Classical liberalism

The Virtuous Discourse of Adam Smith (at the Mercatus Center)

Mark D. White

From the Mercatus Center today comes "The Virtuous Discourse of Adam Smith," a paper by Michael J. Clark, visiting assistant professor at the University of Baltimore:

Recent academic work has attempted to change the interpretation of Adam Smith from the founder of free-market economics to a proponent of something much more akin to the modern welfare state. This paper will attempt to refute those approaches by analyzing Adam Smith’s views on strategic politeness.

The paper will show that Smith advocated an approach for political discussion that utilizes strategic yielding and caution when necessary. Smith related the approach to that of the Athenian official Solon who put forth laws that attempted to be ―the best that the people can bear. The approach can lead one to moderation, non disclosure, or fudging of extreme views. According to Smith, there was virtue in considering and at times yielding to the prejudice of the public.

The cautious nature of Smith’s approach has been misinterpreted in modern literature. Smith’s caution is being taken for mild to moderate interventionist support. While the works and ideas of Adam Smith remain foundational to modern economics the interpretation of Smith is changing. This paper defends the interpretation of Adam Smith as a strong proponent of liberty based on his strategic approach.

Gordon Brown Extols Adam Smith’s Morals

Jonathan B. Wight

Thanks to Sandra Peart, I received a lovely link from Remy Debes at the University of Memphis. 

Remy highlighted this talk on globalization that Gordon Brown gave at NYU in December.  Note:  fast forward to the 30:28 mark and watch the next to six minutes (up to about 36:45).

Brown argues that the 20th century was a clash between governments and markets; the 21st century will be about people seeking moral responsibility in both governments and markets, based on personal responsibility and trust. 

In short, economists need to read the classics in political economy and philosophy, starting with Smith’s Theory of Moral Sentiments

Which sense of freedom represents "The Moral Heart of Economics"?

Mark D. White

Ed Glaeser's Economix/New York Times blog post from yesterday, "The Moral Heart of Economics," argues that a belief in the value of freedom is "at the core of our discipline." While I appreciate that someone of Glaeser's stature and influence is highlighting the role of ethics in economics, I find his claim regarding the universal economic belief in freedom to be weak, simply because he opens the door for so many interpretations of it:

Economists’ fondness for freedom rarely implies any particular policy program. A fondness for freedom is perfectly compatible with favoring redistribution, which can be seen as increasing one person’s choices at the expense of the choices of another, or with Keynesianism and its emphasis on anticyclical public spending.

But that is certainly not the meaning of freedom that many classical liberals (or any libertarians, for that matter) would endorse--which is not an argument against it, of course, but merely points out that proposing freedom as a uniting value among economists does not carry much water if the definition of freedom is allowed to vary so widely.

(HT: Chris Coyne via Peter Boettke at Coordination Problem.)

Keynes on China’s Currency War

Jonathan B. Wight

Whether you like Keynes or not, he had a genuine knack for prescience.  This week President Obama appointed the head of GE to lead the new Council on Jobs and Competitiveness—presumably aimed at fighting off our international challengers, especially China.  This portrays a view of trade as a game of win-lose.

The failure of macro policy to maintain full employment was the subject of Keynes’ book, and here’s a timely quote on trade from the concluding chapter of The General Theory (1936):

But if nations can learn to provide themselves with full employment by their domestic policy… there need be no important economic forces calculated to set the interest of one country against that of its neighbours.

There would still be room for the international division of labour and for international lending in appropriate conditions.

But there would no longer be a pressing motive why one country need force its wares on another … with the express object of upsetting the equilibrium of payments so as to develop a balance of trade in its own favour.

International trade would cease to be what it is, namely, a desperate expedient to maintain employment at home….

Can anyone doubt that China is using trade as “a desperate expedient to maintain employment at home….”?  The question is whether President Obama, in his declarations over the past year, is also heading in that direction.

Keynes on Individualism and Freedom

Jonathan B. Wight

I’m re-reading the final Chapter of Keynes’ The General Theory (1936) to prepare for a seminar class on the Great Recession of 2008.  Aside from Keynes’ push for death taxes and for nationalizing the banking system (!), and aside from the complete manipulation of income taxes and interest rates—okay, if you can get beyond that—here is what he says about individualism and freedom:

But, above all, individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice. It is also the best safeguard of the variety of life, which emerges precisely from this extended field of personal choice, and the loss of which is the greatest of all the losses of the homogeneous or totalitarian state.

So, in other words, Keynes is the great moderate, saving liberalism from the communist threat.  At the macro level all is controlled by the government to maintain aggregate demand at full employment.  But at the micro level markets can work under laissez faire to produce whatever they want to satisfy individual desires. 

Now, there is that one modifying phrase above I’ve bolded:  how do we purge individuals of their defects and abuses?  I suspect Keynes had something in mind like Adam Smith’s moral sentiments:  it would take self control and social norms.  But I don’t know Keynes well enough to say. 

Does anyone else have an answer to that question?

Bourgeois Dignity and Humanistic Economics

Jonathan B. Wight

 You don’t have to wait to get Deirdre McCloskey’s new book, Bourgeois Dignity (2010) to get a strong taste of what’s inside. 

 Found here is a short summary that McCloskey provided last month for Cato Unbound.  The key message is one Keynes would find understandable: namely, that ideas and beliefs are the most important commodities of value, and explain economic success or stagnation.

 While markets give rise to a higher material standard of living, McCloskey attacks economists for adopting a materialist viewpoint.  In the Cato Unbound post, McCloskey calls for the creation of a new science of humanistic economics:

We will need to abandon the materialist premise that reshuffling and efficiency, or an exploitation of the poor, made the modern world. And we will need to make a new science of history and the economy, a humanistic one that acknowledges number and word, interest and rhetoric, behavior and meaning.

 Deirdre’s use of “humanistic” is likely to arouse ire, since “humanistic” economics is associated with E F Schumacher’s Buddhist economics of limited wants (Small is Beautiful: Economics as if People Mattered).  It also is a title by Mark Lutz and Kenneth Lux, Challenge of Humanistic Economics (1979) that develops somewhat similar ideas to McCloskey on the role of a non-materialist approach to economics.

 I think that McCloskey has it exactly right:  to defend capitalism we need to see competitive markets as providing an opportunity for humanistic development in its broadest sense—for self expression, for personal growth, for meaning, and for community connectivity.  The fact that markets also generate higher material standards is quite amazing—but an exclusive focus on this aspect can lead to unfortunate dead ends. 

 What drives entrepreneurship—and what supports its existence among the populace—is something far grander and ennobling than economic efficiency: it is dreams of discovery and the desire for beauty in order.  Not surprisingly(!), this topic is covered by Adam Smith in TMS (IV 1). 

New York City attempts to ban using food stamps to buy soda

Mark D. White

When it rains...

As the New York Times and many other news organizations have reported, New York City mayor Michael Bloomberg (together with New York State governor David Patterson) are petitioning the U.S. Department of Agriculture for permission to block the city's 1.7 million food stamp recipients from using the funds to purchase soda and other sugary drinks.

Of course, this is nothing new or surprising from Mayor Bloomberg, who has already enacted curbs on trans fats in city restaurants as well as increased limitations on smoking (possibly to be extended to city parks and other public outdoor areas). But this recent move is different in that it applies only to recipients of the food stamp welfare program, and therefore is an additional limitation on how state-provided funds may be spent (alcohol, tobacco, and prepared foods are already blocked) (After all, a food stamp recipient may have other sources of cash income which he or she can use to buy soda as well as alcohol, cigarettes, and so forth.)

The obvious argument for such restrictions is that the state--which is to say the taxpayers--are providing recipients with aid to help ameliorate the effects of poverty, so the state is wholly within its rights to limit the use of that aid as a condition of receiving it. Setting aside the classical liberal or libertarian arguments, both principled and pragmatic, against welfare programs, which are not my concern at the moment, one can still question, given the existence of food stamp programs, the ethics of placing paternalistic restrictions of the use of such aid.

If the state is gonig to provide aid to its worst-off citizens, the least manipulative way to do that is to provide cash (such as in Milton Friedman's negative income tax proposal). As a further step, if the state wants to focus on food poverty, it may issue food stamps (actually a debit card now, but the name has stuck) that are limited to purchases of food (and basic household items such as soap), assuming that food will be one of the primary purchases made by citizens in poverty (after housing, which the state also actively subsidizes). This is manipulation and paternalistic, but in the grand scheme of things, it is rather mild.

But one can question if the state goes too far when it narrowly defines what food items are to be excluded, based on what it wants people to consume or not. Note the city's proposed formula (from the linked Times article):

The ban would affect beverages with more than 10 calories per 8 ounces, and would exclude fruit juices without added sugar, milk products and milk substitutes. A 12-ounce soda has 150 calories and the equivalent of 10 packets of sugar, according to the health department. City health officials say that drinking 12 ounces of soda a day can make a person gain 15 pounds a year.

It does not take a prognosticator to predict the maneuvers by the soft drink industry to work around that (such as CAFE standards affected the automotive industry). (And I'm not even going to touch the bit about soda's ability to "make a person gain" weight, as if consumers cannot adjust their exercise and diet routines to accommodate the occasional Coke.) But my main point is the micromanagement involved in such precise delineations of what can and cannot be purchased with food stamps (especially given the other resources, however meager, that may be at recipients' disposal to buy the occasional Coke).

But I must give the mayor credit--he is not shy about his intentions, saying:

This initiative will give New York families more money to spend on foods and drinks that provide real nourishment.

And that's the crux of the issue: the mayor will decide which "foods and drinks provide real nourishment" for the city's 1.7 million food stamp recipients. Of course, he has already made that choice for all New York City residents insofar as he banned trans fats from restaurants. But limiting the use of food stamps is no less paternalistic for the welfare program aspect of the situation; restricting welfare assistance to food is limiting enough, but giving recipients a state-approved shopping list is going too far.

You can't make every New Yorker healthy, Mayor Bloomberg. But you can respect their choices, and let them bear the consequences of their actions. Even a real parent would do that.

James Otteson’s Actual Ethics

Jonathan B. Wight

Although James Otteson's Actual Ethics (Cambridge University Press) came out in 2006, I have not had the pleasure of reading it before now. Otteson provides a nuanced defense of the classical liberal society. There is much to enjoy and think about here, even if you don't find it entirely compelling.

One of my disagreements with Otteson’s analysis has to do with the mild paternalisms that I think may be desirable, even though they create a slippery slope. Previous blogs have touched on this so I won't belabor it here.

A larger issue struck me in the first half of Otteson’s book, however.  In justifying a limited government based on a conception of negative justice, Otteson relies on an argument about respecting personhood. In this conception (summarized around page 109 -- 110) taxes may be collected to carry out the limited functions of government required to bring enforce negative justice or ensure negative freedom. But if someone wishes to opt out of the system, Otteson says he or she should be allowed to, provided that the state withdraws from protecting their freedoms or enforcing their justice.

Otteson’s conception has the semblance of the old west.  If you don’t pay your taxes the state won’t defend your ranch.  So when your family is attacked and your steer rustled off, the state is under no obligation to round up a posse in your defense.  That’s well and good if we all lived out west and externalities were minimal and it were possible to distinguish who paid taxes and who didn’t. 

But are we going to walk the streets of New York with a “T” on our foreheads to indicate to police and medical workers that we’ve paid our taxes?  Hence, there is a huge hole in this particular argument.  Earlier, Otteson criticized the welfare state for creating an incentive structure in which people would reduce their own labor because they would find it advantageous to free-load. Why is that situation any different here?  Why wouldn’t any rational person not pay, confident that in the end that problems of non-divisibility in services would make up for most of it?

In terms of national defense, why wouldn’t people simply refuse to pay taxes and claim that they would “defend themselves” if the country is invaded?  Otteson says they would have to accept the consequences of not having government protections, but the truth is all of society would be less well defended because of it. There are huge externalities produced in national defense and defense spending has the characteristic of public goods. 

To defend the East Coast from terrorist attack we need a Coast Guard and the area to be defended is constant regardless of the number of people paying taxes to support it.  With fewer people paying taxes and going it alone, does anyone seriously think we would have the same desired amount of protection?  Otteson lamely says we should “do our best not to let them free-ride”.  How? By what means?  Given that coercion is off-limits, Otteson fails to address this point.

It is not clear why Otteson would insist that a respect for personhood means there can be no coercion when it comes to raising funds to carry out the legitimate minimal functions of government.

It may be that there is an ulterior motive here in Otteson’s approach – for which I have no evidence – that safely hidden behind our huge barriers of the Atlantic and Pacific Oceans, many Americans would withdraw their support for foreign wars and interventions, shrinking the national defense size of government.  America’s empire is not a project that many Americans would support, and probably not many classical liberals.  However, would classical liberalism even have survived in England if America hadn't intervened in World War II? 

Moreover, if Otteson’s arguments are to carry weight, shouldn't his advice be relevant to countries in Europe or in Asia or in Africa?  Many countries in these regions do not have natural defensive borders and protection from invasion is critical.  If the primary goal of government is to protect the citizens from external harm, it seems odd that citizens should be given a choice.  Defending a nation requires a spirit in which all are expected to contribute, and those contribute greatly are hailed as heroes; those who failed to do their minimum legal share (e.g., paying taxes) are punished.  Social cohesion is greatly diminished without that stick.