This article by Michael Hudson (h/t Zero Hedge) does a nice job of discussing the hijacking of the notions of Free Enterprise or Free Markets. The context is a discussion of the Deficit Reduction Commission and the implication that there are commonly held beliefs about what is the nature of the free market. The general discussion is worth reading, but the highlight for me, which also relates to the just negotiated tax break extensions, is this discussion on financing in times of war.
Smith: Wars should be financed on a pay-as-you-go basis, not by borrowing
If the shade of Adam Smith were to reappear today, he would be equally disturbed by the failure of the Bowles-Simpson commission to address the issue of war debts dealt. Smith’s argument against waging foreign wars was basically an argument that they were not worth the debt burden and the associated taxes to pay interest on it. These payments transferred income from taxpayers to creditors – largely foreign creditors, the Dutch in Smith’s day, Asians today.
Neither Bowles-Simpson nor President Obama acknowledge the extent to which the federal debt – and indeed, most of America’s rise in foreign debt for decades on end – has stemmed from overseas military spending. During the Vietnam War years of the 1960s and ‘70s, the military deficit accounted for the entire rise in U.S. foreign debt, as private sector trade and investment was exactly in balance.
Smith wrote that even a land tax could not finance governments or “compensate the further accumulation of the public debt in the next war.” His argument was that to free the economy from taxes, nations should avoid wars. And the best way to do this was to wage them on a pay-as-you-go basis. Borrowing rather than taxing led the population not to feel the real cost of war – and thus deterred it from making an economically informed choice.
So the Bush-Obama administration has taken a fiscal stance diametrically opposed to that of the patron saint of free enterprise. While escalating war in Afghanistan and maintaining over 850 military bases around the world, the administration has run up the national debt that Smith decried. By shifting the tax burden off property and off rent-seeking monopolies – above all, off the financial sector – this policy has raised America’s cost of living and doing business, thereby undercutting its competitive power and running up larger and larger foreign debt.
Robert Reich also has relevant commentary that provides some statistical information that is relevant to Hudson’s article.
Here’s the real story. For three decades, an increasing share of the benefits of economic growth have gone to the top 1 percent. Thirty years ago, the top got 9 percent of total income. Now they take in almost a quarter. Meanwhile, the earnings of the typical worker have barely budged.
The policy positions taken by the USG in continuation of the policies of the last couple decades and most recently in a bow to the Republican wave, do not represent free market principles. Free market principles would not allow a combination of government policies and market abuses to concentrate wealth so much at the top of the spectrum that the vibrancy of the economy and the engines of small business growth are in permanent peril. A free market would permit creative destruction, promote competition, break up oligarchy and give the average citizen a fighting chance.