Confessions of a Supply-Side Liberal

Here is the full text of my 65th Quartz column, “An economist explains why a key to the free world lies with China,” now brought home to supplysideliberal.com. It was first published on July 3, 2015. Links to all my other columns can be found here.

Ori Heffetz pointed out the error of my counting 239 years (“almost a quarter of a millenium”) of freedom in the United States since 1776, since the key date for freedom in the United States can’t be counted any earlier than the adoption of the 13th Amendment to the Constitution on December 18, 1865 abolishing legal slavery in the US. We are coming up on the 150th anniversary of that event later on this year. This actually reinforces my statement in the first sentence of the column that freedom is a rarity in human history. I am leaving this error in the column itself, because it is an instructive error, once pointed out.

In addition to comments here, don’t miss the comments and debate in reaction to my first link to the Quartz column.

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Freedom is a rarity in human history, and still too much of a rarity in the world today. This should be no surprise. Would-be tyrants abound, and it is not easy to establish a system that keeps them all in check. The wonder is that we can celebrate the better part of a quarter of a millennium of freedom in the United States, and comparable freedom in some other lucky countries.

When Dan Benjamin, Ori Heffetz, Nichole Szembrot and I surveyed more than four and a half thousand Americans about what they viewed as the most important objectives for public policy, the top two (of 131 choices) were “freedom from injustice, corruption, and abuse of power in your nation,” and “people having many options and possibilities in their lives and the freedom to choose among them.”

This pairing of responses shows an awareness of the danger to freedom from those who would organize the institutions of a nation to serve the interests of an in-group at the expense of an out-group. At the beginning of the struggle toward freedom, the in-group is very small and the out-group large. At later stages of the struggle toward universal freedom, the in-group will be large and the out-group small. But adding up across the world, it is not at all clear that a majority of the people in the world today can be called truly free.

In international struggles for freedom, the advantage free nations have had in per capita income has helped to keep them from being overwhelmed by a coalition of dictatorships and oligarchies. As Daron Acemoglu and James Robinson argue in Why Nations Fail, the level of economic freedom necessary to enjoy the full benefits of innovation presents a constant danger of undermining the power of those currently in charge. As long as a country is getting up to speed on existing technologies and settled best practices, such dangers can be kept within bounds. But, a small in-group with a toehold on power is loathe to allow a creative adventure into the unknown that could transform the political arena as well as the economy.

The key to the future of freedom in our world is China. Its one-and-a-quarter billion people and high rate of economic growth are the reasons its course is so important to the future:

In the best case, China may evolve toward full freedom, and the full measure of prosperity possible when no one group manages to obstruct progress in order to cling to power.
China may descend into a civil war, with advanced weapons on more than one side of that war.
China may become like Russia under Putin, only more powerful: nominally democratic, but authoritarian and aggressively nationalistic.
China may continue under the rule of a nominally Communist oligarchy as now, but with economic growth gradually slowing (because of the limits to economic liberalization without political liberalization) so that it stalls out at a GDP per person perhaps 30-40% of that in the US—which would still make the total size of its economy significantly larger than that of the US, simply because China has so many more people.

Thus, over a horizon of two or three decades, China is dangerously unpredictable. The last three possibilities—Chinese civil war, a Chinese Putin, or continued dominance by an oligarchy that attacks freedom as a faulty Western conceit—all represent serious dangers to the progress of freedom in the world, as well as to peace. The imperative of raising the likelihood of full freedom in China means that trying to stand in the way of Chinese economic growth is not the answer. And one should remember Berkeley economist Brad DeLong’s question: “Does it really improve the national security of the United States for schoolchildren in China to be taught that the United States sought to keep them as poor as possible for as long as possible?”

If one rejects the fool’s errand of trying to stunt the economic growth of a dangerously unpredictable China, the best course to protect freedom and relative peace in the world is to make the free world stronger: numerically, economically, militarily, and in the quality of life freedom can be shown to provide. On all of these fronts, I worry about what I see as a lack of seriousness by the leaders and citizens of the free world about meeting the challenge of China.

Strengthening the free world numerically

Bringing more people into the free world is easier than it sounds. The key is to focus on people, not patches of ground. Although it is hard to bring a patch of ground currently subject to an oppressive regime under free institutions, the economic importance of land—apart from what is on top of the land—continues to decline relative to the importance of people, education and training, ideas and capital. Once one focuses on people, the answer is clear: bring people to where freedom already rules. That is so easy it is hard to do the opposite. Many people in benighted countries seek freedom and the prosperity that full freedom enables. Standing in the way of those hopes, many otherwise free countries make strenuous efforts to keep those people seeking prosperity and freedom out.

The rhetoric is all about those hoping to join the free world taking away the jobs of those already there. Forgotten is the fact that those hoping to join the free world will also serve in the armed forces and pay taxes to support those armed forces, as well as raise children who will invent the technologies that can help us meet the challenge of China economically as well as militarily. (For the record, the only persuasive evidence for immigrants materially hurting the job prospects of those already here is for them hurting the job prospects of other recent immigrants.)

Despite the relative difficulty of bringing nations closer to full freedom, there is important work to be done in that arena—particularly in solidifying and deepening freedom in nations that are well along the road toward freedom, but need to go further. The people in Turkey recently voted decisively against creeping dictatorship. I agree with The Economist in calling for the European Union to move forward with admitting Turkey in order to solidify those gains. And because of the number of people involved, helping India reach its full potential is of crucial importance for the free world.

Strengthening the free world economically

It is much better to have the democratic tug of war between different groups each looking to get their share of the pie than it is to have one favored group that alone gets its way. But when it comes to strength in a dangerous world, it is the size of the pie that matters most. Economists actually have excellent tools for understanding what it takes to foster economic growth. Monetary policy tools for stabilizing the economy are advancing faster than most people realize.

And although issues of taxation and certain labor market rules continue to be contentious, there is broad agreement among economists about many key measures to foster long-run economic growth: improving education, pouring resources into research and development, and preserving economic freedom: the ability to do new things in new ways without your competitor being able to get the government to stop you. In the area of economic policy, one of the biggest problems is simply the amount of political airtime taken up by a small set of issues that leaves little time to discuss everything else.

Strengthening the free world militarily

Militarily, one of the free world’s successes is now also a weakness. After World War II, great efforts were made to encourage pacifism in Japan and Germany. Those efforts bore remarkable fruit. Anyone who spends any time in Japan or Germany soon learns how deep pacifism runs in those countries now. Japan’s pacifism only affects its own military efforts, but Germany’s pacifism has contributed to pacifism in the rest of Europe. For the rest of the free world, I would riff on St. Augustine by saying “Make me pacifist, but not yet.” Peace is important, but so is freedom. Let freedom triumph; then we can hope to be able to afford pacifism. In the meanwhile, the pacifism of Japan and Germany means that the rest of the free world needs to shoulder a bigger military burden.

Given numerical and economic strength–fostered by more immigration, education, research and economic freedom–there is no lack of ideas for how to turn technological sophistication and military spending into military strength (with all the frightfulness inherent in military strength). A fascinating article in The Economist details some of these ideas:

putting a new generation of autonomous drones in the air and under the sea
lasers and electromagnetic rail guns to protect aircraft carriers against incoming missiles without the huge expense of current anti-missile missiles
making our own communications and computing networks robust to enemy attack, while going after theirs.

For the free world, the objective of military strength is not war, but deterrence. What all scenarios for China’s future hold in common is that China is likely to behave better if it faces a relatively strong American military than if it faces weakness.

Strengthening the case for freedom

When the free world does well, it is much harder for the unfree world to keep out the winds of freedom. But autocracies use every failure of the free world to argue that autocracy isn’t so bad in comparison. In making the case for freedom, good economic policy in the free world goes a long way. But making sure that the benefits of freedom extend to everyone is also crucial.

Some argue that the way to make sure that the benefits of freedom extend to everyone is to expand government social programs. But the use of government power when it is not necessary is itself an affront to freedom, since people are in effect being told to “get with the program” or be thrown in jail. I don’t think we currently know how to get done what needs to be done with a doctrinaire libertarian approach, but we can edge in that direction. People want to help others who are less fortunate. The only thing that stops them from doing what needs to be done voluntarily is concern about the time and resources that might take away from their own families.

So, as I advocated here in “Yes, There is an Alternative to Austerity vs. Spending: Reinvigorate America’s Nonprofits,” it is enough to use the arm of the government to require more substantial charitable contributions, while giving people wide latitude to decide which particular causes they want to support. This can both assist in things the government is now doing, such as taking care of senior citizens and supporting medical research, and begin to take care of things that should be done, but aren’t. With millions of people each required to do something, but allowed to think and decide for themselves what most needs to be done, the odds that the benefits of freedom and prosperity extend into all the nooks and crannies of society improve dramatically.

Finally, though efforts to measure national well-being in ways that respect the full range of things human beings care about are still in their infancy, there is hope that developing such measures as counterpoints to GDP can guide public policy toward ways of improving the quality of life in nations that use them in unexpected ways. Such measures of national well-being might also be used by autocrats to keep those they rule over just happy enough to forestall rebellion, but those rulers would be faced with this truth: people love freedom, and will never be content for long without it.