrations since Reagan—that of Bill Clinton and Barack Obama—have raised taxes, and under them, the economy grew more rapidly than under the tax-cutters Reagan and George W. Bush. Further, the “rising tide” hasn’t “lifted all boats.” The wages of the poor (the lowest 10%) have actually gone down 5% in real terms since Reagan took office, while in the middle, wages increased only by 6%. However, the top wealthiest five percent have had their wages go up over 40%. Also indicative of increasing wage inequality is that CEO salaries have gone from 30 times the typical worker in 1979, to nearly 300 times today. Since 1980, the only periods when the trend to greater income inequality has been somewhat reversed is under the Democratic administrations.

It would be reasonable to think that decades of contrary evidence, culminating in the financial crisis of 2008, would end the political viability of minimal government or ‘laissez faire’policies. However, in reality Republican candidates have not only continued to support these policies, but also campaigned on them to win the House in 2010, and the Senate in 2014. Finally, now in 2016, we may at last be experiencing a sea change in public sentiment. We can see it on the Republican side in the seeming indifference of Republican primary voters to the siren song of laissez faire; the candidates who expressed the most devotion to “conservative free market principles” lost.

This election cycle is in fact a unique opportunity for progressives – a moment when they can actually kill the false and destructive narrative that the “free market” is the elixir of economic growth. Fortunately, some economic historians have, since 2008, written books with invaluable new documentation of what has actually grown economies. These books not only show that laissez faire policies have always failed to grow economies, but they also contain a clear rival vision for growing the economy—a vision that is completely grounded in and validated by economic history. ...

Read entire article at Evonomics

comments powered by Disqus