Good Times, Not Bad, Nurture Enemies of Free Market
The New York Times, "Economic Scene" , September 07, 2000
In a recent speech to economists gathered in Jackson Hole, Wyo., the Federal Reserve chairman, Alan Greenspan, warned that neither continued economic liberalization nor high economic growth was inevitable. Recent productivity gains have been above the norm, he said, driven by the "accelerating application of new insights" in technology. As those innovations reach their limits, he suggested, growth will drop to a lower, historically more normal level.
That slowing, Mr. Greenspan said, could unleash ideological forces for new regulations and protectionism that would, in turn, further depress the economy. Economic liberalization has been popular in recent decades, but opponents of trade, competition and economic dynamism have not gone away.
"Even among liberal democracies, one can still find deep-seated antipathy toward free-market competition and its partner, creative destruction, to use Joseph Schumpeter's now famous insight," Mr. Greenspan said, adding that "should recent positive trends in economic growth falter, it is quite imaginable that support for market-oriented resource allocation will wane and the latent forces of protectionism and state intervention will begin to reassert themselves in many countries, including the United States." (For the full speech, go here.)
Bad times, in other words, may lead to more economic regulation, as people turn to government as a source of security. That was, of course, the New Deal prescription. But nowadays, people are much less likely to see regulation as the path to economic success.
As Mr. Greenspan himself acknowledged, the intellectual consensus about how the economy works has shifted dramatically. Policy makers and the general public now tend to accept freer markets, rather than government intervention, as the way to increase prosperity. Privatization, deregulation, lower taxes, open international markets and reduced government spending are thus more likely to be seen as remedies to economic crises than as the causes of them.
So an economic downturn might not actually have the dire policy results Mr. Greenspan warned of. That's the good news.
The bad news is that the converse is also true: good times don't promote liberalization. To the contrary, in the United States, new regulations tend to come after prolonged periods of prosperity. When times are good, economic restrictions look relatively cheap.
A wave of environmental and consumer legislation followed the sustained growth of the 1960's. And George Bush was aptly dubbed "the regulatory president" by Jonathan Rauch, the author of Government's End: Why Washington Stopped Working
Mr. Greenspan is, therefore, a bit of an optimist. He assumes that as long as the economy is good, freer markets will continue to enjoy support, and economies will remain open to entrepreneurial creative destruction.
Schumpeter himself thought otherwise. Writing in the 1930's, he noted that a successful capitalist economy will nurture freedom of speech, debate and criticism, which are themselves required for entrepreneurship to flourish. But that freedom will, in turn, encourage intellectuals who will aim their criticism at creative destruction itself.
Schumpeter, and the neoconservatives who adopted his views in the 1970's, underestimated the creative, intellectual and romantic impulses behind much entrepreneurship, and they discounted the power and appeal of intellectual criticism aimed at dysfunctional government regulations. But Schumpeter was right to suggest that a market economy will create its own critics. Prosperity isn't enough to protect economic openness. And it's easy to begin to take good times for granted.
By identifying an economic downturn as the likely trigger of a new round of regulation, Mr. Greenspan may be underestimating the effects of boredom, complacency and larger amounts of leisure and disposable income. During good times, it's a lot easier to sell contempt for "materialism" and "consumerism" and for the open economic policies that make them possible.
The New Left, after all, defined itself in the Port Huron Statement not as the voice of the poor but as a movement of the disillusioned and discontented middle class, "people of this generation, bred in at least modest comfort." More recently, the young activists campaigning against global trade are not complaining about economic sluggishness. To the contrary, they see growth as the problem.
"Economic growth, frankly, is leading to a decline in almost every ecosystem on earth," Juliette Beck, an organizer of protests in Seattle and Washington told the television interviewer Charlie Rose. "We cannot sustain this level of growth," she added, complaining that international agencies are "promoting more and more economic growth as a solution; we need to rethink the whole economic system that we're living in."
In an interview with The New Yorker, Ms. Beck, 27, described her prosperous upbringing in suburban San Diego, where "the consumerism was overwhelming." Her activism is not a product of economic desperation but of affluence.
These days, what Mr. Greenspan calls the "deep-seated antipathy toward free-market competition and its partner, creative destruction" comes less from a fear of poverty or lost jobs than it does from a visceral, aesthetic revulsion to technological dynamism and economic growth. The contemporary case for stasis and regulation doesn't depend, therefore, on an economic crisis, or on convincing people that free markets won't deliver the goods.
It's an argument that the goods -- and the creative processes that produce them -- aren't worth having.
That's an argument we're going to hear more often because it's the strongest appeal the enemies of open markets still have. It's a dangerous position, especially for the billions of people who have yet to experience the problems of overwhelming consumerism. But comfortable, affluent Americans also have a stake in defending economic dynamism, which not only preserves and extends prosperity but also fosters creativity, enterprise, and learning. Even the most competent central banker can't protect us from adopting bad ideas.