the unintended consequences of economic populism

“POPULIST, n. A fossil patriot of the early agricultural period, found in the old red soapstone underlying Kansas; characterized by an uncommon spread of ear, which some naturalists contend gave him the power of flight, though Professors Morse and Whitney, pursuing independent lines of thought, have ingeniously pointed out that had he possessed it he would have gone elsewhere. In the picturesque speech of his period, some fragments of which have come down to us, he was known as “The Matter with Kansas.””

~Ambrose Bierce

[updated]

General Motors, recently back from the brink of financial ruin, is now ramping up production of 60,000 new vehicles; recalling some 1,350 laid-off workers; and giving overtime to over 10,000 current employees.  And it’s all thanks to Uncle Sam’s Cash for Clunkers program.  In an economy as shaky as this one, with job numbers that seem increasingly bad, this is good news right?

Maybe.

Though I can hardly begrudge someone their job, especially during a recession, I think any time private-sector jobs are resurrected through the voodoo of government subsidies there is real cause for concern.  These programs are bandages only, and do nothing to address the cause of the wound itself.

G.M. and other auto-makers did not have to actually do anything to experience this sudden recovery.  They didn’t need to lower the prices on existing vehicles or renegotiate wages with the autoworkers unions or fire management and bring in new blood.  They didn’t even create a better product.  They just sat back and reaped the benefits of a resurgence of populist sentiment, happy to let the government do the work of the market.

But what will happen when the subsidies end, and management, the unions, and shareholders all discover that their business is one built on sand?  What happens when it turns out this sudden uptick in demand was just an illusion?

This is the trouble with economic populism, which is a very vague term to begin with.  Indeed, economic populism is vague in every sense of the word, a random spattering of popular appeal, strong lobbying interests, and political opportunism.

More often than not, populist demands to tax the wealthy and redistribute wealth are answered with policies that do little to actually redistribute money anywhere other than into the coffers of government bureaucracies or the special interest groups who lobby the hardest.  Efforts to “protect” American workers and businesses only stave off the inevitable.  After all, there is a reason companies need protection, and it’s usually because people have stopped buying their product.  There’s usually a reason for that, too.

Egalitarian measures, however well-intentioned, tend to grow the state but do very little to alleviate the problems with poverty or joblessness.  Higher taxes, more stringent regulations, and the tightening of protectionist policies all benefit the state first and foremost and corporations and special interests next.  American taxpayers are left holding the tab.

If populism really only boiled down to a redistribution of wealth, the story would be entirely different.  As Mark noted recently,

“Government, both in terms of size and power, has grown to the point where it is possible to plausibly connect government intervention to almost any imaginable problem.  But although I believe this general libertarian inclination to point the finger at government for any given problem is correct more often than not, the converse of being able to link government to just about any problem is something that libertarians have a hard time recognizing.  Specifically, if government is now so large as to be able to take the blame for any problem, it is equally true that government is now large and powerful enough to take credit for any good.”

Certainly some redistribution of wealth is used to pay for our defense, our roads, our police and fire departments, and our schools.  These aren’t really the fruits of economic populism, but they are most certainly the fruits of a just system of governance which redistributes wealth for the common good.

The irony, of course, is that as an economy collapses or shrinks, the cries for government intervention into more and more aspects of the economy and our daily lives become louder and louder – from both left and right.  The left calls for equality and justice while those populists on the right call for virtue and limits.  Both decry capitalism as though it were something intentional and inherently unfair, or as something unnatural and corrupting.  And certainly the ethical concerns raised by the populists on both right and left are worth noting and contain a great deal of misguided yet seductive wisdom.  On their face they offer much, but in their substance they deliver very little indeed.

Those on the right who advocate place, limits, and liberty and claim that capitalism places too much emphasis on greed are certainly correct to a degree.  Whenever money begins changing hands the capacity for greed, for shallow consumerism, for the idolatry of money all become very real ethical and moral hazards.  What is left out of the critique is that such hazards are not at all unique to capitalism.  This is simply human nature.  Perhaps in days of yore greed played a more minor role in our lives, but I imagine it was because we were all too poor to be terribly greedy, and didn’t live long enough for words like “shopping” or “leisure” to enter into our vocabulary.  A shallow consumerist culture is impossible if nobody has any time or money.

Then again, that is the virtue of circumstance.  High standards of living make virtue less inevitable, but also more meaningful.  When we are not given the forbidden fruit to begin with where is the virtue in choosing not to taste it?  When we possess free will and a credit card, our virtue comes at a price.  The critique of individualism inherent in these more communitarian arguments also misses a larger point.  It is not so much individualism that is at the root of our modern woes, but entitlement masquerading as individualism.  Nevertheless, these critiques are valuable as mirrors or windows into a world unaccustomed to prosperity.  Culturally we are ill-prepared to meet with our own success and yet, on a whole, technology, prosperity and the other trappings of the modern world have been a huge net gain for society.

Populists on the left emphasize equality and social justice.  These are also very noble causes.  However the state can only help to achieve these goals in a very limited fashion.  Building roads and schools is one pretty good way to go about this; subsidizing the cost of new vehicles is not.  Removing segregation laws is a good thing; raising the minimum wage in the middle of an economic downturn is not.  Temporary safety nets are a necessary fact of life; huge entitlements and chronic welfare are consequences of government excess.  Pointing out that there are corporations gaming the system and bringing them to justice is something we should work toward; casting all corporations as evil and monolithic is just lazy.  At some point the very notion that social welfare programs are best implemented as giant bureaucratic institutions needs to be rethought altogether.  And lest we forget, the economy itself is a natural mechanism by which to redistribute wealth.

In the end, though, populism is dangerous because it is used as a weapon by powerful politicians who appeal not to our intellect or our sense of personal responsibility, but to our sense of moral outrage or victimhood, to pass sweeping legislation that further entrenches the power and stature of big government and perpetuates the crony capitalism of massive bailouts and corporate welfare.  Cash for Clunkers would never have been necessary if Washington had stopped protecting the Big Three automakers decades ago and had instead allowed markets to work organically.  The Big Three would have evolved in order to compete with international automakers like Honda and Toyota, or they would have failed.  Maybe we’d only have one or two big American automakers now, but they wouldn’t be in the dire straights they’re in, and they wouldn’t need a government life line just to remain in business.

Besides, economic populism is simply wrong-headed whether or not its heart is in the right place.  Efforts to restrict the organic nature of the market not only tend to backfire, but also only take a very short view into perspective.  Many localists and protectionists may find their long-term goals will be achieved by the free market, after all.  As fuel prices begin to rise we may very well see a return to walkable communities and more local manufacturing, thanks to the advent of nanotechnology and the high expense of shipping goods internationally.  Travel may become more limited, and mass transit may begin to replace cars and planes alike.

In other words, many of the things I hope for and that drew me for a while toward localism, protectionism, and other critiques of market capitalism, may come to pass anyways, without any meddling at all.  As Daniel McCarthy put it, a while back, “To the extent that I believe any improvements in our world are possible, I think they will almost always be incremental and non-systemic, precisely because the fund of human virtue, even in the smallest, purest places, runs nearly dry.”

Update.

I may have come across as entirely anti-government in this post and I didn’t mean to – as I’ve said many times before, we should not reflexively distrust government; we should have faith that government can be managed well and can help to achieve social stability and a better, more equal and prosperous populace.  We just also need to be realistic about how much of this can really be achieved and what the unintended consequences of government actions might be.  Just because something is morally right, does not mean the effects of acting on it will be the intended effects, or even that we’ll know or understand those effects for a very long time.  Prudence, caution, and limits are all vital.  I believe we have, over all, a pretty damn good government.  But it can all change.  The importance of limits and checks on power cannot be overstated, whether we are talking about war or health care reform.  Power is liquid.  It can transfer itself from one to the other in ways we simply cannot foresee.

See also David Henderson.