One instance of this law is the famous, or infamous, Detroit riot of 1967. After the riot various pundits “informed” the public that it had happened because so many of Detroit’s black inner-city residents were poor and hopeless. That became the accepted explanation and, to the extent that anyone remembers it, probably still is. But a close look at the record reveals a much more interesting story—of a government’s police force oppressing people who simply wanted to live their lives peacefully. This is not to say that the people who rioted bore no responsibility—everyone is responsible for his own actions. However, without the police force’s intrusion and without a previous federal program that had destroyed a community, the riot probably would not have occurred. And the evidence for this is hidden in plain sight.

During a five-day period in July 1967, 43 people were killed during the riot in Detroit’s inner city. Shortly after that, President Lyndon B. Johnson created the National Advisory Commission on Civil Disorders—the so-called Kerner Commission, named after its head, then-governor of Illinois Otto Kerner. (Kerner was later convicted of having taken a bribe while governor and served time in prison.) The Commission was tasked with determining the causes of that and other riots during the summer of 1967 and with making recommendations to prevent such riots in the future.

Its 1968 Report of the National Advisory Commission on Civil Disorders made a big splash, selling about two million copies. The report stated that black poverty was a big cause of the Detroit riots, and its recommendations for more government jobs and housing programs for inner-city residents were explicitly based on that assumption. These recommendations, plus the charge of white racism, received much of the publicity at the time and are what most people took away from the report. Publishers make a distinction between book buyers and book readers: The latter tends to be a small subset of the former. That distinction seems to apply here. It’s too bad that more people didn’t actually read the report. The Commission’s own account of the details of the Detroit riot tells a story that is fundamentally inconsistent with the Commission’s own conclusions and recommendations. Here’s the report’s first paragraph on Detroit: “On Saturday evening, July 22, the Detroit Police Department raided five ‘blind pigs.’ The blind pigs had their origin in prohibition days, and survived as private social clubs. Often, they were after-hours drinking and gambling spots.”

These “blind pigs” were places that inner-city black people went to be with their friends, to drink, and to gamble; in other words, they were places where people peacefully enjoyed themselves and one another. The police had a policy of raiding these places, presumably because the gambling and the unlicensed alcohol were illegal. The police expected only two dozen people to be at the fifth blind pig, the United Community and Civic League on 12th Street, but instead found 82 people gathered to welcome home two Vietnam veterans. The police proceeded to arrest them. “Some,” says the Commission report, “voiced resentment at the police intrusion.” Who’d have thunk it? The resentment spread and the riot began.

In short the triggering cause of the Detroit riot, in which more people were killed than in any other riot that summer, was the government crackdown on people who were going about their lives peacefully. For the rioters the last straw was the government’s suppression of peaceful, albeit illegal, black capitalism. Interestingly, in its many pages of recommendations for more government programs, the Commission never suggested that the government should end its policy of preventing black people from peacefully drinking and gambling.

This is par for the course. When a government intervention helps cause a problem, even those people who recognize that the intervention was somewhat to blame rarely call for an end to, or even a scaling down of, such intervention.

The government’s fingerprints show up elsewhere in the Commission’s report. Urban renewal “had changed 12th Street [where the riot began] from an integrated community into an almost totally black one,” says the report. It tells of another area of the inner city to which the rioting had not spread: “As the rioting waxed and waned, one area of the ghetto remained insulated.” The 21,000 residents of a 150-square-block area on the northeast side had previously banded together in the Positive Neighborhood Action Committee (PNAC) and had formed neighborhood block clubs. These block clubs were quickly mobilized to prevent the riot from spreading to this area. “Youngsters,” wrote the Commission, “agreeing to stay in the neighborhood, participated in detouring traffic.” The result: no riots, no deaths, no injuries, and only two small fires, one of which was set in an empty building.

What made this area different was obviously the close-knit community the residents had formed. But why had a community developed there and not elsewhere? The report’s authors unwittingly hint at the answer: “Although opposed to urban renewal, they [the PNAC] had agreed to co-sponsor with the Archdiocese of Detroit a housing project to be controlled jointly by the archdiocese and PNAC.” In other words, the area that had avoided rioting had also successfully resisted urban renewal, the federal government’s program of tearing down urban housing in which poor people lived and replacing it with fewer housing units aimed at a more-upscale market. Economist Martin Anderson, in his 1964 book, The Federal Bulldozer, had shown many of the problems with urban renewal. Even some of Anderson’s harshest critics at the time admitted that urban renewal could be called “Negro clearance.” Indeed, at the time, an even blunter term, also beginning with the letter “n,” was used.

But the Kerner Commission, even in the face of its own evidence, refused to admit that urban renewal was a contributing factor to the riots. Indeed, the Commission recommended more urban renewal. The Commission’s phrasing is interesting, though, because it admits so much about the sorry history of the program:

Urban renewal has been an extremely controversial program since its inception. We recognize that in many cities it has demolished more housing than it has erected, and that it has often caused dislocation among disadvantaged groups.

Nevertheless, we believe that a greatly expanded but reoriented urban renewal program is necessary to the health of our cities.

In short the commission’s antidote to poison was to increase the dose.

But is the sector too small? In an article titled “Yes, American Manufacturing Really Is in Trouble” (Huffington Post, February 11), free-trade critic Ian Fletcher says it is.

To judge whether a sector of the economy is too small, we need criteria. Fletcher writes: “Unfortunately, the only rational standard for how much America should produce is how much Americans wish to consume. Because the only way to consume is either to produce what you wish to consume, or produce something else you can exchange for it” (italics in original).

But if that were the only way, Fletcher should be content—yet he’s not. Why not? Because, as he well recognizes, it’s not the only way, and that’s why he wrote his article. He notes two ways that we consume what we get from foreigners besides selling them goods and services: 1) by selling them assets (these assets are produced, but that’s not what he means) or 2) by borrowing. He objects to both.

He writes: “And this is where American manufacturing is clearly falling short, because America is running a huge trade deficit in manufactured goods, and we don’t produce enough of anything else (raw materials, services) to cover the gap. So instead we borrow and sell off existing assets to pay for imports.”

Fletcher’s ideal is becoming clear: The “right” amount of manufacturing is achieved when the amount the United States spends on other countries’ manufactured goods (and I think he means to include raw materials and services) just equals the amount foreigners spend on our manufactured goods, services, and raw materials. In short, Fletcher’s ideal is a zero trade balance.

He’s almost right that if we have a trade deficit, which we do, we will have to borrow from foreigners or sell assets. Why almost? Because Fletcher leaves out two other possibilities. First is that foreigners will want to invest directly in the United States. Second is that they will want to hang on to some dollars: The U.S. dollar is still the closest thing there is to a world currency.

It’s true that the increases in foreign direct investment in the United States and in dollars held are substantially smaller now than the sale of assets and the increase in borrowing. So let’s grant that most of the trade deficit will be paid for with borrowing and asset sales. What’s wrong with that? In a later article, “The Biggest Bubble of All Has Yet to Pop” (Huffington Post, February 17), Fletcher explains: Americans will own fewer assets. That does seem like a problem, doesn’t it? Let’s dig further.

If the capital stock is growing quickly enough, even if foreigners own more of it, Americans might own more too. It’s true that private investment has declined, something likely due to President Obama and Congress making investors unsure about health care and other regulations in the future. Between 2008 and 2009 the value of the U.S. capital stock fell by about 2 percent. By the end of 2009 foreigners owned about $21.1 trillion of the $48.5 trillion U.S. capital stock–over 40 percent. Sounds scary, right? But it overlooks that Americans own $18.4 trillion of the rest of the world’s capital stock. So the U.S. “net international investment position” was negative $2.7 trillion, or less than 6 percent of the U.S. capital stock. Interestingly, even though “our” ownership of “their” capital is less than theirs of ours, in 2009 “we” made $121 billion more on them than they made on us. That suggests the U.S. government’s data underestimate the value of U.S. investments abroad or overestimate the value of foreign investments here, or both.

Bonds and the Trade Deficit

One of the main U.S. assets that foreigners invest in is Treasury bonds. If the federal government reduced its budget deficit, now running at more than $1 trillion annually, there would be fewer bonds for foreigners to buy. That wouldn’t necessarily cause our trade deficit to fall because if foreigners see private U.S. assets—corporate bonds, for example—as good substitutes for U.S. government bonds, they might simply shift to buying more. Still, private assets are unlikely to be a perfect substitute for government debt, and so reducing the budget deficit would probably reduce the trade deficit somewhat.

It’s also true that if we Americans increased the percentage of our income that we save, we would buy some of those bonds and buy fewer foreign goods and services, again reducing the trade deficit.

Fletcher recognizes these facts. In his February 17 article he writes: “It is indeed true that if we take our low savings rate as a given and ask whether we would be better off with foreign-financed investment or no investment at all, then foreign-financed investment is better.”

But Fletcher doesn’t want to take this low rate of saving as given. He wants a higher rate. Fine. There are two ways to accomplish this. The first is to reduce the budget deficits of the U.S. federal, state, and local governments. In 2009 they totaled a whopping $1.272 trillion, which exceeded net private saving (personal and corporate) of $945 billion. The result: a negative saving rate for the economy as a whole. Have the government spend less, and the net saving rate would probably increase. It’s still not clear, though, that we would manufacture more.

The second way to increase saving and thus reduce the role of foreign investment is for us individually to spend less and save more. Fletcher seems to like this idea, asserting that “domestically-financed investment is obviously better because then Americans, rather than foreigners, will own the investments and receive the returns they generate.” But how can he know whether it’s better for you to buy an iPhone or to put more money in your IRA? He doesn’t. Neither do I. I’m more humble than Fletcher: I want you to be able to choose. Do I trust your choice? Not necessarily. But I think you have the right to make even bad choices.

So what is my criterion for the “right” size of the manufacturing sector? Simple. The right amount of manufacturing is the amount that would be achieved if the government did nothing to distort people’s choices. Let’s focus on getting rid of government distortions and not attack the symptoms, if they are indeed symptoms, of those distortions.

But when some of those same libertarians and many conservatives think about war, their critical thinking skills seem to go out the window. On the principle side, they rarely argue that the U.S. government doesn’t have the right to force U.S. taxpayers to support oppressive dictators in foreign countries such as Kuwait. Why? Because they seem to think the fact that an even more vicious dictator, Saddam Hussein, attacked Kuwait makes coerced funds from U.S. taxpayers morally obligatory. And on the practical side, they tend to drop their skepticism about the consequences of government action. Yet, even aside from any argument based on principle, if libertarians and conservatives were to be as skeptical of our own government abroad as they are of it at home, they would likely favor keeping the United States out of foreign wars. Indeed, as I shall show, there are two reasons we should be even more skeptical of our government’s actions overseas.

One of the strongest practical arguments against government intervention in the domestic economy comes from Ludwig von Mises: One intervention, by causing unintended consequences, leads to further intervention. At each point in the chain the government could back down and deregulate. But governments tend not to do that. Take an example I wrote about in this publication (“Unintended Consequences in Energy Policy,” March 2009, www.tinyurl.com/adv6gm). Richard Nixon’s price controls on gasoline caused a shortage that then led to fuel-economy standards for cars.

The same kind of reasoning applies to foreign policy. In 1963 the Central Intelligence Agency helped a young Iraqi ally who, along with other plotters, overthrew Gen. Abdel-Karim Kassem. His name: Saddam Hussein. Five years later, the CIA backed another coup that made Hussein deputy to the new military ruler. Then, in 1979, Hussein took his turn as dictator.

In 1980 Hussein proceeded to wage a long and costly war on Iran. Interestingly, the Reagan administration supported this invasion with billions of dollars in export credits and with satellite intelligence. Consider how this one intervention led to another.

Why did the U.S. government support Saddam Hussein in his war on Iran? The Iranian government had become an enemy of the U.S. government a year earlier, when Ayatollah Khomeini took over and some Iranians held Americans in the U.S. embassy hostage. Why did so many Iranians dislike the U.S. government? One reason was that in 1953 the CIA had helped depose the democratically elected premier, Mohammad Mossadegh, and reinstalled the shah of Iran. The shah created a secret terrorist police force, SAVAK, that tortured its own citizens and imprisoned political opponents. The CIA helped train SAVAK. The shah also undertook a highly inflationary monetary policy that caused the value of the Iranian currency to plummet. Inflation and torture: funny how that upsets people.

No Laughing Matter

Interestingly, when James Woolsey, former director of central intelligence in the Clinton administration, spoke at the Naval Postgraduate School in August 2003, he addressed the 1953 uprising in response to my question. During his speech Woolsey had stated that the war with militant Islam had begun in November 1979, when some Iranians took over the U.S. embassy. I asked him whether he didn’t think it might have begun in 1953, when the CIA helped depose Mossadegh. Laughing, Woolsey quoted Winston Churchill’s claim that Americans, after doing many wrong things, would always end up doing the right thing. In other words, Woolsey seemed to admit CIA complicity, but dismissed the idea that this mattered because the U.S. government, at some point (he didn’t specify when), had gotten it right.

But Woolsey’s answer evaded the issue: The consequences of the U.S. government’s intervention in 1953 have been horrendous and cannot be laughingly dismissed.

Or take the unintended consequences of U.S. government intervention in Afghanistan. Although the U.S. government now fiercely opposes the radical Muslims who until 2001 ran the Afghan government, it helped put them in that position in the first place. Zbigniew Brzezinski, national security adviser to President Jimmy Carter, bragged in an interview in Le Nouvel Observateur that in 1979 he had persuaded Carter to destabilize Afghanistan’s pro-Soviet government so that the Soviets would invade. In December 1979 Brzezinski got his wish: The Soviets invaded Afghanistan. The CIA proceeded to finance Afghan Muslim jihadis through Pakistan.

Just as the economy is a complex nexus of rights and exchanges with each participant having, as Adam Smith put it, his own “principle of motion,” so it is with whole countries. U.S. government officials—and there are many—who think they can plan another country to make it better clearly don’t recognize these principles of motion. They have what F. A. Hayek called, in his criticism of government intervention in the economy, a “fatal conceit.” And, as we’ve seen with the above-mentioned wars, the conceit is literally fatal.

There are two reasons to think that the consequences of government intervention abroad will be worse than the consequences of government intervention at home. First, the major victims of this foreign intervention will typically be foreigners. Foreigners don’t vote in U.S. elections. Therefore, U.S. politicians will never have to worry about the negative votes of foreigners and will therefore be more destructive than otherwise. Second, when people see the negative consequences of intervention, they, all else equal, tend to turn against it. That’s why people tend to oppose taxes more than regulation: Virtually everyone can observe the wealth lost to taxes. But because most of the obvious consequences of foreign intervention occur abroad, they are less visible to Americans. How many Americans are aware that the CIA helped overthrow a democratically elected prime minister?

War is a government program. Libertarians and conservatives should bring the same skepticism to war that they bring to other government programs.

Something similar may be happening in the United States, not with foreign conquest but with our domestic freedoms. Two freedoms are at risk: The freedom to practice our religion and the freedom to use our property in any way that’s peaceful. This is not new, but what’s different are the people who are putting them at risk. Some Americans have attacked these freedoms because other Americans want to build, on property they have legally acquired, a center that includes Muslim prayer space. The Park51 center—prayer space, athletic facility, culinary school, auditorium, and art studio—would be two blocks from “Ground Zero,” where murderers flew hijacked airplanes into the World Trade Center on that awful September 11, 2001. If the most extreme protesters succeed, they will have limited the religious freedom of Muslims and the right to use property peacefully.

Therein lie two ironies. The first, the kind highlighted by Sumner, is that if these opponents limit Muslims’ rights, they will make the United States a little more like some of the Muslim countries they abhor. A defining characteristic of many Muslim countries is their governments’ intolerance of religious freedom. The 2010 annual report of the U.S. government’s Commission on International Religious Freedom asserts that Burma, China, North Korea, Eritrea, Iran, Iraq, Nigeria, Pakistan, Saudi Arabia, Sudan, Turkmenistan, Uzbekistan, and Vietnam are “countries of particular concern.” Governments of these countries, says the report, “have engaged in or tolerated systematic and egregious violations of the universal right to freedom of religion or belief.” Of these 13, seven—Iran, Iraq, Pakistan, Saudi Arabia, Sudan, Turkmenistan, and Uzbekistan—are countries with majority Muslim populations. The commission also put 12 countries on the “Watch List.” These are places where religious freedom is low, but not as low as the other 13. The 12 are Afghanistan, Belarus, Cuba, Egypt, India, Indonesia, Laos, Russia, Somalia, Tajikistan, Turkey, and Venezuela. Of those, six—Afghanistan, Egypt, Indonesia, Somalia, Tajikistan, and Turkey—have majority Muslim populations.

The second irony is that many of the people most involved in attacking the religious freedom and property rights of Muslims had previously fiercely defended—or at least posed as fierce defenders of—religious freedom and property rights. Radio and TV talk-show host Sean Hannity, for example, has passionately defended religious freedom for Christians. Could this all along have been special-interest pleading on his part because he’s a Christian? Possibly.

Or consider Republican politician Newt Gingrich, who last April mounted a ringing defense of religious freedom. In a Washington Post op-ed Gingrich and Jim Garlow argued that students at the University of California’s Hastings College of Law have the right to set up their own Christian club, with belief in Christianity as one of the requirements of membership. Gingrich and Garlow wrote: “[P]eople of faith are being deliberately marginalized and excluded not for any real misdemeanors but for having the temerity to suggest that there’s an authority higher than school administrators, a truth more compelling than the latest government-dictated cultural doctrine.”

Notice the term “people of faith” rather than “Christians.” A careful reader would conclude that Gingrich strongly believes in religious freedom for everyone. With his rejection of “government-dictated cultural doctrines,” Gingrich sounds like someone who would defend all people of faith.

Neither Property Rights Nor Religious Freedom

Yet just three months later, on July 21, Gingrich wrote: “There should be no mosque near Ground Zero in New York so long as there are no churches or synagogues in Saudi Arabia. The time for double standards that allow Islamists to behave aggressively toward us while they demand our weakness and submission is over.”

Although Gingrich was clever enough to say, “There should be no mosque,” rather than, “The government should not allow a mosque to be built,” his meaning seems clear. By invoking the Saudi government’s intolerance, he seems to be saying that governments in the United States should follow the Saudi model, in this case at least, and not allow the Islamic center to be built. My interpretation is buttressed by how he ends his article:

No mosque.

No self deception.

No surrender.

The time to take a stand is now—at this site on this issue.

On September 10 Gingrich said that President Obama should “tell” Imam Rauf, the Muslim leader who wants to build the Manhattan facility, “don’t do it.”

To add to the irony, who has given a property-rights defense of Muslims’ freedom to build mosques on their own property? None other than President Barack Obama. Obama recently stated: “As a citizen, and as President, I believe that Muslims have the same right

to practice their religion as everyone else in this country. And that includes the right to build a place of worship and a community center on private property in Lower Manhattan, in accordance with local laws and ordinances.”

I would have preferred that Obama drop his qualifier—local laws and ordinances—given that zoning laws and other such ordinances are, as legal scholar Richard Epstein has pointed out, a huge assault on property rights. Still, at least Obama defended these rights.

So here’s where we are. A man who would be president, Newt Gingrich, from a party that in recent years has claimed to defend religious freedom and property rights, the Republican Party, gives up all claim to be a defender of these rights and seems to want to imitate a society whose government is highly intolerant of religious freedom. If Gingrich has his way the Saudis will have won—without firing a shot or even lifting a finger.

Of course, those who oppose the facility do have other options in a free society, including boycotting and picketing. But they do not include using force to prevent it from being built.

The only credible way to defend freedom, the way most likely to lead to its preservation, is to defend everyone’s freedom, not just the freedom of those with whom we agree.

Although he probably doesn’t remember that conversation, I wonder if he remembers the thoughts that caused him to return to the United States. The reason I wonder is that Americans are no longer free to travel by commercial air without showing a government official a government-issued ID. So the freedom that he sought in the United States no longer exists. In an important way, the United States has become Sovietized.

Now before you conclude, “Henderson is off his rocker; he can’t tell the difference between the USA and the USSR,” let me say that I do understand the difference. Governments in the United States don’t oppress us nearly as much as the Soviet government oppressed its citizens. On a scale of oppression where 1 is the least and 10 is the most, the USSR was a 9 or 10 and the United States is, say, a 3. But in 1981, when I took that flight, it was about a 2. Name the civil liberty, and chances are it has declined over that period.

Consider a basic freedom-of-speech issue, the right to organize and petition the government. In parts of the United States that right is under assault. When two or more people in Colorado, for example, join to speak out about a political issue and spend more than $200 to do so, they must register with the state and report all their contributions, even if only in kind, and expenditures. They must also disclose the identities of anyone who contributed money. Better-organized political activists have used this law as a club to go after their political opponents. In 2006, for example, the supporters of annexing the town of Parker North to the town of Parker filed a campaign-finance complaint against the six most vocal opponents and threatened to go after anyone else with a yard sign opposing annexation. Similar legal assaults have occurred against opponents of increased gasoline taxes in Washington state.

Or consider the drug laws. In the 1970s, when police raided a home for drugs, they often knocked on the door and waited for someone to answer. Then they entered and looked for drugs. Today, it’s much more common for them to show up in heavily armed and armored SWAT teams, ready to shoot if anyone in the house makes a false move. Reason writer Radley Balko has written often about the outrages of the drug war. In a May 2010 Reason article, he writes: “I’ve been writing about and researching these raids for about five years, including raids that claimed the lives of innocent children, grandmothers, college students, and bystanders. Innocent families have been terrorized by cops who raided on bad information, or who raided the wrong home due to some careless mistake.”

Enforcement Victims

Fortunately, such incidents are still relatively rare, but that they happen at all is intolerable. Enforcing the drug laws requires such raids because the violators are people engaged in mutually beneficial exchange. In murder or burglary there is clearly a victim, or a victim’s friend or relative, who objects to the crime and therefore has an incentive to report the crime to the police. But when illegal drugs are bought or sold, there is no victim. Whatever the wisdom or folly of exchanging illegal drugs, those who do so believe they benefit. Otherwise, they wouldn’t do it. So one way to catch people who trade in illegal drugs is to surprise them by invading their homes.

The drug laws have also led to other violations of people’s civil and economic freedom. When President Ronald Reagan stepped up the drug war, he started requiring people making purchases with $10,000 or more in cash to fill out a federal form. The government also seizes property that police suspect has been used or earned in the sale of drugs and has carved out an exemption to the Constitution’s prohibition on illegal search.

It’s not as if we get a big benefit from enforcement of the drug laws. Just as the prohibition of alcohol helped create criminal gangs, so does the prohibition of drugs. The nice thing about freedom is that it allows people to either use or avoid using the drug(s) of their choice. And among the tragedies of the drug war are the consequences it imposes on innocent people caught in the crossfire.

As for government restrictions on our freedom to travel by airline, the simple fact is that commercial airlines, even with the risk of terrorism, are by far the safest way to travel. According to Michael Sivak and Michael Flannagan in an article in American Scientist, your chance of being killed in one nonstop airline flight, even with the increased threat from terrorist attacks, is about one in 13 million. To reach that same level of risk when driving on rural interstate highways, which are America’s safest roads, you need travel only 11.2 miles. In other words, you are in about as much danger driving to the airport as in flying from the airport.

Reduced Safety

Why is driving relevant? Because when the government invades our privacy, as it systematically does when we fly, it causes some, especially those who would have traveled less than 500 miles each way, to travel by car instead. What is the unintended, but totally predictable, consequence of this loss of freedom whose stated goal was to make us safer? Less safety. Adding to the irony is the fact that since 9/11, passengers have been quite good at restraining those terrorists who try to blow up airlines. When Richard Reid, the shoe bomber, tried to blow up a flight, passengers restrained him. Ditto with Umar Farouk Abdulmutallab, the underpants bomber on the Christmas 2009 flight heading into Detroit.

Fortunately, there’s some good news, both here and in Great Britain. The Real ID Act, which Congress passed in 2005, requires drivers’ licenses and other state government-issued identification cards to conform to tight federal standards. Many state governments, in a fit of federalism, have said no. That part of the Real ID Act looks to be really dead. And in Britain in May the newly formed coalition government announced that it would scrap a similar plan.

Let’s not stop there. Let’s be able to say, like the Southwest Airlines ads, “You are now free to move about the country.”

Pay attention and you’ll see the ways we’re not free. Some of these predate the 1950s. If you have school-aged children, you can’t legally decide not to send them to school. You can’t, for example, have your 17-year-old kids work in your business instead of attending school. At best, you can home-school them, and even that option is limited in some states. Buying liquor is legal only from a licensed dealer, and in many states, licenses are often impossible to get. Forget about using marijuana or cocaine. If you want to get certain medicines, you must first get a doctor’s permission, even if all he does is listen to you ask him to prescribe it.

But many of life’s daily restrictions on freedom are much more recent. If you go to a restaurant, chances are that it’s one in which a state or local government has banned smoking. In my city of Pacific Grove, California, people can’t buy food at a Taco Bell or a Burger King because the city council decided a few years ago not to let those chains in. The government of New York City banned certain kinds of fats in meals, thus reducing the freedom of producers and consumers who want to produce or consume those fats. If you want to travel by air, the government insists that you get permission from a TSA employee, and to get that permission you must submit to a body search and, maybe soon, an X-ray so that a government employee can see your naked body. And don’t dare make fun of that government employee or you might go to jail.

Significant Gains in Freedom

It’s true that over the last 40 years there also have been major increases in freedom, economic and otherwise. Consider the draft. Americans of my generation, if they were unlucky enough to be male and healthy, knew that when they turned 18, the U.S. government could forcibly put them in the military. During the Vietnam war, in which more than 58,000 Americans were killed, that was a scary prospect. Another major increase in freedom was for black and white people who wished to marry. In many states anti-miscegenation laws were on the books as late as the 1960s.

On the issue of race another major increase in freedom came in the 1960s, when businesses in the southern United States were no longer forced to discriminate against potential customers who were black. This was a major increase in freedom both for businesses and for blacks, who had been prevented from engaging in mutually beneficial exchange. Unfortunately, the U.S. government did not just overturn the laws that had required discrimination but went further and prohibited discrimination on racial grounds. So the discrimination that had been required by law was now prohibited by law. Simple freedom of association was never tried.

There have been other increases in freedom, as well. Until the early 1970s, the telephone company had a monopoly on long-distance service and used that monopoly to set high prices. By the late 1980s much of that government-granted monopoly power had disappeared. Also, a federal agency called the Civil Aeronautics Board (CAB) regulated the airline industry, requiring an airline that wanted to fly between two cities to get permission to do so. Permission was often refused. The CAB also required airlines to file their fares before changing them, and competing airlines could protest these fares and often did so if they were “too low.” Starting in 1978 and finishing in 1984, the federal government ended these restrictions. Although the Federal Aviation Administration still regulates safety, the CAB was eliminated on December 31, 1984. Airlines have much more freedom to enter markets and cut prices, with travelers being the major beneficiaries. There was similar deregulation in surface transportation around the same time.

Recent Losses

But notice that most of the gain in freedom started in the late 1960s and concluded by the mid-1980s. Since then, most of the changes have been toward less freedom. Think of the increasing bureaucratization of life, most of which is due to government. If I want to cut off a tree branch that is more than four inches in diameter–even in my own yard–I must get the city government’s permission and pay for that permission. In the city of Monterey, California, someone who wants to install a new dishwasher must get government permission to do so. I’m sure that few people bother because the requirement is so hard to enforce, but it’s a requirement. Under a law passed in 2008 the Consumer Product Safety Commission warned that children’s books published before 1985 are not safe and cannot be sold unless the seller does expensive testing to make sure they don’t contain lead. This is so even though, as Walter Olson has written, “no one seems to have been able to produce a single instance in which an American child has been made ill by the lead in old book illustrations.”

Credentialism is also reducing our freedom, and one interesting recent illustration was in President Obama’s speech to U.S. schools at the start of the 2009-10 school year. What received the publicity at the time was the controversy about whether it was proper for a U.S. president to address the students and for the U.S. Department of Education to put together exercises for the teachers to conduct after the speech on how the students could help Obama achieve his goals. What went unnoted was Obama’s statement that students should finish high school because otherwise they will not be able to pursue the careers of their choice. Obama gave seven examples of such careers: lawyer, doctor, nurse, teacher, architect, police officer, and military. Why is that remarkable? The reason people need a high school diploma to enter the first five of those seven occupations is that governments require them to. And the reason people need a diploma to be police officers or to advance in the military is not only that the employer requires it but that in both cases, the employer is the government. You don’t need a high-school diploma to write software because the government hasn’t gotten around to regulating that occupation–yet.

Let’s put the truth back in the expression “It’s a free country.”

Yet governments do that computation for countries. Do trade deficits between countries matter? They do, but a lot less than most people think. A high trade deficit is not a definite sign of an economy’s weakness, and a low trade deficit or high trade surplus is not a definite sign of an economy’s strength.

First, let’s define our terms. By the most comprehensive measure, there can never be a balance-of-payments deficit. If we import a higher dollar value of goods and services than we export, then the extra dollars we spend on imports balance that difference, and the net balance is zero.

Of course, when people refer to a balance-of-payments deficit they are not thinking about this comprehensive measure; they’re thinking about a narrower measure—the merchandise trade deficit. This is the difference between the dollar value of what we spend on imports and what we are paid for exports. In 2008, the latest year for which these data are available, Americans spent $840 billion more on imports than foreigners spent on U.S. exports. Offsetting this was a U.S. surplus on services of $144 billion. The net balance of trade on goods and services, therefore, was $696 billion. To put this into perspective, this was about 4.8 percent of the total U.S. gross domestic product.

Where did this $696 billion go? It went to other countries, of course, but most of it came back in one of three forms: 1) foreign purchases of American bonds, mainly government bonds; 2) foreign purchases of other assets such as stocks, land, and property; and (3) so-called direct investment whereby foreigners build plants and equipment in the United States.

Is this bad? Consider each in turn.

1) If foreigners refused to buy government bonds, the U.S. government would need to offer higher interest rates to make holding the bonds attractive to Americans. That would drive up the cost of financing the U.S. budget deficit. We can decry this deficit—and I do—but given that it exists, which is better: having the irresponsible federal government paying a higher or lower interest rate? I vote for the latter.

2) One reason foreigners invest in U.S. stocks, land, and property is that the United States is still a relatively safe haven for investment. Granted, it’s probably less safe than it was before the U.S. government changed the rules with its bailout, the so-called Troubled Asset Relief Program (TARP), and with the so-called stimulus package. But it’s still safer than investing in much of the rest of the world. So rather than being bad, the size of this investment is actually good.

3) The same reasoning applies here. It’s good, not bad, that foreigners find it attractive to invest directly in the United States. It’s especially good for U.S. workers. The more capital there is per worker, the higher worker productivity is and, therefore, the higher are real wages.

Dollars on the Penny

What if the money doesn’t come back in any of the above three forms of investment but, instead, is held in U.S. dollars? That’s even better for Americans. Instead of giving up capital in return for merchandise, we are giving up paper money. According to the Bureau of Engraving and Printing, the average cost of a unit of paper money is 6.4 cents. Because of the production process, the cost is probably higher for a one-hundred-dollar bill, and presumably a disproportionately high number of such bills is held abroad. But it’s still likely to cost under 25 cents to print a one-hundred-dollar bill, and the bills take an average of 89 months to wear out. Getting valuable goods in return for paper money that sells for dollars on the penny is a good deal for Americans. Jay Leno, in a 1980s ad for Doritos, said “Crunch all you want. We’ll make more.” Similarly, if people in other countries hold on to their paper U.S. bills, the Federal Reserve can make more.

But aren’t we as a nation, by spending more on imports than our exporters earn, actually saving less and implicitly giving up capital for consumption goods? Yes, we are. But that’s the result of decisions that millions of us make individually. And it really doesn’t matter, at an individual level, whether we save less to buy imports or to buy domestically produced consumption goods. Either way, we’re giving up capital for consumption. Is this a bad idea? We’re showing by our actions that we think it’s not. We’re showing that many of us value those high-quality Toyotas more than we value the shares of General Motors stock or U.S. government bonds that we could have bought instead. Do you think you’re giving up too much capital for consumer goods? Then spend less and save more.

I mentioned earlier that a small balance-of-payments deficit is not necessarily a sign of economic strength. Between 1980 and 2008, there have been only three years in which the United States has had a merchandise trade surplus: 1980, 1981, and 1991. Those were all years in which the U.S. economy was in recession. That is no coincidence. When economic growth is high, we tend to spend a higher share of our income on imports. The years with the highest merchandise trade deficits also tended to be the years with the highest economic growth.

What about the danger that foreigners will own a large share of the U.S. capital stock? First, it’s not a danger. Even if it happened, it would simply mean that U.S. workers would work for foreign employers. While some of these foreign owners would be worse than U.S. employers, some would be better. Incidentally, during the 1988 U.S. presidential campaign, Democratic candidate Michael Dukakis told workers at a St. Louis automotive parts plant: “Maybe the Republican ticket wants our children to work for foreign owners . . . but that’s not the kind of a future Lloyd Bentsen and I and Dick Gephardt and you want for America.” The problem? The workers he was speaking to were employed by an Italian corporation.

Second, the amount of U.S. capital owned by foreigners at the end of 2008 was $23.4 trillion. But the amount of foreign capital owned by Americans was $19.9 trillion. This difference of $3.5 trillion is only about 7 percent of the $48 trillion total value of physical assets.

To look at the $3.5 trillion another way, it is less than $70 trillion. Why is that relevant? Boston University economist Laurence Kotlikoff says that’s the amount by which the present value of the U.S. government’s future promises to spend exceeds the present value of the government’s future projected tax revenues.

Now that’s something to worry about.

Friedrich Hayek points this out in his 1944 book, The Road to Serfdom. According to Hayek, the right to own land was at one time reserved for the nobility. That was privilege. But the term, he writes, came to apply to anyone who owned property, even though virtually every adult now has the right to own property. We see something similar today. Rich people are called “privileged” even if they earned their wealth without political pull. Those who are poor, on the other hand, are called “underprivileged,” even if their being poor has nothing to do with having less than the average amount of privilege.

There are many examples of privilege all around us. Think of the student who attends a heavily subsidized state university. The university passes on much of the subsidy by charging a low tuition. Who pays for this subsidy? Taxpayers pay, and these taxpayers include people who will never attend a subsidized state university. The students who do attend are privileged. Why don’t many of us think of them as privileged? Because they are not typically wealthy. We have confused wealth and privilege.

Or think of the union member who is paid a wage premium because his powerful union has bargained for high wages. Those high wages discourage employers from hiring as many workers as otherwise. Some of the workers who are priced out of the union jobs work instead in nonunion jobs that pay less. This distinction has become so noticeable in western Europe that economists talk about insiders and outsiders. The insiders are the people working under union protection, many of whom vote for high-wage contracts that cause others not to be hired. Those not hired are outsiders. And why does the union have such power? Because of legal privileges the government gives them. Even in the United States, the government requires that if 50 percent plus one of the nonmanagerial employees at a firm vote for a union, all of that firm’s nonmanagerial workers must have the union as their sole bargaining agent. That is privilege.

Another example of a privileged group, an example that came to light recently, is the approximately one million government employees in California who have special license plates that shield them from toll-booth transponders and red-light cameras. California’s state government has made it easy for its employees to get such license plates and impossible for other Californians to get them. Moreover, according to www.techdirt.com, when the police stop these state employees for traffic violations and look up their records, they find that the drivers are in the “protected” category. Some officers will then decide not to write the ticket. That is privilege.

There are many more such examples. They include hospitals in Illinois, which are protected from competition by a tortuous process that others have to follow to build a new hospital or outpatient medical facility. It was this last regulation, incidentally, that allies of Illinois’s notorious ex-governor, Rod Blagojevich, used to shake down Mercy Hospital.

Regulators’ Privilege

Which brings me to one of the most oppressive forms of privilege: government regulation itself. The regulators, simply by virtue of the discretionary power they hold, have privilege. Their privilege is their power to tell the rest of us what to do and to impose sanctions on us if we disobey.

Although wealth and privilege are not the same, it is true that privilege often leads to wealth. Consider the recent census data on U.S. counties with the highest median household incomes. In 2006 five of the top ten (including the top three) were near Washington, D.C.: Fairfax County, Virginia; Loudoun County, Virginia; Howard County, Maryland; Montgomery County, Maryland (eighth); and Arlington County, Virginia (ninth). One reason for this is that working for or lobbying the government attracts highly skilled people who would likely do well elsewhere.

But a big reason is that many government employees are in the privileged positions of regulators and granters of privilege.

But this is all just semantics, right? Well, not quite. Once we start using the word “privilege” where what we really mean is “wealth,” we start applying this term to those who came by their wealth without special privilege–the Bill Gateses of the world, sure, but also the more-common successful businessmen or professionals who are earning a few million dollars a year down to a few hundred thousand dollars a year and who don’t show up on any “richest people” lists. The vast majority of people who get rich in even a semifree economy such as ours do so by producing goods and services that others value. But because the word “privilege” carries a negative connotation, when we call someone “privileged,” we are communicating, even if unintentionally, that this person came by his money dishonestly. And if you think that this is not a major issue, consider what President Obama’s first budget book, an official U.S. government publication, said about the highest-income people in the United States: “While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at the commanding heights of our economy have not.”

There you have it. After decades of using the word “privilege” instead of “wealth,” we have the ultimate result: a government that is officially hostile to high-income people, whom it accuses, in a completely unsupported claim, of not “playing by the rules.”

There’s one other major problem with the misuse of the word “privilege.” It robs us of the word we need when we really want to oppose privilege. Try objecting to the kinds of privileges I laid out above without using that word. You’ll find your justified outrage blunted. In his novel 1984 George Orwell wrote about how the absence of words to express a thought makes the thought harder or impossible to express. The function of the successive editions of the “Newspeak Dictionary” in 1984 was to take away the ability to express certain thoughts. And the oppressors in 1984 who promulgated the famous “Freedom is Slavery” and “War is Peace” slogans did so to confuse people so that they would cease trying to understand. It’s time to end that confusion and reclaim a powerful word that has been misused by those who wish to reduce our freedom.

But an even bigger problem is the use of the term “fundamentalist.” I understand Christian fundamentalists to be people who, as Bryan Caplan writes in The Myth of the Rational Voter, “ignore or twist the facts of geology and biology to match their prejudices.” So wouldn’t a market fundamentalist be someone who distorted facts to make the case for markets? We can certainly imagine such a person, but I’m not one—nor are many of the people who are strong advocates of free markets. It’s not that I think markets will always work perfectly. It’s just that they work so much better than the coercive solutions that are proposed by those who call me a “market fundamentalist.” Of course, there are times when standard free markets might not work well, but in many of those cases, voluntary charitable activity and simple fellow feeling fill the gap. We don’t think of it as a market transaction, for example, when a stranger in a strange city gives me directions to my hotel. But it certainly is an exercise of his freedom, and it generally works pretty well.

Government Fundamentalists

What should we call people who seem to regard government as the solution regardless of the evidence? I propose the term “government fundamentalists.” How would you identify a government fundamentalist? One characteristic would be a tendency, after the person points out market failures, to argue for government intervention as the solution. Rarely does anyone who proposes a government solution spell out how the incentives will be set up so that the government will actually solve the problem. Even many economists who are strongly committed to free markets will agree that economic freedom can underprovide defense from foreign attackers because of the notorious free-rider problem: Those who refuse to pay will get the same defense as those who pay, giving all an incentive not to pay. The possible result is that national defense is underprovided. But I’ve yet to find an advocate of government provision of defense who can explain how incentives will be set up so that government actually defends us and doesn’t simply engage in national “offense,” picking fights with a dictator in Iraq or a demagogue in Panama, to cite two examples of the U.S. government’s so-called defense.

But given that even some passionate advocates of economic freedom approve of government solutions to problems caused by market failure, we need another characteristic to distinguish government fundamentalists. Here’s the characteristic I propose: a tendency to advocate government solutions even in the face of evidence that those very solutions have not worked.

Take the tax on gasoline. The original idea for taxing gasoline was that users of roads would pay for them. Even at its best, though, the gas tax was not a great solution. The revenues were put in a big pool and politically allocated. There was no necessary connection between where people valued having roads and where roads were built, a connection that automatically would have existed had the revenues been collected with tolls. Tolls, after all, are prices not taxes.

It got worse. In the late 1960s, governments started diverting some gasoline-tax revenues to other uses. The first big diversion was to government-run mass transit that couldn’t survive on its own without subsidies. Later, more funds were diverted for bicycle lanes and lanes on roads and freeways that were dedicated to money-losing bus service. So the whole idea of user-supported roads has been steadily undercut.

Moreover, in response to higher gasoline prices, people have reduced their driving and shifted towards higher-fuel-economy vehicles. Because the federal tax on gasoline is in cents per gallon, revenues fell slightly, from $21.053 billion in fiscal year 2007 to $20.982 billion in fiscal year 2008, a drop of $71 million. In most years, by contrast, revenue grows as the number of drivers grows.

What should be done? If you notice how politicized road construction is, if you notice that a gasoline tax that was supposed to be used only for roads is now used for other things, and if you notice that the shift to higher fuel economy is reducing the growth of revenues for road-building, you might consider a market solution. You might consider taking the issue out of politics, allowing private entrepreneurs to build roads and charge tolls for their use. You might realize that doing so would forever free road construction and maintenance from the vicissitudes of gasoline tax revenues and from the politically powerful governments that grab the funds for their money-losing projects.

More Government Will Fix Failed Government?

But what do many people advocate when they notice this problem? Higher gasoline taxes. If you assume that government solutions are better than free-market solutions, you would naturally conclude that the gasoline tax should be increased. But if you are to avoid being a government fundamentalist, shouldn’t you actually look at the evidence on how well or badly gasoline taxes and government provision of roads have performed? Shouldn’t you also look at the how well or badly toll roads work?

That’s not what many people have done. Take political writer Thomas Frank. In a January 28 article in the Wall Street Journal, “Toll Roads Are Paved with Bad Intentions,” Frank wrote that few state governments “are willing to raise the gasoline taxes which pay for the repairs” to government-owned roads. In other words, Frank sees that there is no necessary connection between the need for repairs and the willingness to raise gasoline taxes. Isn’t this failure to fund roads a strike against government-funded roads? Not in Frank’s mind. He points out a problem with an incomplete system of toll roads: Tolls will price some drivers out, and some of these drivers will then spill over to nontoll roads. But this wouldn’t be a problem if all roads were toll roads. Frank, though, does not consider such a system.

Economist Jeff Hummel recently captured the essence of government fundamentalism this way: If markets don’t work, have government intervene. If government intervention doesn’t work, have government intervene further.

Notice the irony. Many free-market economists like me are quite willing to admit that markets don’t work perfectly and to examine and accept government solutions if their advocates can show how governments can be motivated to actually carry them out. And yet we are called market fundamentalists. On the other hand, many people who call us that are unwilling to change any of their views about the efficacy of government intervention no matter how badly the intervention works. Who are the fundamentalists here?

Start with the Corporate Average Fuel Economy (CAFE) law, which requires each auto producer in the U.S. market to make fleets that average at least 27.5 miles per gallon for cars and at least 20.7 mpg for trucks. (Former President Bush and Congress increased that to 35 mpg by 2020, with no lower standard for light trucks.) That law had the unintended but totally predictable consequence of making cars less safe. The reason is that one relatively cheap way to raise fuel economy is to make cars lighter, and the lighter they are, other things being equal, the more dangerous they are to their occupants. In 1989 two economists, Robert Crandall of the Brookings Institution and John Graham of Harvard University’s John F. Kennedy School, found that, adjusting for the downsizing of cars that would have occurred anyway, the CAFE laws would cause an extra 2,200 to 3,900 deaths over the life of a 1989-model-year car.

But the CAFE law is itself the result of another unintended consequence of government policy, namely price controls on oil and gasoline. President Nixon’s economy-wide wage and price controls, imposed in 1971, did not cause much difficulty at first. But when the Organization of Petroleum Exporting Countries (OPEC) raised the world price of oil from about $3 a barrel to about $11 over a few months in late 1973, Nixon’s price controllers refused to allow refiners to pass on the whole increase in the price of gasoline. The result was a massive shortage of gasoline, with long lines at the pump. Rather than remove the controls, Nixon had government officials start allocating the gasoline by various arbitrary criteria, a process the Ford and Carter administrations continued.

Government officials in the Ford administration and in Congress noticed that American car buyers were not buying as many high-fuel-economy cars as these officials thought they should. In other words, Americans were responding to the artificially low price of gasoline by acting as if the price of gasoline were low! Gee, what a surprise. Of course, instead of removing the price controls, Congress and Ford decided to regulate the fuel economy of new cars—that’s how we got CAFE. Like all regulations, this one bred its own lobby, featuring Ralph Nader and Clarence Ditlow. They had been, until that time, advocates of car safety. But they wanted enforced fuel economy even more.

That’s not the end. One way the companies could meet their CAFE targets was by importing small, high-fuel-economy cars from their foreign production facilities. The United Auto Workers union noticed this and lobbied for—and achieved—separate standards. Auto companies then had to hit the standard with their domestic production and, separately, with their imports. That caused the companies to produce more small cars at home rather than import even successful cars from abroad. According to William Niskanen, the chief economist at Ford in the late 1970s, Ford dropped its Fiesta in the late 1970s not despite, but because of, the car’s potentially large market: Ford feared that its German-made Fiesta would “steal” sales from its U.S.-made Escort, thus lowering its domestic CAFE average.

Moreover, even the increase in the world price of oil engineered by OPEC in late 1973 was in part the unintended consequence of U.S. energy policy. Why? Because OPEC had been formed in response to President Eisenhower’s restrictions on oil imports. As economist Ben Zycher points out, in 1959 the U.S. government established the Mandatory Oil Import Quota Program (MOIP), which restricted the amount of imported crude oil and refined products allowed into the United States. It also gave preferential treatment to oil imports from Canada and Mexico. Two major growing sources of supply at the time were the Middle East and Venezuela. By reducing a major market for Middle Eastern and Venezuelan oil, the import-quota system drove down the demand for that oil, causing its price to fall in February 1959 and again in August 1960.

In September 1960 governments of four Persian Gulf countries—Iran, Iraq, Kuwait, and Saudi Arabia—facing discrimination against their oil, joined with Venezuela to form OPEC. Their goal was to get monopoly power to offset the monopsony power created by the U.S. oil import quota system and thus get higher prices. Although OPEC was at first relatively powerless, by 1973 the governments of eight other countries—Algeria, Ecuador, Gabon, Indonesia, Libya, Nigeria, Qatar, and the United Arab Emirates—had joined. In 1973, OPEC made its move.

From the CAFE to the Mess Tent

CAFE laws and other fuel-economy standards are not the only unintended consequences of U.S. price controls on oil and gasoline. One can even speculate reasonably that these price controls led to two major wars initiated by the U.S. government. The reason is that instead of blaming their government for lines at gas stations, Americans have tended to blame foreign governments—especially the government of Saudi Arabia, the leader of the OPEC cartel and its largest producer. In 1979 President Carter formed the Rapid Deployment Force to train for combat mainly in deserts. President Reagan kept this force and renamed it the U.S. Central Command.

Whatever Carter’s motives or understanding in forming this force, the hardwiring in Americans’ minds led them to associate gas lines with nasty Middle East governments rather than with the nasty U.S. government. That made them more willing than otherwise to support intervention in Middle Eastern affairs to secure the continued flow of oil. Thus when Henry Kissinger claimed in August 1990 that Saddam Hussein’s invasion of Kuwait, if left unopposed, “would cause a world-wide economic crisis,” many Americans believed him. In a Wall Street Journal article that month, I showed that, in fact, the absolute worst harm Hussein could do to the U.S. economy, even if he grabbed Saudi Arabia and the United Arab Emirates, was a loss of less than half of 1 percent of GDP annually. But because so many Americans feared the return of gas lines, they were more open than otherwise to a U.S. attack on Iraq.

Later, in 2003, the U.S. government still had the military capability to invade Iraq. The stated issue this time was Saddam Hussein’s alleged weapons of mass destruction. Still, the fact that the U.S. government had the capability to attack Iraq was due in part to Carter’s buildup of the Rapid Deployment Force.

As poet Robert Burns might say, “Oh what a tangled—and tragic—web government weaves when first it practices to intervene.”