Since then, our political system has continuously evolved for the better. The self-evident truth that “all men are created equal” and “endowed by their Creator with certain unalienable Rights” has been interpreted more broadly and correctly, as those rights have been extended, first to African-Americans and then to women. Our economy has evolved too – as workers moved in large numbers out of agriculture, first into manufacturing and then into the high technology and service sectors that dominate today – even while it has grown spectacularly. There is no limit to what America can achieve, operating under the basic principles of political and economic liberty.
Recently, Russia and its leader, Vladimir Putin, have emerged as peculiar objects of fascination to some of our follow citizens. These Americans need to remember that Russia’s predecessor, the Soviet Union, chose a path quite different from ours, relying on one-party control of their political system and central planning for their economy. Whatever the original ideas motivating those choices might have been, the Soviet Union was never really run for the benefit of its workers. Instead, the results were tyranny and oppression, followed by economic collapse. Russia’s transition to a more liberal system has been uneven, and the results have been decidedly mixed. Today, according to data from the World Bank, real GDP per capita in Russia is less than one-half what it is in the United States. If Russia is to succeed in closing this enormous gap, it will have to make its political and economic systems more like our own. But, under Putin, many of the steps have been backwards, towards autocratic rule. This is no model for the United States to follow.
Other Americans suggest that, perhaps, there is a way to run a mixed system, allowing markets to operate while asking the government to step in when it appears that outcomes are less than fully desirable. This idea sounds sensible in theory, but rarely works in practice. The problem is that modern societies are too complex for effective centralized control. Even the best judgments from the most skilled and well-intentioned policymakers cannot coordinate economic activity as well as free-market mechanisms do. Government programs that favor one sector or industry over another work, counterproductively, to stifle innovation and inhibit long-run growth. If, in the late 19th and early 20th centuries, politicians had acted more vigorously to “save American jobs” in agriculture, the United States might never had successfully modernized its economy and become a global power. A similar attempt, today, to intervene in the manufacturing sector would be just as counterproductive.
Still others argue that capitalism can sometimes generate excessive inequalities in incomes and wealth, which only the government can remedy. Again, this idea seems compelling at first. But one need not look far back in time for evidence that it doesn’t work. When policymakers needed to “save the economy” during the financial crisis to 2007, they chose to bail out the big banks, not ordinary homeowners. In fact, interventions like these almost always favor politically connected and wealthier individuals over those who still await their chance to succeed. It is highly ironic that justifiable public anger over the 2007 bailouts has somehow been translated into popular demands for more government actions that so clearly favor the vested interests. We’d all be better off if, instead, Congress would act, speedily and decisively, to make the federal tax and regulatory codes simpler, fairer, and less open to abuse. That would be a far more effective means of promoting both equality of opportunity and overall economic growth.
More generally, American politicians could do a much better job of reminding people, here and around the world, of the virtuous principles our country was built on and still stands for. A few talk knowledgably about the importance of political and economic liberty, but too many others simply echo the petty, vindictive messages they get from popular media, apparently unable to see how much this demeans them and, by extension, all of us. Liberal democracy and free-market capitalism have always been the driving forces behind America’s success. Refocusing on these core ideas would elevate public discourse and get our country and economy back on track.
Peter Ireland is a professor of economics at Boston College and a member of the Shadow Open Market Committee.