Arthur C. Brooks is not only president of the American Enterprise Institute, the right's most influential think tank, he is also among the smartest intellectuals in the conservative world and the author of several thoughtful, well-researched books. When someone like Brooks comes out with a sweeping attack on the Obama Administration, it is worth paying attention. Brooks' new book is entitled The Battle: How the Fight between Free Enterprise and Big Government Will Shape America's Future. A long article based on the book appeared yesterday in The Washington Post.
The article is well worth reading in that it provides chilling evidence that it is not just the Tea Party that has "jumped the shark," as Joe Klein recently put it. The conservative intelligentsia is also unmoored from reality and ever more prone to sloppy, paranoid arguments.
Brooks joins the chorus of those critics who warn that Barack Obama is trying to quash the American spirit and turn the United States into a Eurosclerotic social democracy. But his attack hinges on weak reasoning at nearly every turn.
For starters, the central premise of Brooks' argument - that free enterprise and activist government are incompatible - just does not square with American history. In fact, activist government has routinely propelled free enterprise to ever greater heights. After World War II, government made huge investments in education, scientific research, and infrastructure. American entrepreneurs and corporations benefitted from skilled workers emerging from the new system of public universities, from spinoff products that had their origin in government-funded science research, and from the best transportation system in the world. The GI Bill, a hugely ambitious piece of social legislation, helped to create a modern middle class of consumers and property owners by lavishly subsidizing higher education and home ownership. All these investments were made possible by the highest tax rates in U.S. history, including a top income tax bracket that hit 90 percent. The overall result was the most prosperous and productive period ever seen in the United States.
The stepped up regulation of the mid-20th century was also important to postwar prosperity. Labor regulations, including the right to form unions, ensured that corporate profits were shared generously with workers, which was pivotal to creating a vast army of middle class consumers and home owners. Meanwhile, federal oversight of the financial system ensured the relative stability of this system for decades. The more heavily regulated Wall Street of yesterday focused on aggregating and investing capital, as well as delivering steady return to shareholders - not enriching speculators.
There is no question that Arthur Brooks speaks for a sizeable slice of the business world, which is deeply aggravated by Obama. On the other hand, if government is so antithetical to free enterprise, why do a growing number of business leaders back the Democratic Party? The answer is that many of these leaders, especially in the high-tech sector, keenly appreciate the need for more government - not less - to ensure American prosperity. As I document in my new book, Fortunes of Change: The Rise of the Liberal Rich and the Remaking of America, key figures in the knowledge economy are calling for greater government investments in different areas. Bill Gates regularly gives speeches and congressional testimony asking the federal government to double its spending on basic scientific research, a call echoed by numerous other business leaders who worry that the United States is losing its competitive edge. Gates and other cite a long history of federal research money generating new products and prosperity.
Business leaders have also been on the forefront of calls for new government spending on infrastructure. They argue, with research on their side, that public investments in this area help boost private enterprise and more than pay for themselves. The United States is being left behind by Europe and China when it comes to laying a foundation for prosperity through things like wireless broadband and high speed rail.
Finally, and most obviously, there is a large contingent of business leaders who are pressing for greater investments in education. The U.S. public university system has long been a major driver of economic growth, helping to ensure a skilled work force in many regions of the country, as well as incubating breakthrough scientific research with commercial applications. But now that system is in jeopardy thanks to disinvestment in government. It is not just students and parents who want to stop this trend, but also many in business who understand that investments in education are pivotal to ensuring growth and dynamism in a knowledge economy
Arthur Brooks' dichotomy between government and free enterprise has a strangely dated feel. In a global economy, where scientific research and education are all-important to competitiveness, a strong state is absolutely essential. President Obama clearly gets this, as do many of the knowledge economy leaders who helped put him in office and remain loyal supporters.
The other big fallacy of Brooks' argument is that a less regulated market will produce more moral outcomes. Brooks says that the people who work hard should get rewards and that government regulation undermines this link. Brooks singles out redistributive public policies for special scorn.
But, here again, Brooks is ignoring the real world. The rise of the knowledge economy and off-shoring of much manufacturing has left many hard working Americans in deep trouble. The great virtues of effort and personal discipline no longer ensure a decent standard of living. Some twenty percent of workers make under $10 an hour, and even people earning twice that can find it hard to make ends meet in expensive metro areas. Today, many two-earner households struggle to replicate a standard of living that was easily achieved on one salary during earlier periods. The fact that millions of people work hard and play by all the rules, and yet still fall far short, is deeply corrupting to American values.
All this was manifest before the Great Recession. The situation is only worse now, with unemployment near 10 percent.
Like other conservatives, Brooks is loathe to acknowledge the obvious ways in which post-industrial capitalism has undermined the social contract. Perhaps the reason for this silence is that, once you face the music, it is hard to avoid the conclusion that active government and, yes, redistribution is needed to ensure that work is rewarded. For instance, the Earned Income Tax Credit is now among the largest anti-poverty programs, providing millions of low-wage workers with extra income to correct the failure of the free market to adequately reward hard work. The program is blatantly redistributive, but has nonetheless long enjoyed bipartisan support. The minimum wage is another government intervention that is clearly redistributive, but also very popular with a broad swath of Americans. A number of state ballot initiatives that raise the minimum wage have won overwhelming support in recent years.
Brooks says in his Post article that most Americans - 70 percent, to be exact - back a free enterprise stance. In his telling, redistributive statist policies are being forced on the public by arrogant liberal elites. This is nonsense. If Brooks engaged more honestly with public opinion polls, he would have to report that, sure, Americans believe in capitalism. But they also believe in regulating free enterprise in a variety of ways to spread prosperity around and advance the common good. Beyond the EITC and minimum wage, any number of redistributive policies enjoy strong public support, including progressive taxation, Pell Grants, Medicare, and Social Security. Americans believe in economic freedom, but they also believe in collective responsibility. That hybrid view has undergirded public support for a mixed economy over much of the past century.
Every sign suggests that Obama and the Democrats believe in an American-style mixed economy. Brooks should know better than to charge that centrists like Larry Summers and Tim Geithner - not to mention Obama himself - want to stage a radical departure from this model. Even the Administration's biggest regulatory project, the health care reform, mounted no real challenge to a system of private insurance - despite its abject failure to provide for the common good.
The Obama Administration's economic agenda is actually quite modest: to restore the kind of basic checks on market forces that used to enjoy solid bipartisan support in Washington. If Obama achieves every last item on his wish list, the federal government won't be much larger, and may still be smaller, than when Ronald Reagan took office.
The big change in Washington is not that left-wing zealots have seized the reins of power, as Brooks suggests. It is that the Republican Party has moved so far right that it has come to see mainstream economic ideas as extreme. One would hope that a deep thinker like Arthur Brooks would try to bring conservatives back to reality. No such luck.