Herbert London: Reliving The Lessons Of A Free Market

Feb 7, 2018

It is axiomatic to suggest that presidents get more credit than they deserve when the economy does well, and more blame than they deserve when the economy goes south. However, in the case of President Trump he is given almost no credit for the soaring economic market, despite the fact his tax reduction bill and executive orders cutting excessive regulation are in some manner catalysts for the market upswing.

The New York Times, in its reflective opposition to President Trump, argues “government spending unleashed during the previous administration…” propelled the U.S. economy. But a Keynesian infusion of capital during the Obama years did not yield the growth enjoyed at the moment. What progressives cannot admit is that the free market or a relatively free market produces more economic opportunity and financial security to more people than any other system.

This seems obvious to all but the socialists who contend the economy is a zero-sum game in which social engineers take from some, e.g. the wealthy and give to others. What the progressives do not understand and will not accept, is that people, left to their own devices, without the shackles of government control unleash the basic ingenuity found in all of us. That ingenuity results in new markets and widening opportunity. The economist Julian Simon maintained that brain power is the “ultimate resource,” far more significant in determining the course of the economy than natural resources, e.g. oil, gold, minerals.

The depletion of a natural resource only induces brain power to work hard to compensate for the loss. Government cannot play that role. It has no money of its own nor does it have any expertise in running a company. Every dollar it appropriates means that it has reduced the value of the private sector by an equivalent amount.

Global businesses appear optimistic about the future, notwithstanding Cassandra-like warnings about inequality, threats to cybersecurity and conflict, because of the extent to which Washington has taken the lead in deregulation and the opening of markets. At Davos, President Trump made it clear “the U.S. welcomes your business.” And even though naysayers contend the economy is going through “a fragile recovery,” the record-breaking increase in the Dow Jones Averages indicate something very different indeed.

The lesson of the Trump presidency thus far is that a move away from a redistributionist psychology can have a profound effect on economic growth. Markets are a reflection of liberty; the more free and open, the more likely success will prevail. This, of course, is not the naïve contention that a free market is perfect. It is not. Surely some may be left behind and inequality can sometimes emerge as an issue in a capitalist structure. Nonetheless, with its flaws, it has produced more wealth than the world has known.

In fact, what is occurring at this time is a positive feedback loop with growing business confidence leading to more hiring and increased yields of consumer spending. If there is a concern, it is whether new investments will materialize quickly enough to sustain expansion, an enviable problem to have.

Another impediment to the free market can be tariffs or mercantilist pressure. President Trump’s desire to impose protective tariffs on washing machines and solar panels, albeit limited in scope, suggest warning signals that a trade war could occur. While the president contends free trade must be fair trade, his recent decisions engender fear his devotion to freedom could be undermined by an obsession with lopsided trade imbalances.

In an environment that has benefited from free trade, it is worth remembering that central planners and economic engineers always pave the way for what Friedrich Hayek called The Road to Serfdom. The twentieth century is filled with examples of those who did not heed this lesson. What we are observing with the Trump administration is a healthy antidote to the redistributionists in Washington DC who are myopic to the laws of history.

Herbert London is President of the London Center for Policy Research,  a senior fellow at the Manhattan Institute and author of the book The Transformational Decade (University Press of America). You can read all of Herb London’s commentaries at www.londoncenter.org

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