My own view is much closer to the second claim than the first. While I recognize the depressing frequency of pork-barrel legislation and numerous regulations that are structured to benefit special interests rather than the so-called public interest, I believe that the broad thrust of policy responds to the desires of the general public. Given this view, I believe that the road to greater freedom in America is to encourage a broader consensus for freedom that will in turn get translated into more limited government via the political process.

While reasonable people may disagree on these differing perceptions of the nature of the American political process, I think it’s undeniable that the average American is considerably more comfortable with an activist role for government rather than a more limited role. Why is this the case? Why don’t my fellow citizens prefer more limited government?

At first glance, liberty should be wildly popular. Each of us loves it and expects it for ourselves. Few of us want to be bossed around or treated like a child. There is a strong human urge to have our own way without restraint, and it starts young. As a parent, I see this desire in action constantly. Simply tell a baby “no” to any desire, be it for more food or something as simple as climbing the stairs, and you can see the desire for freedom in action. If anything, this resentment of authority grows stronger with time. I don’t have teenagers yet, but I hear they’re pretty willful. How do these creatures of desire, these babies and adolescents, mature into voters who support candidates who constantly advocate and implement restrictions on freedom — from drug laws to labor regulations to high tax rates?

There are many explanations for why activist government is not only prevalent in our times but popular. But one answer lies within each of us, working to counteract that same internal force working for liberty. There is one urge that may be equally strong as the desire to have your own way, and that’s the urge to impose your will on others. Again, parenting gives us insight into this urge, but from the other side of the highchair. We want our children to do what we tell them. Parental discipline may be weaker and punishment less corporal today than in past times, but we as parents still spend a great deal of time bossing our kids around or at least trying to.

When our children obey us, we feel good for two reasons. The first is altruistic, but the second is a little less attractive. Yes, we tell our children to stop playing in traffic for their own good. Yes, we refuse them the second ice-cream cone for reasons of health or the creation of self-discipline. But we also try to manipulate our children for our own benefit. We ask our children to quiet down because we’d like a more peaceful home. We tell them to sit rather than roughhousing with each other. We tell them to read this book or that because we want them to be more like us. We send them to bed earlier than they’d like because they need a good night’s sleep, yes, but also because we like a little private time with our spouses.

Power is an intoxicating elixir. One of the secrets of good parenting is restraining the urge to impose authority on our children simply because it is gratifying to have obedient children.

I’m not suggesting that we should indulge our children in order to let them enjoy freedom. I’m arguing that even the best of parents resents a child’s disobedience. We don’t like having our will thwarted as adults any more than we did as children. One challenge of being a parent is not to impose our will on our children just for the sake of being in control. This desire for control and the seductiveness of power can conflict with what is best for our children.

And of course, this phenomenon of imposing our will on others doesn’t stop at our children. We want our spouse to act in ways that we deem desirable, our co-workers to recognize our wisdom and act in ways that we feel is best for the organization, and so on. We even want people to vote the way we do and support the policies we think are best for the country and the world.

The Public Arena

The conflict between the desire to be free and the desire to impose our will on others plays itself out in the public arena. We want our Scotch, but think it right to make cocaine illegal. We want to go skiing, but we force others to wear their seatbelts. We want to eat our ice cream, but think it’s okay to ban smoking.

Mencken defined Puritanism as the haunting fear that someone, somewhere may be happy. A paternalistic government plays into the Puritanism most of us harbor somewhere deep inside. Not content with mere disapproval, we use force via the political process to restrain others.

Next time you’re in the grocery and you see a stressed-out mom or dad screaming at the kid who naturally wants to play with the candy at the check-out line, you’re seeing the roots of big government.

For normal human beings and decent parents, those grocery-store-type moments are few and far between. Love restrains us from indulging our urge to boss our children around for our good rather than theirs. Love for our children encourages us to let them begin to make their own choices as they grow up and head toward adulthood.

I long for a world where we show the same restraint in the political arena. One way to get to that world is to remind our fellow citizens of the virtues of adulthood. As an adult, I make my own decisions and deal with the consequences. Why do we want a political system that treats us like children?

The occasion was an evening of entertainment sponsored by the Institute for Humane Studies (IHS). IHS was trying out a new approach to communicating the virtues of liberty and free markets. It had rented the gallery for the night and put on display work by Morgan Ashcom, a fine-arts major at George Mason University who is interested in liberty and economics. Morgan spoke briefly about how he had become interested in economics (he credited a phenomenal GMU teacher—Tom Rustici) and described the work that was hanging nearby—a set of photographs surrounded by notes from classic works on liberty (quotes from Hayek, Friedman, Sowell, and others), along with a sculpture and a short film that both captured the power of liberty and the threat of totalitarian oppression.

Morgan was followed by Ben Parizek, who sang folk songs he had written about the virtues of spontaneous order and the lack of virtue to be found in the life of Che Guevara. Both Morgan and Ben were very inspiring. I closed the evening with a reading from the book I’m currently working on.

The event was marred and enhanced at the same time by an unscheduled speaker. After Morgan had finished describing what he was trying to achieve in his art, he asked if anyone had any questions.

A man in the back of the room raised his hand and was recognized. Rather than ask a question, he proceeded to make a speech. He opened by making a few brief remarks about Morgan’s dedication and persistence in making sure the works were presented the way he intended them to be seen. It turns out he was the owner of the gallery. He explained how he and Morgan had spent hours hanging the photographs to make them look appealing.

Having expressed his respect for Morgan, he launched into what can only be described as a diatribe against the ideas that Morgan was trying to portray, particularly concerning capitalism and the way it treats the poor. He wanted us to know that the quotes surrounding the photographs were dangerous—they might lead people to think that capitalism was a good thing. It wasn’t, he explained. Americans, especially the poor, were oppressed by corporations and capitalism. Besides, he added, America wasn’t a capitalist country anyway. He also wanted the assembled people to know that capitalism required unemployment of at least 6 percent (I think that was the number he chose) at least until Bill Clinton showed how it could actually be less than 4 percent.

It was a fascinating and awkward moment. Most if not all the people in the audience were passionate believers in free markets. How would they respond? Would they shout the man down? Angrily denounce his comments with their own diatribes? Politely disagree and marshal the case against the views he had outlined?

We did nothing. We said nothing. I quietly ignored the counterarguments and facts that leaped into my mind. Others must have done the same thing. The organizer of the event thanked the owner for his comments and went on to the next raised hand. It was as if the interruption hadn’t happened at all. I suspect that the decision by each of us individually to refrain from responding was a combination of politeness and pragmatism. There was no need to voice a defense of capitalism—those arguments spoke loudly through the words and pictures that Morgan had so artfully combined.

For me the episode was also a reminder of how far we have to go in clearly explaining economics and claiming the moral high ground for liberty. Here was a guy who had spent a lot of time with this talented and thoughtful student. And yet he viewed his artwork as dangerous. Here were these photographs surrounded by the words of Hayek, Friedman, and Sowell, and they had no impact on opening his mind to an alternative worldview.

In a way it was the ultimate compliment to the artist. The owner of the gallery viewed the art as being sufficiently provocative that it had to be denounced. I was also reminded of the graduate students in social work I had once taught who also believed that capitalism needed a reserve army of unemployed to function—a strange view that misunderstands how unemployment is defined and measured in government statistics. Theirs was a Marxist interpretation that presumed that everyone who was measured as unemployed was desperately out of work for a long period of time. In fact, zero unemployment is essentially impossible the way government defines it—anyone who is looking for a job and doesn’t find one immediately is defined as unemployed.

Interestingly, we all shared one point of complete agreement—that America was not a true capitalist society. The disagreement was over where to go from here—toward more freedom or away from it.

Lots to Do

But the real lesson I took away from the evening is how hard it is get people to understand economics. We have lots to do, and we need more Morgan Ashcoms and Ben Parizeks, people who work outside the printed page, our time-honored medium for explaining how markets operate and the virtues of freedom. Books and articles and words are wonderful, and we need more of them. But they do not speak to everyone. To reach a wider audience, we need more art exhibits, more folk songs, more rock songs, more operas, and a lot more movies. Maybe if that gallery owner knew a few more Morgan Ashcoms and listened to a few more Ben Parizeks, he might be able to imagine that at least those of us who long for an America with more economic freedom are not monsters to be denounced.

This is my last column as a regular columnist for The Freeman. I’ve been doing this for seven years, and it’s time for me to move on to other things and to give someone else a chance to put this space to good use. I’ve enjoyed talking with you, the readers of The Freeman, and hope you’ll stay in touch. And I’m grateful to both Beth Hoffman and Sheldon Richman for wonderful editing over the years, and to Don Boudreaux, who got me involved in the first place.

What does the future hold for economic life in the United States? Will we move toward greater freedom or less? What role will ideas and rhetoric play, if any, in making sure that the direction is one that lovers of freedom prefer?

One way of looking at American economic policy in the twentieth century is that Keynes held sway over economic policy for the first 50 years. In the second half of the twentieth century, Milton Friedman and F. A. Hayek held the upper hand. In the first half of the twentieth century the dominant president was FDR, who centralized economic power. In the second half of the twentieth century the most important president from the perspective of economic policy was Ronald Reagan, whose advocacy of smaller government and antipathy to the Soviet Union spread the use of market forces in the United States and beyond, to Eastern Europe and Latin America. One could argue that the increased market orientation of the Chinese economy is part of this trend. In this story of the twentieth century and the future, the glass is half full.

But perhaps the glass is half empty. Government spending continues to grow. The limited government that Reagan espoused was more rhetoric than reality— the era of big government is clearly not over. In fact, government continues to grow and at an increasing rate of late. Even the rhetoric has faded now; few politicians seriously advocate real economic freedom. Even George Bush’s plan for “privatizing” Social Security required forced saving administered by the government.

So what’s a classical liberal to think? Is there any reason for optimism? My colleague and blogger extraordinaire Tyler Cowen thinks not, at least in the short run:

My prediction is that, in general, welfare states will increase in size in most places around the world. We can expect most areas of the world to become wealthier because of globalization as well as other reasons. And if you look at countries that are wealthy, they tend to have very generous welfare states. Also, I believe that the human desire for security is extremely strong, even when it is not efficient or rational. So as long as we experience economic growth, I think we can expect welfare states to grow. (“Interview, Tyler Cowen,” Region Focus, Winter 2006)

Tyler seems right. All evidence points to an increasingly centralized world, a world where taxes are higher, where welfare states are bigger, where individual liberty, at least economic liberty, is smaller. And the fundamental reason is that as we get wealthier, we buy more of the things we like. One thing we like is security. When you’re poor, a risk-free or less risky world is a luxury. When you get richer, you take more care and caution because you can afford to.

This effect of higher incomes on behavior is one reason, I suspect, that parenting today isn’t what it used to be. We make our children wear bike helmets; we program them so that they don’t roam freely in the neighborhood; and we discourage risky activity in a way previous generations never did. That desire for security and less risk funds the welfare state in America. That desire for security and less risk creates a seemingly never-ending demand for protectionism.

That desire for security and less risk creates the nanny state—the regulatory environment that makes seat belts, tobacco, cocaine, and prescription drugs the government’s business when it should be mine and mine alone.

If Tyler is right, as other nations get wealthier, they will become more like the United States in how they treat risk. The increased wealth will create a demand for regulation just as it has in the United States. And future growth in the United States will create even more paternalistic regulations here.

Could be. I might even wager that Tyler’s right. But I hope he’s wrong. And I can imagine at least one route to economic freedom, despite all the trends running in the other direction.

As we get wealthier, we do want more safety and security. That trend isn’t going to change. But why do that safety and security have to come from the government? Why can’t we get our safety and security from private, voluntary sources? The obvious answer is that that trend is also running in the wrong direction—we turn increasingly to the government for achieving the goals of security. We’re further from abolishing the FDA than ever before. We’re banning smoking in private restaurants in some cities and more are on the way.

But on the positive side, we’re closer to abolishing Social Security than ever before. Not very close, admittedly, but closer. True, President Bush’s privatization wasn’t real privatization, but it was closer to real privatization than expanding the government’s role in Social Security.

As we get richer, two things affect the Social Security debate, both trending toward freedom. First, money coming from private assets will increasingly dwarf those government Social Security checks. And that’s even before the system has to cope with the baby boomers, putting downward pressure on benefits. When people talk about the “riskiness” of private Social Security, they conveniently ignore the fact that half the American people own stocks and they like it. An increasing proportion of the American people already controls their retirement money through their own decisions.

The proponents of government-provided retirement always raise the specter of people starving in the street by their myopic failure to save for retirement or simply from bad decisions. But why can’t private, voluntary charity take care of those who struggle? The skeptic responds that there’s a free-rider problem—people simply will let others take care of the unfortunate. Too many people will step aside to let others take up the burden, and as a result, there won’t be enough money to help the poor. We need government, they argue, to tax everybody to provide for the poor elderly who won’t have the foresight or the good fortune to be self-sufficient.

Overcoming the Free-Rider Problem

But as America becomes wealthier it will be easier to overcome the free-rider problem to bring the poor out of destitution. That increases people’s willingness to try a private solution for taking care of the elderly.

There’s a fly in this ointment of freedom. As we get wealthier we’ll also have higher standards for what it means to take care of elderly people who are poor. That will push some Americans to keep favoring coercive government solutions. But if enough wealthy Americans fund those private alternatives to government, maybe we can show people that private solutions can actually work.

Call it an end run to freedom. We’re already seeing this strategy with educational reform. Instead of waiting for enough Americans to tire of the failure of the public school system and pressure politicians to support vouchers, people have turned down the “free” public schools and home-schooled their kids or sent them to private schools.

And some people have funded scholarships for poor kids to go to private schools. Yes, there’s a free-rider problem. But enough people give anyway to make privately funded scholarships a real way to show people that vouchers work, or even better, that we don’t need government schools.

As we get wealthier, these private end runs around the heavy hand of government are easier to fund. If we keep fighting the good intellectual fight and making the moral and analytical case for freedom, the end runs can help us market the virtues of freedom to the skeptics. We’ll never reduce the demand for security and safety. But maybe, just maybe, we can establish the superiority of private, voluntary solutions to government solutions.

Despite this track record, despite the mildness of the three recessions in the last 25 years, you might think from reading the papers and listening to people talk that the economy was balanced on a knife edge, ready to fall any minute into an abyss of failure.

There is always a massive threat to our economic security. Not something mildly troubling. Not something that is merely annoying. No, there’s always an enormous threat to our very wellbeing, a force that threatens to overturn decades of progress and plunge us back into the economic stone age. To hear the worriers talk, you’d think we’re at risk of returning to the Middle Ages, or to pre-New Deal America circa 1929, a world of abject poverty and mass unemployment.

There are two types of threats that show up in the media. The first is the foreign threat. In the last 25 years one nation after another has been identified as threatening our standard of living and economic system.

First it was Japan. It was stealing all our automobile jobs, maybe all the other good-paying jobs too. Then Japan went into a nosedive of recession followed by stagnation. When it became clear that Japan wasn’t getting up off the canvas, it had to be replaced by a different foreign villain.

With NAFTA up for consideration in the early nineties, the choice was easy. Canada. Oops. Canadians don’t scare people. So when NAFTA was in the news, the Canadians wouldn’t do. Had to be the Mexicans.

We were told that the Mexicans, because they had lower wages than Americans, would suck jobs south like a magnet draws iron filings. Soon, all manufacturing jobs would be gone and we would be left doing one another’s laundry.

NAFTA passed and nothing happened. The threat of Mexico was completely forgotten and placed in the Hall of Shameful Economic Ignorance next to the Japanese threat.

Next up: China! The Chinese are really scary. America runs big trade deficits with China. Just like Japan. People forgot that those big trade deficits with Japan hadn’t hurt America at all and that Japan’s economy was floundering. China with its billion people was going to steal our jobs and turn the American economy into a giant laundry or cosmetic counter or fast-food restaurant. China was definitely a threat.

In the middle of the Chinese worry, a new one joined it, creating a two-headed monster. First, the Chinese were destroying all the manufacturing jobs. But the new threat was outsourcing. Outsourcing was going to destroy every job that paid more than a pittance. The economists naively argued that trade creates wealth and that the manufacturing jobs would be replaced by new jobs in sectors where we were even better than manufacturing. Well, now look what was happening, according to the worriers. The high-tech, knowledge jobs that were supposed to be the last refuge for American workers as manufacturing disappeared were being stolen by Indians.

What a combination! China and India. Almost two billion people. Never mind that a lot of the jobs the Indians were “stealing” weren’t high-tech at all. They were call-center jobs. But even the call-center jobs were part of the service sector, part of what we were supposed to be good at once we gave away all our manufacturing jobs. India and China could steal our meager 130 million jobs in a few months.

The outsourcing hubbub reached its peak in the election of 2004. Once the election was over and the economy kept growing, the issue fell out of news. The tech sector, it turned out, was doing just fine. Tech-sector jobs were actually growing American web designers and network installers and database whizzes still made more than their Indian counterparts, but somehow, not all the American jobs went to India. The whole thing turned out to be a molehill rather than a mountain.

When Americans stop worrying about foreign threats, they turn inward and worry about domestic ones.

The usual worry is that a very successful American company is ruining the economy. For a while, it was Microsoft. (Actually it used to be IBM,but that goes back 30 years.) Then when Microsoft got fat and happy and looked less dangerous as the Internet vied with the desktop for computing power, Google started to scare everybody. Google is running everything! It’s got the search engine most people use. Soon it’s going to own all the books, and the next thing you know, it’ll have all the e-mail, and so on and so on. For a brief moment, AOL-Time Warner was going to rule the world and control all the news and soon we’d all be captive to one megacorporation controlling what we read and saw and knew. But the AOL-Time Warner scare just didn’t have the legs.

The Wal-Mart Threat

People are still worried about Google. But the new threat is Wal-Mart. It’s pulling down wages all across America. How is it that by creating a demand for low-skilled workers Wal-Mart is lowering wages? Never could figure that one out. People forget that when low-skilled workers worked at mom and pop general stores on Main Street, we had low wages and high prices. Now we have low wages and low prices. I know which is better for America and its poor.

To hear the worriers tell it, soon we’ll all be working at Wal-Mart making lousy wages with no benefits, selling low-priced foreign goods to one another.

It’s always something. Something to scare people who do not understand how trade really works, how markets work, or how wealth gets created and spread. You’d think that the abysmal track record of the worriers would dent their credibility. But it doesn’t seem to.

People are just as worried about Wal-Mart as they were about Japan. As my colleague Don Boudreaux likes to point out, economists will always have work to do explaining how the economy really works.

There are no supply and demand curves in the real world. Yet supply-and-demand analysis is a powerful framework for organizing one’s thinking about how changes in behavior ripple through the economy, leading to changes in prices and in turn affecting the choices made by buyers and sellers.

F. A. Hayek, in his classic 1945 article from the American Economic Review, “The Use of Knowledge in Society” (available at www.econlib.org/library/Essays/hykKnw1.html), described how the change in price in response to a change in demand or supply conveys information and induces buyers and sellers to respond in ways that would be difficult if not impossible to achieve in a centralized, hierarchical situation:

“Assume that somewhere in the world a new opportunity for the use of some raw material, say, tin, has arisen, or that one of the sources of supply of tin has been eliminated. It does not matter for our purpose—and it is very significant that it does not matter—which of these two causes has made tin more scarce. All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere and that, in consequence, they must economize tin. There is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply.”

Yet out in that real world, do prices really play the role that Hayek and other economists claim?

People eat more pizza on Super Bowl Sunday than on any other day of the year. I suspect people also eat more hot dogs and chili on that day. I’d also guess that beer sales are in the top five along with New Year’s Eve, July 4, Memorial Day, and Labor Day.

But despite the massive surge in demand for pizza dough, hot dog buns, and beer on that single day, the prices of those items are no higher on Super Bowl Sunday. If anything, they’re lower than usual as grocers and others try to attract customers.

How do we reconcile this phenomenon with the standard textbook understanding of supply and demand? Increases in demand should lead to increases in price.

The simple answer is that pizza dough and hot dog buns can be stored. The dough and the buns can be frozen with little loss of quality. If the price were high on Super Bowl Sunday, there would be an arbitrage opportunity, an opportunity to make money by storing supplies when demand is low and selling them when demand is high. This storage opportunity smoothes the prices so that the day before and the day after, they are roughly the same.

This story is okay as far as it goes, but it points to an insight about markets we frequently ignore in teaching supply and demand—the role of inventory in smoothing price fluctuations in the face of shifting supply and demand whether predictable or unpredictable.

My George Mason colleague Walter Williams says it better than I can: “Here’s my relationship with my grocery store. I don’t tell them when I’m coming. I don’t tell them what I want to buy. I don’t tell them how much I’m going to buy. But if they don’t have what I want when I show up, I fire ’em.”

This is our relationship with most suppliers in the modern American economy. We expect the shelves to be stocked, and they usually are.We pay a small ongoing premium for this availability. The carrying costs of those inventories aren’t free. But we prefer paying that premium to finding empty shelves and incurring the time costs of finding the product somewhere else.

Inventories are a way sellers compete by providing the certainty of availability. As Williams’s story illustrates, this form of competition doesn’t confer a competitive edge. Rather, it becomes a necessity for a firm that wants to stay in the marketplace.

In recent years part of the success of big-box retailing is a story of the power of inventory and availability. Book lovers prefer the 100,000 titles carried by Borders and Barnes and Noble to the charm of the smaller independent stores. Home Depot and Lowe’s have driven smaller independent hardware stores out of business with lower prices. But the range of available products is a huge part of their success as well.

So are all those professors wasting their students’ time teaching them a tool, supply and demand, that is only a curiosity?

No—the ability to use inventory in response to changes in demand is limited by the costs of holding that inventory. For anticipated changes when inventory is relatively inexpensive, such as on Super Bowl Sunday, the increase in demand does not translate into an increase in price.

But when holding inventory is difficult, expensive, or impossible, the full impact of demand changes is reflected in the price. The price of roses on Valentine’s Day or the day before is much higher than at other times of the year because flowers cannot be stored like beer or frozen like pizza dough.

Limited Role for Inventory

The price of houses in the Washington, D.C., area reflects the increase in the size of government as government employees and government office space drive up the price. The only role for inventory in such a situation is the building of housing in increasingly distant suburbs. Travel time reduces the ability of these expanded opportunities to meet the increase in demand. The price of housing rises in the areas closer to the city.

Travel time in a city such as Washington, D.C., is another example of how price rather than inventory clears the market. Because the roads are public property not owned by anyone, time spent traveling caused by congestion is the price that clears the market rather than an out-of-pocket payment. It is physically impossible to add supply at peak times. You can’t store extra lanes or freeze them. So traveling at rush hour takes longer than at other times. If someone did own the roads, the price would be higher during peak travel times.

Over time, as more people move into metropolitan areas such as Washington, D.C., the time it takes to commute there also climbs inexorably. This time cost only falls when new roads are built or existing roads are widened. But if demand continues to rise, travel time for any particular commute will again begin to climb.

And prices matter even in a world where inventory is possible. They matter in the short run because not all markets can meet short-run fluctuations where inventory is costly. These fluctuations in price in turn induce innovation as a form of competition, to reduce both the cost of production and the cost of providing inventory.

Time spent understanding supply and demand remains time well spent.

At the same time, there is a tendency to tear down the most successful, suggesting an ambivalence about wealth and success. Class warfare doesn’t sell like hotcakes, but it does sell.

Our two most successful companies of the last 20 years, Wal-Mart and Microsoft, are often under cultural and legislative attack. Microsoft, like IBM before it, has been under legal attack for years. Now Wal-Mart is increasingly dealing with legal restraints on its ability to compete.

The Maryland legislature has just passed legislation requiring companies with more than 10,000 employees to pay at least 8 percent of their payroll costs for health care or be forced to pay the difference to the state. This affects only one company in the state—Wal-Mart. The Maryland governor vetoed the bill. But cities and counties around the country have passed various forms of legislation to make it harder for Wal-Mart to enter their areas. Some areas have banned Wal-Mart.

On the surface this looks similar to the challenge facing Microsoft, the inevitable disdain and dislike for the super-successful and the inevitable and frightening use of the governmental process to drag down those who rise to the top.

Both companies face public-relations challenges stemming from their success. Bill Gates is one of the wealthiest men in the world. Fairly or not, his company is perceived as having a dominance in the marketplace that Wal-Mart can only aspire to. Because of Microsoft’s market share, any product failure or imperfection is perceived as a disdain for the customer and the result of corporate arrogance.

Bill Gates’s foundation softens his image somewhat. But until Microsoft’s market share slips due to a rise in the effectiveness of its competition, the resentment is likely to stick around. But Wal-Mart’s public-relations challenges and the consequent legal challenges it faces are very different. They are due to a different nexus of political and economic forces hidden by the way the media and the public perceive economic events.

When Sam Walton, the founder of Wal-Mart, was alive, his wealth made him a target for criticism, but his charm often disarmed the critics. Now, without an individual that the public associates with the company, Wal-Mart’s enemies have only the company to vilify. The dislike for Wal-Mart would then seem a bit mysterious. Yes, it’s a successful company. Yes, it’s very large. But what is the source of the public’s suspicion of a company that brings low prices and quality products to its customers?

Unlike Microsoft, which has to defend its software’s unwieldiness and its vulnerability to spam and viruses, few complain about Wal-Mart’s quality or prices. So what’s the problem? What’s the source for the public support of the political and legal attacks on Wal-Mart? The allegations against Wal-Mart are cultural. It allegedly destroys small towns by wreaking havoc with small, independent mom-and-pop retailers on Main Street. It’s allegedly a lousy employer that abuses its workers by paying too little and burdening communities with higher health-care costs.

It is these charges of social neglect and decay that Wal-Mart must answer. But who really feels strongly about these issues? As the millions of customers storm through the front doors in search of the cornucopia that it provides, how many of them feel guilt or shame for shopping there?

Very few, as far as I can tell. The happy customers do hear a steady drumbeat in the media about the cultural issues mentioned above. A TV reporter once told me that Wal-Mart’s employees are like slaves. Yes, I agreed; it’s a wonder they manage to walk to their cars at the end of the day carrying the ball and chain the company forces them to wear. But most of the complaints against Wal-Mart come from those who choose not to shop there, the intellectuals who romanticize small-town life while choosing to live in cities.

Even with all that negative coverage, I suspect the average American and certainly the average Wal-Mart customer feel pretty good about Wal-Mart. So what’s the source of the political hostility and legislative agenda it faces?

Most of it comes from the competition. In Maryland, the recent health-care legislation was spearheaded by Giant Foods and various retail-employee unions, whose sphere shrinks steadily under Wal-Mart’s expansion.

If you’re Giant Foods or another retailer up against Wal-Mart, you have two ways to compete with its grocery business. One is to try harder. Improve your products. Lower your prices. Get better employees. Remodel your stores. Or you can turn to politicians to hamstring Wal-Mart.

The political solution is always appealing. Using the political process avoids a lot of messiness. After all, when you’re trying to succeed in the marketplace, it’s not enough to try harder. You might make the wrong choices. But going to the legislature is pretty foolproof. If you’re Giant Foods, you can’t go wrong getting the legislature to tax Wal-Mart.

Hamstrung by Union Contract

But there’s another reason the political solution appeals to Giants Foods versus trying harder. Giant Foods’ ability to try harder is handicapped by earlier attempts at trying harder. Recent stories on the Maryland health-care shakedown revealed that Giant’s healthcare costs are 20 percent of its payroll compared to 8 percent for Wal-Mart. Presumably, Giant and its union negotiated a pretty lucrative health-care deal for the employees. I don’t know the length of the contract, but it sure makes it harder for Giant to compete with the nimbler, more-flexible Wal-Mart. No wonder the unions work hard at getting the media to cover how Wal-Mart mistreats its workers, ruins small-town America, and encourages urban sprawl.

Never mind that in a free society with millions of other choices, Wal-Mart seems pretty good at getting workers to apply for openings there. Singing the blues about Wal-Mart’s alleged oppression of workers is key to the unions’ effort to keep attention off their responsibility for Giant Foods and other groceries being unable to compete.

Why do the media go along? Maybe it’s some sort of anti-corporate, pro-union, pro-underdog sentiment. But I have a simpler theory. It’s the old story of the seen and the unseen. It’s easy to find businesses that close because of Wal-Mart. But the prosperity created by low prices and the resources that are freed up to start new businesses aren’t as obviously visible.Yet they are just as real.

Ironically perhaps, the source of Wal-Mart’s problems gives me some comfort. True, Microsoft’s legal troubles were also initiated by disgruntled competitors. But those competitors had a lot of allies in disgruntled users of Microsoft products. In the case of Wal-Mart, its satisfied customers are a potential bulwark against the political machinations of the competition.

The rest of the story is up to us, those of us who understand the destructiveness of using legislation as a crutch for competitive failure and the harm that such legislation does to a free society. If we can continue to explain the virtues of freedom of choice of where we shop and where we work, the effectiveness of the scare stories about Wal-Mart will wither away. Giants Foods and its allies in the legislatures of America will be seen as nothing more than welfare recipients taking money and choices from us.

Take Social Security. Please. Here we are in the richest society in human history, where most of us are able to take care of our own retirement. The current government system of Social Security treats us like children and imposes a significant tax burden on workers and employers, distorting the shape and productivity of work.

Social Security is mandatory for all workers, rich and poor alike. Masquerading as a pension plan, it is really a welfare system for the elderly. The benefit structure is arcane, and the government’s promise to pay according to its own stated formula is broken at semiregular intervals. The system is nominally financed by a payroll tax with the proceeds rolled into general funds. The coexistence of the regressive payroll tax and the progressive income tax makes tax reform opaque and unnecessarily contentious.

As the system heads toward a demographic crackup, voices rise in opposition to any reform that might give workers more control over their earnings. We are told how risky the stock market is, how stupid most Americans are, and how incapable they are of making the right choices if they become free to direct just a fraction of their payroll tax “contributions” into assets they deem worthy, even when the list of those assets would be pre-approved by the government.

That’s the half-empty story.

In my calmer moments, though, I think the glass is half-full. Truth is, that demographic crack-up being invoked to focus people’s attention on the Social Security problem is a long way off. For a government, democratic or authoritarian, to worry about a problem that is decades down the road is highly unusual. And when that problem rolls around, it will probably be solvable through a mix of benefit cuts, tax increases, and changes in the retirement age.

And yet President Bush has made privatization, albeit a faint-hearted version, the focus of his second term. While I might long for a more real version of privatization rather than a government-run forced saving program, it doesn’t change the fact that we’ve come a long way.

Until the 2000 presidential campaign, no serious presidential candidate in the last 50 years had dared to suggest such a fundamental change in the program that for many is enshrined as the centerpiece of the New Deal. That’s 50 years—more than two generations. And while Bush’s first term made no progress on Social Security, his decision to push it front and center shows that real change is no longer a fantasy.

What actually emerges from this discussion may turn out to be disappointing. There are likely to be unintended consequences—I worry about the political incentives for government to reduce the risk in private capital markets if government’s hand gets entangled in the stock market.

But on the positive side, the half-full side, we’re having the discussion, and talk of private responsibility and smaller government gets a serious hearing. Sure, opponents of change still shriek of seniors starving in the streets. But that charge just doesn’t have the traction it had 25 years ago. That change is truly remarkable. For the first time in the history of Social Security the defenders of the status quo are on the moral defensive. Those who would allow people control of their lives hold the moral high ground.

The lesson for liberty from this intellectual revolution is the virtue of calm insistence on the moral high ground of principle.

The most widespread defense of true privatization over the last 36 years has been made by Milton Friedman. He was not the first opponent of Social Security. But his eloquent defense of private, less coercive alternatives to government in Capitalism and Freedom in 1962 remains the most influential political document of the last 50 years.

Many of the ideas in Capitalism and Freedom have either been accepted or are now being taken seriously. Private Social Security, a volunteer army, educational vouchers, flexible exchange rates, a stable money supply, and so on. What is impressive about the list isn’t its social or legal acceptance. What is impressive is that every one of these ideas was greeted with hoots of derision when it was first proposed.

Classical-Liberal Eloquence

Surely the eloquence of Friedman and fellow classical liberals has played a role in their acceptance. But it is possible that political forces simply turned in Friedman’s favor and there is no causal connection between the ideas the defenders of liberty put forward and the resulting political success. It’s simply a coincidence.

I doubt it. Ideas matter, and saying them well matters, too. But I think there is another lesson to be learned from the success of the ideas of Capitalism and Freedom. That lesson is particularly important as we debate the future of Social Security.

Friedman never advocates half a glass of freedom.

He advocates a full glass. And he relentlessly makes the case for that full glass regardless of the political incorrectness of the position. As a result, the reality we get is at least a half a glass and sometimes much more.

I suspect Friedman supports the President’s rough outline of privatization. But he always notes that there is no reason for the government to be involved at all in our retirement decisions. This unrelenting advocacy of the fully principled position is part of the reason that some form of privatization is imaginable today.

The best is often the enemy of the good. And that is why in the political arena, compromise may be wise. But in the intellectual arena, we should always advocate what is best. That is the only way of hoping for something good out of the political process. And that leaves open the possibility that future reforms will lead us, ultimately, to the best.

Inevitable Market Solutions

David Henderson, author of The Joy of Freedom, argues that we should always talk about free-market solutions as if they were inevitable. For some reason this gives these ideas a respectability they might not otherwise have.

In the coming months and perhaps years that still lie ahead in the political fight over Social Security, I encourage all of us to talk about the virtues of allowing individuals to make their own decisions with their money, pointing out that this implies that government should get out of the retirement business. Saying this calmly and insistently (instead of prefacing remarks with apologies for proposing something that is “unrealistic”) makes it likely we will get at least a half-full glass and holds open the possibility of a full glass down the road.

There are two extreme views of American government and the political process. One is that policy is the result of special interests rigging the system in their favor and exploiting the ignorant or at least impotent masses. The other is that government pretty much gives the people what they want.

My own view is much closer to the second claim than the first. While I recognize the depressing frequency of pork-barrel legislation and numerous regulations that are structured to benefit special interests rather than the so-called public interest, I believe that the broad thrust of policy responds to the desires of the general public. Given this view, I believe that the road to greater freedom in America is to encourage a broader consensus for freedom that will in turn get translated into more limited government via the political process.

While reasonable people may disagree on these differing perceptions of the nature of the American political process, I think it’s undeniable that the average American is considerably more comfortable with an activist role for government rather than a more limited role. Why is this the case? Why don’t my fellow citizens prefer more limited government?

At first glance, liberty should be wildly popular. Each of us loves it and expects it for ourselves. Few of us want to be bossed around or treated like a child. There is a strong human urge to have our own way without restraint, and it starts young. As a parent, I see this desire in action constantly. Simply tell a baby “no” to any desire, be it for more food or something as simple as climbing the stairs, and you can see the desire for freedom in action. If anything, this resentment of authority grows stronger with time. I don’t have teenagers yet, but I hear they’re pretty willful. How do these creatures of desire, these babies and adolescents, mature into voters who support candidates who constantly advocate and implement restrictions on freedom—from drug laws to labor regulations to high tax rates?

There are many explanations for why activist government is not only prevalent in our times but popular. But one answer lies within each of us, working to counteract that same internal force working for liberty. There is one urge that may be equally strong as the desire to have your own way, and that’s the urge to impose your will on others. Again, parenting gives us insight into this urge, but from the other side of the highchair. We want our children to do what we tell them. Parental discipline may be weaker and punishment less corporal today than in past times, but we as parents still spend a great deal of time bossing our kids around or at least trying to.

When our children obey us, we feel good for two reasons. The first is altruistic, but the second is a little less attractive. Yes, we tell our children to stop playing in traffic for their own good. Yes, we refuse them the second ice-cream cone for reasons of health or the creation of self-discipline. But we also try to manipulate our children for our own benefit. We ask our children to quiet down because we’d like a more peaceful home. We tell them to sit rather than roughhousing with each other. We tell them to read this book or that because we want them to be more like us. We send them to bed earlier than they’d like because they need a good night’s sleep, yes, but also because we like a little private time with our spouses.

Power is an intoxicating elixir. One of the secrets of good parenting is restraining the urge to impose authority on our children simply because it is gratifying to have obedient children.

I’m not suggesting that we should indulge our children in order to let them enjoy freedom. I’m arguing that even the best of parents resents a child’s disobedience. We don’t like having our will thwarted as adults any more than we did as children. One challenge of being a parent is not to impose our will on our children just for the sake of being in control. This desire for control and the seductiveness of power can conflict with what is best for our children.

And of course, this phenomenon of imposing our will on others doesn’t stop at our children. We want our spouse to act in ways that we deem desirable, our co-workers to recognize our wisdom and act in ways that we feel is best for the organization, and so on. We even want people to vote the way we do and support the policies we think are best for the country and the world.

The Public Arena

The conflict between the desire to be free and the desire to impose our will on others plays itself out in the public arena. We want our Scotch, but think it right to make cocaine illegal. We want to go skiing, but we force others to wear their seatbelts. We want to eat our ice cream, but think it’s okay to ban smoking.

Mencken defined Puritanism as the haunting fear that someone, somewhere may be happy. A paternalistic government plays into the Puritanism most of us harbor somewhere deep inside. Not content with mere disapproval, we use force via the political process to restrain others.

Next time you’re in the grocery and you see a stressed-out mom or dad screaming at the kid who naturally wants to play with the candy at the check-out line, you’re seeing the roots of big government.

For normal human beings and decent parents, those grocery-store-type moments are few and far between. Love restrains us from indulging our urge to boss our children around for our good rather than theirs. Love for our children encourages us to let them begin to make their own choices as they grow up and head toward adulthood.

I long for a world where we show the same restraint in the political arena. One way to get to that world is to remind our fellow citizens of the virtues of adulthood. As an adult, I make my own decisions and deal with the consequences. Why do we want a political system that treats us like children?

Daniel Sumner is in trouble. Sumner, an agricultural economist at UC Davis, has been accused of betraying his country. What has Sumner done? Given the charge, you might assume that he has aided terrorists or leaked nuclear secrets. Or perhaps shared some sophisticated technology with America’s enemies.

Not quite. Sumner’s treasonous activity came in support of Brazil, a country not usually considered a rogue state or an enemy of America. And Sumner’s action didn’t exactly involve advanced technology, but economic analysis.

What Sumner did was to study the effect of American cotton subsidies on the world price of cotton. Not surprisingly, Sumner found that those subsidies lowered the world price of cotton. Subsidies encourage supply. Increased supply lowers price. End of story, or so you’d think. Could there be anything more mundane?

Sumner’s finding came during consulting work on behalf of Brazil in a World Trade Organization (WTO) case. Brazil was accusing the United States of an unfair trade practice. The claim was that the U.S. cotton subsidy punishes Brazilian cotton farmers.

When the WTO ruled in favor of Brazil, howls came from the California Cotton Growers Association. Sumner had helped Brazil at the expense of America! What a traitor! And the pain for the cotton growers was all the greater given that their association had been a significant donor to UC Davis. They threatened to send future money elsewhere. They also encouraged the citizens of California to let the university know what they thought of a man in the employ of the state working against what seemed to be its interests.

Even the dean of the College of Agricultural and Environmental Sciences at UC Davis weighed in. True, there was academic freedom at the school, and Sumner was free to say what he wanted. But there was something unseemly about Sumner’s helping the Brazilians, said the dean. It showed bad judgment. A bit of biting the hand that feeds you. Or in this case, smashing the loom that clothes you, or something like that.

So here’s a university administrator who supports taking money from a local industry, then complains that one of his faculty takes scholarly positions that are not in the interest of that industry. One might ask whether it’s appropriate at all for a university to take money from what is essentially a lobbying group. Especially if it creates an expectation that the scholars there will only do research that supports the cause of the cotton growers. Maybe instead of talking about whether Sumner has betrayed his country, we ought to talk about whether the dean has betrayed his university and the taxpayers who pay him.

But let’s focus on Sumner and the accusations that have been leveled against him. Is he a traitor? Did he betray his country by working for the opposition in a WTO case? Not in the literal sense. Even the cotton growers, in making the accusation, admitted it wasn’t a perfect analogy. They said that if this had been a government or military matter, it would have been treason and grounds for a trial. But it’s not just an imperfect analogy. It’s not just a case of Sumner’s activities being less harmful than someone who gives away nuclear secrets or reveals some secret code. The analogy doesn’t hold at all.

The economic interests of the United States are nothing like the military or security interests of the United States. In the case of the military, our interests as Americans are monolithic. Every American citizen has the same goals of safety and security. When America has enemies, we all want those enemies defeated.

But in the case of economics, our interests are not monolithic. Policies that help one group often come at the expense of another. What helps business may harm consumers. What helps consumers may harm business. And sometimes, helping business or consumers means harming taxpayers.

Take cotton subsidies as an example. To argue that Sumner is a traitor, or even that he harmed his country, you’d have to argue that cotton subsidies are good for America. Yes, they’re good for the members of the California Cotton Growers Association. But alas, there is no free lunch. The benefits of that cotton subsidy come from somewhere. They come from taxpayers, you and me. So cotton subsidies benefit U.S. cotton growers and punish American taxpayers. Along the way, they hurt cotton growers outside the United States and benefit clothes-wearers around the world.

Strange Welfare

There are worse programs. But when you sit back and examine the whole effect of cotton subsidies, it’s a strange sort of welfare program. The main beneficiaries are rich American cotton farmers and everyone who wears clothes made from cotton, rich and poor, around the world. The losers are taxpayers and poor farmers outside the United States. And the amounts gained by the winners don’t equal the amounts lost by the losers. It is almost always the case with subsidies that their net effect is negative—all the extra resources that get devoted to farming exceed the benefits of the extra cotton that gets grown. Subsidies make us poorer as a nation. They persist because of the political power of the cotton growers.

Given these effects, how should we assess Sumner’s contribution? I haven’t actually seen his study, but my guess is that it’s some version of truth-telling. The precise magnitudes of his findings may be high or low, but the fundamentals are probably right—U.S. subsidies hurt poor farmers outside the United States.

American taxpayers might want to give Sumner a medal rather than insult him if his findings hamper U.S. farm subsidies. Lower farm subsidies mean a richer United States. If this be treason, we ought to make the most of it.

The price of an orange in Wisconsin would still be a tad expensive, maybe $2. It would take some serious capital investment in greenhouses and heating systems to overcome the Wisconsin climate’s disadvantages as a place to grow oranges, and the price would have to cover those costs. But it could be done. Oranges would be a bit of a luxury. Most people wouldn’t eat them as regularly as they do now.

It might even be worthwhile to truck in oranges from Canada. It’s a short haul. True, it’s colder in Canada. Not much. But a little colder. So the greenhouse and heating costs might be a little higher. But suppose Canada had lower wages than Wisconsin. Even after the higher heating costs, let’s say a Canadian orange grower could sell an orange for $1.50 and still make a profit. There’d be rejoicing in the supermarket aisles of Green Bay. Brunch-goers in Madison would be toasting each other with fresh-squeezed OJ.

Standing in a Green Bay supermarket and weighing the virtues of a premium Wisconsin orange and an imported Canadian one would be pretty easy. Canadian oranges would flood in. Some Wisconsin growers would start losing money—trying to meet the Canadian competition at only $1.50 might be just too hard. They’d start lobbying the legislature to ban Canadian oranges. After all, they’d explain, Wisconsin is a better place to grow oranges than Canada. It’s warmer. It would be foolish to let in Canadian oranges simply because Canadians have lower wages. That’s an artificial advantage.

I doubt lovers of orange juice and Hunan beef with orange sauce and screwdrivers (the drink, not the hardware item) would be interested in the exact reason that Canadian oranges were helping to make the food and drink they love more affordable. And they’d be right. It wouldn’t matter if Canadian oranges were cheaper because Canadian orange growers were able to pay their workers less, or if Canadian soil happened to have a good mix of nutrients for citrus-growing, or if the Canadian natural-gas companies received subsidies that keep heating costs artificially low. The only thing that would matter is that oranges cost less. Citizens would have more money left over for other things. They’d also have a lot more oranges to enjoy, now that the prices were lower. The citizens of Wisconsin would have a higher standard of living.

The Wisconsin Citrus Growers Association would argue that all those cheap Canadian oranges were going to cause some unemployment in the Wisconsin orange orchards. That would cause some hardship for a while. But someone would be sure to notice that if the Canadians used some of their land to grow oranges for Wisconsin, then some of those Wisconsin orchards would be freed up to use for something else. They could be planted with grass for dairy cows to munch on. The dairy industry could expand. There would be more jobs in that industry. Without Canadian oranges, it would be worth giving up some cheese to have oranges. But if you could get oranges from Canada, it would make more sense to use that land for dairy farming.

So what’s the best use of the land in Wisconsin? Is it better for dairy farming or better for oranges? It seems obvious to us in the real world we live in that the “best” use of Wisconsin’s land is dairy farming. In the real world, that’s true because transportation costs from Florida are low enough to make Wisconsin orange orchards an absurdity. But if for some reason Florida oranges weren’t available, then the best use of Wisconsin land might no longer be dairy farming. And if cheese suddenly gets cheaper to make somewhere else, someday it might be better to turn those dairy farms into the next best alternative, whatever that might turn out to be given the nature of the land and the skills of the people of Wisconsin.

High-Tech Jobs to India

I’ve been thinking about cheese and oranges because a lot of people are worried about America losing high-tech jobs to India. We think of America as the “best” place to do programming in the same way we think of Wisconsin as the best place to make cheese and Florida as the best place to grow oranges. Programming jobs “belong” here. The worriers argue that the lower wages of Indian programmers are an artificial advantage, not a “natural” one.

Keeping those jobs here if Indians can do them more cheaply makes no more sense than keeping those orchards going in Wisconsin in a world where Canadian oranges are available. It’s particularly costly when Florida oranges can move cheaply. So too with programming jobs. If Indians are capable programmers and their wages are low, then we give up a lot to artificially keep the jobs here via some sort of protectionism or barrier to outsourcing.

Yes, says the skeptic, but it’s a bad trade—low prices for lost jobs. But that’s not the real tradeoff. The number of jobs isn’t fixed. The number of high-tech jobs that involve information isn’t fixed either. Letting India do some of those jobs for American firms more cheaply than they can be done here frees up the resources to do new things we can’t imagine and that will create the new job opportunities. And some of those opportunities will be in high-tech firms that are able to expand because they’ve saved resources leveraging Indian labor.