31 Oct Free Men, Free Markets: What all this has to do with Liberty
Manuscript of speech given to Center for Cultural Leadership – Sept. 17, 2005
I believe my speech topic today is relatively “radical”, at least in the perception of many both on the left and on the right. Truthfully, I find this perception not overly disappointing from those on the left, and positively depressing from those on the right. However, I believe I am going to speak today about a matter of utmost importance to our generation, and most certainly to the many generations will follow us. Not only do I care about this topic as a financial professional, a wealth manager, and a businessman; I care about this topic as a freedom-loving American patriot as well; I care about this topic as a husband and father; indeed, I care about this topic as a devout Christian, in love with the whole counsel of God, as revealed in His Word. It is my contention today that the notion of economic liberty, and free markets, as I intend to define them today, are not mere matters of economic consideration, but truly underlie the very foundation of genuine Christian liberty. My goal today will be to convince you not just that the proper view of these various issues is the pro-free trade, pro-market, pro-corporate business, pro-globalization, pro-voucher, pro-tax cut view (though it most certainly is) … I also intend to connect the dots for you exactly how this pro-economic freedom view is the truly pro-Christian view as well.
The late Robert Bartley’s motto was, “Free Men, Free Markets” … As a key economic advisor during the Reagan administration, the author of the do-not-miss, “The Seven Fat Years”, and former editor at the Wall Street Journal, Bartley was in a great position to actually do something to bring about freer men, and freer markets. He understood freedom, and championed it in his writing and public policy labors. Today, I believe there is an anti-trade, anti-corporate, anti-privatization, anti-market culture sneaking into public life that seeks to destroy at the foundation the notion of “free men”, and “free markets”. Some do this intentionally, with an explicit hatred of capitalism and liberty (think of the anti-corporatist fanatics in Seattle in 1999, rioting to express their hatred of profits and free trade). Many do it inconsistently, such as your typical leftist politician, who campaigns with the rhetoric of “opportunity” and “freedom” and “advancement”, yet advocate policies that are decidedly pro-tax, pro-regulation, and anti-privatization … Finally, and this group disturbs me the most, many do it with a blatant and internal hypocrisy, claiming to advocate limited government, individual responsibility, and capitalistic economics, while inexplicably abandoning these very principles when it comes to issues of trade, the world economic affairs, etc. Pat Buchannan is a glaring example in this category, as he surely is a brilliant writer and thinker, and has much to offer the judeo-Christian thinker in matters of policy and politics, yet has been drunk on the kool-aid of protectionism and isolationism for years and years. We need to do better.
Free trade is nothing more than the belief that businesses ought to be free to trade with any other business partners, regardless of whether or not they are an American trading partner, or a global trading partner. A protectionist seeks to punish those who would import products from overseas by imposing tariffs on them, so as to render the notion economically invaluable. The notion that keeping American businesses from importing their manufactured goods from foreign countries is good for America is derived in two different massively fallacious lines of thinking.
#1 – Looking at the effects only on a particular group of people, to the neglect of other groups
#2 – Looking at only the immediate effects of a plan or proposal, and not considering the long term implications
Henry Hazlitt’s masterpiece, Economics in One Lesson, begins with the brilliant illustration of the broken window fallacy. A group of people observe young hoodlums throw a brick through the window of a bakery. Upon reflection, they begin to comment how good this is for the economy … They note how the local glass-maker will now receive a call to come fix this window, and he will surely be handsomely paid for his labor. That glass-maker will have more money than he otherwise would have had, and he, of course, will spend that money with various merchants in the community. Therefore, this act of vandalism will trickle down into a very wonderful economic event (per the reflections of the observers to the act). Of course, as Hazlitt eloquently points out, the fallacy here, is forgetting that the $250 gain of the glazier, is a $250 loss to the baker. Instead of having $250 and a window, the baker will now just have a window. He will not buy the suit he intended to buy with the $250, and therefore the local tailor will be $250 poorer as well. The fallacy the on-lookers committed is the mistake of only seeing two people involved in the transaction (the baker and the glazier), and failing to see the third party (the tailor). This myopia, and this fallacious thinking, is precisely where the anti-free trade protectionists get it wrong.
There is no doubt that when a Pennsylvania-based manufacturer of widgets loses a job to an Asian or Mexican or South American manufacturer, it has a negative impact on their business. The California-corporation buyer of such-and-such parts or products or goods or [fill in the blank] decides to not spend money with one vendor in Pennsylvania, and instead spends it with a cheaper vendor in a foreign country. The critics of free trade run into this scene, and can not resist the temptation to commit “broken window fallacy” after “broken window fallacy” … They point out how the Pennsylvania manufacturer will have lost needed income, and may need to lay off some of his work force. They point out that the Pennsylvania manufacturing company may now have less profits, less wealth, and lesser quality retirements for its key personnel. The profits, prosperity, and added labor benefit to the foreign company is not our concern, and therefore, we ought to discourage the California firm from buying its widgets from the foreign country, and, in order to protect the interests of the Pennsylvania manufacturer, must be given incentive to keep their business in the United States (code for – “threatened with a tax penalty if they purchase their widgets from overseas”).
The instances of “broken window fallacy” are numerous in this line of thinking … First of all, and most obvious, they neglect the fact that if the California company buying the widgets is purchasing its product at a cheaper price from a foreign company, what lost profits and so forth the Pennsylvania manufacturer experiences translates into higher profits for the California company … If, indeed, there will be job losses at the Pennsylvania company, it stands to reason that there could be job increases at the California company that just reduced its overhead, and increased its bottom line profits. Even if the increased profits are merely retained by the shareholders of the California company, they surely will spend and invest their new–found gains in their own way, seeing economic activity trickle down throughout their communities.
But the larger example of “broken window” fallacy here is this: businesses must compete in order to be successful, and when a business can achieve a cheaper price on what they are paying for something manufactured, that savings inevitably is passed on to the consumer. If a business can gain market share by cutting its prices, it will surely do so; if a consumer can receive decreased prices on what they are buying, there is inestimable value to what that price decrease has done. In other words, the “broken window fallacy” here is a failure to see that what was good the Chinese company we are not concerned with, and good for the California company, and admittedly bad for the Pennsylvania company, is ultimately very, very good for the consumers who buy from the California company. This is a benefit to Americans. It is not a benefit to ALL Americans, in the short term (i.e. the Pennsylvania workers who may need to find new work), but it is good to most.
In a longer time horizon, I also believe that fallacy #2 (regarding the long term considerations of something, as opposed to merely looking at short term effects) plays itself out, and we see that even this temporary setback for the Pennsylvania company becomes all right, as the realities and challenges of competition produce newer and better innovations than ever existed before.
I am taking a long time to make a basic point about free trade: from a purely economic standpoint, it is misguided, and short-sighted, and inaccurate, to believe that foreign and global activity is bad for the American economy … It surely is good for the American economy to see anything take place that increases the wealth of American shareholders, and decreases the prices paid by American consumers. But even apart from the poor economics of the anti-free traders, I believe they are also hopelessly naïve in their very motives and intents. Technological innovations are not unlike foreign competition in that they both have always, and always will, allow for greater advances on a macro-basis, while providing micro-disadvantages to a specific group of people (think of the telephone operators dismissed by computer automated technology). Do we dare suggest that technological innovations be discouraged in the name of protecting just one small and specific group of people? Is not the ethical and responsible thing to do to encourage innovation, encourage competition, encourage price-cutting, and simultaneously encourage the displaced telephone operators to professional reinvention and innovation?
This very long segue about free trade is coming to an end. My real point is to illustrate a very concerning hypocrisy in the camp that would discourage free trade and open markets. Many right wing protectionists such as Pat Buchannan and Howard Phillips oppose a statist welfare mentality, yet abandon these principles in favor of a completely pro-welfare view of the company in Pennsylvania. The government does not exist to take from one entity in order to give it to another. Most conservatives do not believe that their hard-earned money should be involuntarily taken from them to support the needs of an individual who did not work for that money. However, my friends, I would suggest to you that when we advocate taxing those who have (through protective tariffs) to support those who are temporarily wanting (like the Pennsylvania manufacturer), we have done nothing more than advocate a broad view of welfare statism.
As a quick anecdote to this subject, I feel no differently about “outsourcing” than I do about the free trade of goods and products. When former Presidential candidate, John Kerry, referred to the “Benedict Arnold CEO’s” who have outsourced their workforce to India and China in the last several years, I could not help but wonder if he really knew who Benedict Arnold was, and if his wife owned stock in some of these treasonous companies … It is my basic belief that the function of a business that is operating off of Christian principles is to serve its customers, and to make a handsome profit for its stakeholders in doing so. If one will be able to better serve their customers with a lower cost structure brought about by cheaper manufacturing, or cheaper labor, or a combination of the two, than free trade and outsourcing has helped the Biblical function of a business, not hurt it. I can tolerate bad economics in American academia, but when it becomes practical, I become deeply concerned. I am sorry to the computer programmer accustomed to making $150 per hour while wearing his pajamas and working from home, but if an Indian programmer wants to work more hours, do better quality work, and charge less money, it is not only appropriate for an American business to replace you with that Indian programmer; it is the only thing to do. My suggestion to John Kerry and those who think the way he does (both inside and outside of Christendom), is to tone down the rhetoric, and focus on the actual, tangible benefit to stakeholders and to consumers – the very people a business ought to be in the business of serving. To me, a “Benedict Arnold” is not a CEO looking to do the right thing for his company (though I am open to any arguments involving a “Benedict Arnold” being someone who went to Vietnam for four months, and then testified before Congress about phantom war atrocities, and …).
So I believe in free trade, and I believe in a free and open marketplace. I oppose a welfare-minded solution to helping those who are unsuccessful in competing in the marketplace. I encourage a global approach to today’s economic activity, recognizing that competition and innovation are always the cornerstones of progress and prosperity. But where do I get off saying I am “pro-corporate America”? Isn’t “corporate America” the same culture that gave us Enron, Worldcom, and Adelphia? Isn’t “corporate America” to blame for objectionable movies, a dumbing-down of society in the media, and excessive commercials in our TV programming? Isn’t “corporate America” the responsible agent of evil in oppressing blue-collar workers, denying generous benefits to the under-privileged, and committing unspeakable acts of greed and selfishness?
I need to explain a basic economic concept that will guide us well throughout our discussion today. This basic truism will help you a great deal in any economic understanding: There really is no such thing as a corporation. Of course, corporate “entities” exists, in the sense that they have a brand, an identity, a legal standing, a tax id#, and articles of incorporation. But, as far as a consumer is concerned, in all practicality, there is no such thing as a corporation. What does exist, my friends, is a person out there known as a “consumer”. What also exists are people out there known as “shareholders” and “executives” and “officers”. All of these terms apply to individual persons. I am always amused to no end when I hear liberal pundits and misguided economists talk of raising the taxes on corporations, and taking it easy on “the little guy” … I have met thousands of people who use Microsoft, but I have never met a man by the name of Microsoft who will pay the corporate tax on behalf of those users. A raise in the “corporate” tax rate Microsoft pays is nothing more than a raise in the personal taxes the personal users of Microsoft pay – period. Microsoft is run by people. It is used by people. It is competed against by people. It has wealthy owners, and middle class employees, but they are all people. When the Profit & Loss statement is going to be hit with an increase in a “corporate tax”, those people who run Microsoft know that an amoeba known as “the Microsoft goo” does not exist, and if it did would be unwilling to incur the blow to company profitability. The increased expense (i.e. the new tax liability) will simply be passed on to the end user of Microsoft product – the consumer – in the form of higher prices. Corporations do not pay taxes – you and I do. We pay them in the form of higher prices on the goods and services we buy, and we pay them in the form of lower wages at our jobs due to the taxes the company is paying … If you ever want to stimulate job growth, wage growth, and consumer activity, eliminate all “corporate taxes” and see what happens. It would be a different world. It is all too typical of liberals that the solutions they often propose to rid the world of what they perceive as its evils often become snowball add-ons to the very problem itself. A “corporate tax” does nothing to impede the wealth accumulation of the highest paid executives at Microsoft; it simply leaves less money in the pockets of Microsoft users to buy a new suit with …
But even apart from the tax reality, and further manifestation of the “broken window fallacy” in my prior comments about corporations, I genuinely am concerned about the “anti-corporation” rhetoric I hear all the time from those in Christendom and outside of it. A corporation is nothing more than a group of individual people that will receive either the good effects or bad effects of a business effort. Just as I laugh at those that daydream of a Bush 9/11 conspiracy, or are convinced there was an FBI effort to kill children in Waco, or believe that the pictures of Neil Armstrong on the moon are all fake, I can not help but laugh at those who picture a “big, bad evil corporation conspiracy” out there, as if the corporation was anything more than the sum of the parts (i.e. people) who run it. There are evil people at many corporations (just as there are evil people at many farms and compounds and art galleries and churches); likewise, there are many very good people at various corporate business entities. The anti-corporate rhetoric we hear is not only marinated in ignorance and naivete, it is primarily rooted in a far deeper problem than basic economic misunderstanding – and that is the sin of covetousness and envy.
I have rarely heard someone delve into a string of anti-corporate rhetoric when it amounted to anything more than generic violations of the 10th commandment. What is the reality of what the corporate world does in the United States of America (and I am referring to small, medium, and large sized corporations)? Well, besides employing over 60% of the population, and providing over 75% of the gross domestic product, we could choose to point out that it also [voluntarily] provides well over half of the health insurance and medical coverage to today’s U.S. citizens … Besides giving over $1 trillion per year in voluntary charitable contributions, corporate America also provides the infrastructure for well over 100 million Americans to realize their dreams, goals, hopes, and ambitions. The anti-corporate rhetoric we hear comes either from rank hypocrites like Michael Moore and Al Francken, or else it comes from a society that is rooted in envy and bitterness. We ought not to encourage such a mentality in our young people; indeed, we most certainly ought not to have it in ourselves.
So I have stood before you and rambled on about marketplace freedom, lower prices for consumers, free trade, lower taxes, improved understanding of key economic principles, a more enlightened view of “corporate” culture, etc. What in the world does all this have to do with genuine Christian liberty? My friends, I posit to you today that it has everything to do with the Christian life, and Christian liberty.
“Free men, free markets”, as Robert Bartley used to say. But years before Mr. Bartley ever sat with President Reagan, Arthur Laffer, Larry Kudlow, Lawrence Lindsey, and Jack Kemp and roundtable-discussed these basic things I am talking about today, the book of Proverbs said this:
Adding to the various Proverbial wisdoms expressed in these passages, consider also:
• II Thess. 3:10 – “For even when we were with you, we commanded you, if a man will not work, neither shall he eat”
• Exodus 20:15 – “Thou shalt not steal”
• Exodus 20:17 – “You shall not covet your neighbor’s house; you shall not covet your neighbor’s wife; nor his male servant, nor his female servant, nor his ox, nor his ass, nor anything that is your neighbor’s”
• Matthew 25:20 – “So he who received five talents came and brought five talents, saying, ‘Lord, you delivered to me five talents; look, I have gained five more besides them’. His lord said to him, ‘Well done good and faithful servant; you were faithful over a few things, and now shall be made ruler over many things” …”
See, when we read from the Scripture about the philosophy of individual responsibility, of proper preparation and discipline, of honest and fair accounting, of rewards and prosperity for successful business practice and execution, of effective management and leadership, of the necessity to work and prepare in competitive environments, of the sin of taking from one person to give to another, of the sin of wanting what someone else has so badly that we become jealous and covetous, of the need to be good stewards, investors, and entrepreneurs (etc.), we have read about the very implications of free trade, free markets, and free men that I have spoken about this afternoon. The Scriptures have thoroughly provided the foundation for what we need to do, and need to believe, to be good business thinkers. God talks about avoiding unlawful and unethical favoritism, yet the protectionists advocate a policy of favoring a producer over a consumer. God talks about doing due diligence to prepare for potential “winter effects” on one’s business, yet the current environment we live in favors theft (through bailout or tariff or whatever) over personal responsibility and accountability. The Bible wants us to be content with what we do have, and to resist envy and covetousness, yet the current media culture, school system, and even church/family spheres (as a generalization), are made to mock corporate prosperity and success. These things I argue for as economic principles, really amount to very basic, age-old Christian principles of living, liberty, and perspective.
I could speak for many more minutes about the impact the Reagan revolution of the 80’s has had on the economy you live in today. I could bemoan the fact that there are very, very, very few good, well-known, elite thinkers within Christendom that are published in the field of economics and liberty. I could talk through many, many happy hours about my admiration and appreciation for men such as Milton Friedman, Thomas Sowell, Larry Kudlow, and Robert Bartley. I could share with you countless examples within my own career as a financial advisor of the miracles of capitalism and entrepreneurialship. All of these subject matters are of great personal interest to me, and are relevant to a plethora of things in this discussion.
However, as I close, what I want to speak about is a God of beauty, and order, and justice, and compassion, and awe, who has provided us a marketplace of opportunity to pursue our dreams in. He has created us as living agents that, on one hand, must work in order to sustain ourselves and our families physically, and yet on the other hand, get to work as a means of finding our passion, and get to feel the pleasure of God, as the Scottish runner, Eric Liddell referred to it … How dare we interfere with the Proverbial order of curses and blessings; of rewards and punishments; of prosperity and of struggle – by interfering in the freedom of men and markets. May the day come quickly that we not only enjoy the countless blessings we already enjoy in our present freedom in Christ, but further enjoy the uninhibited ability to trade freely, work freely, compete freely, focus privately, function globally, and prosper liberally – for indeed, the latter is but a portion of the former.