Great Antidote Extras: Samuel Gregg on The Next American Economy

is economics a science free markets industrial policy

Kevin Lavery for AdamSmithWorks

Lavery listens in to Samuel Gregg's Great Antidote episode and comes up with questions about how the past shaped our present and could help us to a better future.

Why are free markets attacked so much? Why is America turning away from classical liberalism? Is there a place for classical liberals in the culture war? Samuel Gregg joins The Great Antidote host Juliette Sellgren to discuss the necessity for libertarians to think outside of economics, why America should avoid state capitalism, and the broader goals of a new classical liberal America. You can listen to the episode here.

Samuel Gregg is an affiliate scholar at the Acton Institute and serves as the Distinguished Fellow in Political Economy and Senior Research Faculty at the American Institute for Economic Research. Gregg is also the author of sixteen books, including his 2022 book The Next American Economy: Nation, State and Markets in an Uncertain World. This is also Gregg’s second time on the podcast. His first episode was on Christianity and Liberalism.

America and capitalism are often viewed as being synonymous. However, Gregg believes the two are quickly divorcing. A key example of American discontent with capitalism that Gregg and Sellgren dive into is the election of Donald Trump in 2016. Donald Trump, ran on a populist economic platform which included policies such as tariff expansion and immigration restriction. To Gregg, Trump’s election wasn’t a cause of an anti-capitalist sentiment in America, it was a visible sign of discontent with neoliberalism and neoconservatism, and a harbinger of things to come.

That election made it very clear that many assumptions about things like trade or industrial policy that seemed to have achieved a type of orthodoxy on the political right, but also on parts of the political left, were no longer orthodoxies…from there we saw a rising skepticism to the power of markets across the political spectrum.

But it’s not just Trump, Gregg points out that sizable segments of both the left and the right are now advocating for more government control over the market. On the left this can be seen through the push for a higher minimum wage, more regulations to prevent carbon emissions, and an increase in the corporate tax rate.

That implies a type of top-down sectors of the economy, trusting the federal government to do things in the way they say they’re going to do them, accepting significant diminution of economic and personal liberty. There’s a significant part of both the right and the left that want America to go down this path. If you look at some of their economic ideas and preferred policies, despite the fact that they disagree on lots of things, they’re getting close to being on the same page when it comes to their economic vision of the future.

But it wasn’t always like this. As recently as twenty years ago both sides of the political spectrum were championing the power of the free market. America saw the rise of neoliberalism and neoconservatism with Bill Clinton and Ronald Reagan, and the New Labour movement in Britain led by Tony Blair put forward a platform of austerity and economic freedom. Gregg explains this through the failure of Keynesianism in post-World War II economies, and the economic upturn in the 1980’s “fueled optimism” about markets. How did American capitalism get to the state where it’s weathering attacks from two fronts? Simply put, classical liberals and other free market advocates failed to adequately respond to the critiques of capitalism brought about by economic crises, namely 2008.

This was portrayed as a failure of financial markets, a failure of the market economy, and a failure of capitalism. A lot of people have grown up in an era where this skepticism and negativity about markets has only gotten worse…and the Western world has turned back to the state.

This U-turn back towards state control manifests in a furthering of state capitalism, one of the options Gregg believes could form “the next American economy.” But to Gregg, state capitalism isn’t just a possibility, it’s the reality of American economic policy.

We do have state capitalism. We have lots of industrial policy and protectionism. There are many people who look to the federal government to shape the economy to benefit what they see as groups that have lost out in the globalization period that we underwent from the 1980’s up until very recently.

To Sellgren and Gregg, the growth of the federal government’s role in the marketplace has created an “unstable equilibrium” where the political priorities of those in power, not the intentions and preferences of individual consumers and producers, drives the economy. Not only does state capitalism harm economic growth through the limiting of competition, but it is also rife with rent seeking: profit generation through manipulation of public policy. Gregg and Sellgren explore how it is this deep presence of rent seeking that makes state capitalism so difficult to undo, as those in power, whether they be politicians, special interest groups, or large corporations, have an incentive to keep the system as it is.

It means we’re going to ignore comparative advantage. It means pretending there aren’t tradeoffs. It means that entrepreneurial instincts get shifted away from trying to produce new goods and services to trying to extract wealth from people; what we call rent seeking. All of those things taken together lend themselves to deeply unhealthy economic arrangements, and the more we dig ourselves into it, the harder it becomes to dig ourselves out. There are so many established interests now that have no interest in changing the state capitalist status quo that’s becoming more and more of an American reality today.

It is often the opponents of capitalism who draw a dichotomy between the private interest and concern for the individual that free market liberalism promotes, and the “common good.” However, this message can easily be co-opted and driven by rent seekers who wish to enhance their profits by limiting competition. Of course, Gregg does not wish for America to descend down this dark path of government overreach and rent seeking. So, what’s the other path? Entrepreneurship, free trade, and competitive markets wrapped up with an overall message appealing to American values, history, and the legacy of liberal figures such as Adam Smith.

Gregg proclaims that rhetoric and messaging are what liberals and free marketers have been missing for over a decade. Free marketers have been reluctant to engage in debates outside of economics because the answers that were effective in decades past due to economic optimism simply aren’t effective today. Gregg states that “free marketers need to repackage their arguments; we’re not living in the 1980’s.”

A lot of people who describe themselves as classical liberals or limited government conservatives were struggling to provide answers, because the answers that were required needed to go beyond economics. Many of the doubts that were driving this skepticism about markets and limited government were being driven by economic dissatisfaction, cultural dissatisfaction, certain elements of foreign policy, concerns that parts of America were being neglected and had not benefited from globalization.

Liberals have shown an inability to adequately solve the perceived problems that come with free market policies, such as increased immigration and free trade. Immigration and free trade are significant net benefits to the American economy and society at large, but that answer doesn’t satisfy those who feel that immigrants will steal their jobs, or those who have been put out of work due to outsourcing. Sellgren illustrates this with her argument of a hyperfocus on “homo-economicus,” a hypothetical person who behaves in complete accordance with their rational self-interest, causing additional free market discontent, as this response to real world problems or misconceptions seems detached from the real world. To Gregg, free marketers are far too restrictive, and need to go beyond economics to address concerns over capitalism.

I think a lot of free marketers were reluctant to engage in the cultural issues that particularly many conservatives were getting worked up about, sometimes with good reason to be worked up about. Many free marketers adopted the position that they had nothing to say about these things, and I think they had many good things to say about many of these questions that would have disarmed the conservative critiques about the workings of markets.

Gregg adds that liberals won’t have to renounce objective economic truths or compromise their principles of limited government, liberty, and individualism to shift the scope and object of their arguments. This is due to a broader civilizational vision that markets operate within but are not the sole goal.

Another thing we need to talk about when it comes to things like rule of law is why it isn’t just lending itself to more efficient markets, but why rule of law reflects the higher lights of who we are as human beings. These rules reflect commitments to certain goods that are always good for human beings…or when it comes to trade questions. Yes, it’s materially beneficial, but we should also see this as extending the civilization of natural liberty…we need to create the sense that markets and good economic policy forms part of a wider civilizational endeavor.

Gregg’s final message is one of conversation and adaptation. It’s crucial for those who believe in liberty to engage in realms other than tax policy or the ideal size of the federal reserve. After all, what would Friedrich Hayek or Adam Smith think of liberals shying away from moral debates? To Gregg, present liberals need to embrace the thought process of past great liberal thinkers instead of shifting away.

“We need more Adam Smith thinking.”

Questions

1. Gregg states that free marketers need to develop new arguments for a “wider civilizational endeavor.” What is this endeavor? What is the broader plan for a freer society?

2. Classical liberal often get tied to the right or the Republican party due to valuing limited government and economic freedom. How can classical liberal arguments be phrased to distance themselves from the right (and the left) while centering their own values?

3. Gregg pinpoints 2008 as the catalyst for a turn away from free market liberalism and towards top-down state capitalism. This is seen in the millennial and generation z population who increasingly identify as socialists. How can liberal arguments be tailored to address the issues young people are invested in such as income equality, environmentalism, and racial justice?

4. Gregg pins down rent seeking to the progressive era and as a fault of state capitalism. However, rent seeking existed significantly in the American economy before the progressive era. What about the monopolies that progressive anti-trust regulation broke up?

5. During the podcast Gregg lays out how accelerating American state capitalism has an opportunity cost, namely protecting private property, enforcing rule of law, or ensuring national defense. In what ways has the United States declined in these fields?

Related materials
EconLib Guide to the Financial Crisis of 2008
Alan Wolfe on Liberalism, an EconTalk podcast episode
Alberto Mingardi on Klein's battle for "liberalism", Econlib
Samuel Gregg, Trade, Nations, and War in an Enlightened Age, at Law & Liberty
Is Globalization in Retreat? A Conversation with Samuel Gregg at Law & Liberty
Murray Rothbard, Free Market, in the Concise Encyclopedia of Economics

Great Antidote Extras: Samuel Gregg on The Next American Economy

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