Andrews’s venture is inspired by Milton Friedman’s 1962 book Capitalism and Freedom, though Andrews proposes “a better form of capitalism.” It really is a re-imagining of capitalism, thinking not in terms of piecemeal reforms but in terms of a new structure—and this makes the book at once fascinating, stimulating, and frustrating. As a matter of pure policy, I can’t help but wonder if it offers a grand political bargain that would be acceptable to both the right, which would get freer markets, and the left, which would get something akin to a Basic Income Guarantee. Theoretically, everyone would get richer faster in the long run. As I tell my students, I would be a very happy economist if I woke up one morning and this change had been made.
Better than a dog’s breakfast / Andrews’s language is strident in places, but to get lost in this is to misinterpret the kind of book it is. The Vision of a Real Free Market Society isn’t the discussion that happens in the seminar room. It’s the (usually better and more insightful) discussion during the post-seminar visit to the bar. That makes it a lot more fun to read than most academic books.
Brevity requires him to economize on nuance, but I was still surprised to read his claim that capitalism obviously tends toward monopoly, inequality, and crushed hopes and dreams for the poor. He tells us that markets are sources of “unemployment, unnecessary suffering, and environmental degradation.” But I think the preponderance of the evidence suggests that unemployment and “unnecessary suffering” are not market phenomena per se. I think these claims are empirically false and I would suggest that the problem with modern “capitalism” is that there’s not enough of it—or, rather, too much of the market is captured by special interests that are able to profit not from innovation, lower prices, and greater output, but from higher prices and lower output made possible by barriers to entry.
The novelty comes from Andrews’s realistic approach to policy. While I don’t share his skepticism about untrammeled markets, he acknowledges the problems of a lot of government policies on poverty, noting that they come with a whole host of pathologies, inefficiencies, and failures. Is his proposal what most libertarians would see as an ideal social policy for an anarcho-capitalist paradise? Clearly not. Is it better than the dog’s breakfast of “welfare” as it is currently structured? Probably so.
Andrews proposes a novel twist on what we would normally think of as a Basic Income Guarantee or Universal Basic Income. It is, as he puts it, a shot at “exploring how to combine markets with public ownership—but not management—of a large share of the nation’s private capital stock, which is the antithesis of socialism as usually understood.” He proposes moderate social ownership of some of the means of production but not ownership with control. Instead, he proposes that the government own shares in mutual funds that would be privately managed with, presumably, the income from these funds being distributed to the people.
This would have the virtue, I think, of a more equitable distribution of the returns to capital without the distortionary effects of taxes on capital. The requirement that government own shares in privately managed mutual funds also means that the profit-and-loss system is minimally compromised. Given how much money the government spends every year on war, farm subsidies, and so on, it’s difficult to claim “We can’t afford this!” with a straight face.
But I’m not sure how “minimal” this distortion would remain in the long run. I’m not terribly optimistic about our ability to insulate such funds from political control. First, there is the rent-seeking bonanza that will accompany the struggle to become one of the chosen few firms managing the state’s multitrillion-dollar portfolio. Second, I agree with Milton Friedman’s critique of “Social Security Socialism,” namely that government stock purchases would “threaten our freedom” by encouraging large-scale government ownership of private enterprise, even via shares in mutual funds. I doubt that the current Congress—or any Congress—could be trusted to design rules that would insulate the system from overwhelming political pressure. Consider calls for college endowments, state pensions, and TIAA-CREF to divest from oil companies and gun manufacturers. The pressure to direct funds away from politically unpopular and toward politically popular causes would be enormous.
That said, there are examples of at least minimally competent government management of resources. Oil in Alaska and Norway comes to mind, and Andrews’s proposal is especially interesting in light of economists Damon Jones and Ioana Marinescu’s recent finding that distributions from Alaskan oil revenues apparently didn’t reduce Alaskan labor force participation, but also in light of Finland’s recent decision to cancel its Universal Basic Income experiment. As returns on investment in the social trust fund improve, Andrews argues, we can begin phasing out welfare as we know it. I’m less optimistic of this policy change given the enormous stakes some people have in the continued expansion of programs like the Children’s Health Insurance Program, and we need to take very seriously the possibility that this would simply become another add-on for a very inefficient system.
It offers a grand political bargain where the right would get freer markets and the left would get something akin to a Basic Income Guarantee.
Misfortunes, deserved and undeserved / Andrews makes an interesting point in his discussion of the ways in which one’s choices have downstream consequences, but I think he goes too far. He writes, “A middle-aged adult who is poor, or even destitute, because of bad choices made when they were young is, in a very real sense, a prisoner to another person: their former, frivolous, reckless self.” Yes, and I’ve said before that if I could punch one person in history it would be my teenage self. But I don’t think this is a sound justification for redistribution at all. Why, I wonder, should my children and I be held “prisoner” by your “former, frivolous, reckless self”? Andrews doesn’t provide a good answer to this question or acknowledge the ways in which this creates an ultimate problem of concentrated benefits and dispersed costs. Here, the right’s criticisms about virtue and incentives and so on need to be taken more seriously.
Andrews does confront two of the knottiest problems facing the left and right in thinking about the structure of the welfare state. For the left, there’s the inconvenient problem that people respond to incentives, and badly structured welfare infrastructure punishes labor and capital accumulation, subsidizes dissipation, and leaves us all worse off in the long run. We’re worse off financially in that we can’t produce as many goods and services, but we’re also worse off morally in that we make poor use of our gifts.
The problem for the right is that people’s endowments are largely arbitrary. I have worked hard to get where I am in life, certainly, but I also had the good fortune to be born into a two-parent household where my parents loved my sisters and me, stuck together through thick and thin, and made (mostly) good choices. Less fortunate people experience struggles that I simply cannot identify with or empathize. To pretend that what I have is purely the result of my own merit when a lot of it is the result of my hitting the genetic and geographic lottery is unseemly. Justice seems to demand that others’ undeserved misfortunes somehow be corrected.
Interventions or markets? / Here’s a point, though, on which Deirdre McCloskey, the philosopher David Schmidtz, and I would agree: other people are not poor because I am rich. I am not rich because they are poor. Only in a zero-sum world is my good fortune causing another’s misery. Here, Andrews’s claim that the free market obviously leads to crushed dreams rings hollow. Moreover, even if we grant his claim about “the free market’s tendency to lock poor and working people into society’s basement,” economic growth means that from year to year it becomes a much nicer, well-appointed basement with carpeting, a big screen TV, air conditioning, and other amenities.
It’s hardly the case, furthermore, that free markets are guilty of “denying [the unfortunate] access to the keys to survival, mobility, and development: adequate schooling, health care, housing, safety, nutrition, and other vital goods and services.” Last I checked, schooling was dominated by government ownership and provision, municipalities are served by government-owned security monopolies (police departments), and government intervention in markets for health care, food, housing, and all sorts of other “keys to survival” is extensive. Perhaps the free market would do a poor job of providing those goods, but it can certainly be argued in many cases that government doesn’t do a particularly good job.
I’m also less sanguine about the idea that redistribution will lead to meaningful changes in the dynamics of class and status. Gregory Clark’s 2014 book The Son Also Rises shows how we see similar patterns of social mobility across institutional types and time periods. (See “Do Good Names Bring Great Riches?” Spring 2015.) There’s another problem that F.A. Hayek pointed out: dynastic wealth might be the least-bad way for parents to transfer to their heirs. If we get rid of transmitted privilege via financial inheritance, people will look for other ways to secure power and influence for their kids, perhaps by over-investing in or competing wastefully to get into influential social networks.
In this respect, Andrews’s rhetoric sometimes gets the best of him. For instance, he writes, “The sin of the Right, from a left-libertarian point of view, is that the poverty and underdevelopment of some is seen as the necessary price for the wealth and freedom of others.” I don’t know anyone who actually believes that. “Trickle-down” economics is a caricature. He criticizes textbook models of competitive markets by invoking textbook models of incomplete information, monopoly, and monopsony, and he doesn’t grapple with the fact that in all sorts of markets (like health insurance) people are rebelling against efficiency enhancements on the grounds that insurance companies know too much about us.
He writes of the “unavoidable brutality and unfairness of private enterprise economies,” but I think there’s a lot of evidence to suggest that private enterprise economies are the best solution we’ve found to the “unavoidable brutality and unfairness” of a fallen world constrained by limited knowledge and bound by scarcity. And yet I say “Amen!” when he writes, “A capitalist road to economic justice is readily available to the Left once we get over our aversion to markets in general, and find a way around the problems with the labor market,” and “Private property is … an essential precondition for the existence of substantive liberty because it provides each person with the means to carry out their plans.”
Conclusion / This is a captivating and at times frustrating book, hence the embarrassingly long gap between its release and when I submitted this review. It is captivating because it sets aside too-simple ideological narratives. It is frustrating in some of the ways Andrews gets carried away rhetorically. (I’ve been guilty of that myself and as a result of reading Andrews I’ve been looking for the planks in my own eyes.)
In broad outline, I’m onboard with a project like this, but I think the constitutional details are crucial. However, the point of the Routledge Focus series, of which this book is a volume, is not to present exhaustive accounts of every nuanced detail, but to summarize and provoke. The Vision of a Real Free Market Society does exactly that. As welfare reform proposals go, Andrews’s vision of a real free market society deserves a place at the public policy table.
