In Part I of this article, I explained how a new crop of critics of the free market have made their voices heard. I noted how two of them are representatives of the United States government—a fact that should send shivers down the spines of every conservative out there. It means, namely, that the people who currently run the greatest free-market economy in the world under the Biden administration espouse values that are directly contradictory to the economic nerve system of the American Republic.
It also means that those same individuals are moving forward in their efforts to transform America in the image of their ideology.
Americans are not the only ones who should be aware of this. As I pointed out in Part I, a representative of the U.S. government recently voiced criticism of the free-market system at an EU-U.S. trade conference in Belgium and included Europe in her comments favoring more economic government interventionism. I also noted that The Economist recently made a similar assessment of the European economy.
Here is how I summarized this new anti-free market narrative in Part I:
- Western economies are based on free markets;
- The free-market economic system is inadequate in competition with a system like the Chinese, which is based on government interventionism;
- Therefore, more government interventionism is desirable in the Western economies;
- The interventionism should focus primarily on the allocation of productive capital.
This narrative is immediately motivated by a sense of deep frustration among political leaders in both Europe and North America over China’s unfair and blatantly selfish methods for expanding its global economic influence. The narrative is also related to Russia’s resilient presence in Ukraine, which has drawn the attention of Western leaders to the fact that we don’t have an economic base that can adequately support a large, capable military.
It is important to remember, though, that these are surface reasons for proponents of the narrative: their arguments for economic statism come with an ideological undercurrent that is intrinsically opposed to the free-market economy. As a striking example of how the Biden administration is endorsing this narrative, National Security Advisor Jake Sullivan gave a speech at the Brookings Institution a year ago, where he called for a major expansion of the role government plays in the economy:
After the Second World War, the United States led a fragmented world to build a new international economic order. It lifted hundreds of millions of people out of poverty. It sustained thrilling technological revolutions. And it helped the United States and many other nations around the world achieve new levels of prosperity.
In “the last few decades,” Sullivan explains, this “new international economic order” has been upset. He lists a number of reasons why this is the case, all of them implying that we can no longer enjoy a free-market system.
His alternative starts with “a new consensus”—a term that sends up a red flag for many. However, of more importance here and now is the ‘vision’ of a new economic system that Sullivan gives voice to. Under President Biden, he explains, the United States
is pursuing a modern industrial and innovation strategy … that invests in the sources of our own economic and technological strength, that promotes diversified and resilient global supply chains, that sets high standards for everything from labor and the environment to trusted technology and good governance, and that deploys capital to deliver public goods like climate and health.
From the viewpoint of economics, this is a big statement. In so many words, the U.S. National Security Advisor—in other words, an important member of the Biden administration—has now told us that government needs to be the final arbiter of the allocation of productive capital in the economy.
A similar sentiment is expressed by a Leaders article in The Economist (March 30th, print ed.):
Europe should forge its own economic policy fit for the moment … [and] spend on infrastructure, education, and research and development.
Although making a token critical comment about “China’s interventionism,” what is advocated for in this article is clear: more government control over capital formation in the European economy.
Going back to Jake Sullivan, his prescription for America is a significant elevation of government presence in the economy. This is best seen in his comment about having government “deliver public goods like climate and health.” His use of the term “public goods” is different from its common use in economics: in Sullivan’s case, it references the ongoing allocation of government funds for the provision of medical services.
In short: the gradual socialization of America’s health care system.
A similar ambition is revealed under terms like “trusted technology” and “good governance”, both of which are rubbery enough to mean whatever government would like them to mean. In both cases, capital ‘deployment’—again a term Sullivan uses in defiance of the established economics thesaurus—means a continuing government presence in the targeted industries.
There are many problems with involving government in any industry, but overshadowing them all is the number of damaging consequences that follow when government replaces the free market. By definition, this replacement means the abolition of the organic process for allocating goods, services, labor, and capital throughout the economy—in other words, the price mechanism. In its place, government puts an administrative apparatus—a planning board within a department or an agency with responsibility and authority to decide what resources should be allocated where.
Wherever the free market is allowed to operate, the production, allocation, and eventual consumption of all economic resources are more efficient than under any alternative economic system. A government administration can never achieve the level of detail in its decisions on what to produce, when, how, and for whom that the market can.
For this reason, economies with a higher degree of government intervention are less efficient and therefore less productive than economies with a higher degree of economic freedom. Europe (writ large) is a case in point: with governments that consume and redistribute closer to 50% of their economies, the continent has a lower ability to grow and prosper than economies with a smaller government.
But wait—what did we just say? Is government already about half of Europe’s economy?
Generally speaking, yes.
But does this not mean that the economy is actually not market-based?
Technically speaking, no: as long as the private sector accounts for at least 50% of all economic activity, the price mechanism does—again technically speaking—constitute the base for the economy. However, in practice, it is pointless to talk about a market-based economy when 40-50% of all economic activity is already under government control.
This leads us to an interesting counterpoint to those who want more government involvement in the allocation of productive capital. Their official reason for demanding more statism is that our market-based economies can’t hold a candle to government-run alternatives, particularly in China. In reality, with the large welfare states that we have in both Europe and North America, we have actually weakened the free-market system to the point where it is incapable of delivering all the economic resources we demand.
By the same token—to once again hark back to Part I of this article—the Chinese system of government interventionism is nowhere near as successful as is often suggested. On the contrary, the unending efforts by the Chinese government to promote exports are a direct consequence of how their statist-based economic system is limiting the impact of the price mechanism and the free market.
In short: the Chinese economy would implode in short order if its government stopped trying to outrun the avalanche that is their slowly imploding domestic economy. The more their government tries to subsidize the nation’s export industries, the more they fuel that very same avalanche.
Europe and America do need more economic growth, and they need to make systemic changes to their economy in order to get there. However, the way to do this is not to further weaken and marginalize the mechanisms of the free-market economy. The way to do it is to reduce the already heavy burden of government on the economy.
