Over the course of several decades politicians—both Democrat and Republican—encouraged banks and mortgage companies to ease lending standards in hopes of making housing more affordable for the poor. They also urged the government-sponsored enterprises (GSEs) Freddie Mac and Fannie Mae (the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association) to purchase the resulting low-quality loans from lending institutions. This freed up money, enabling banks to make more loans than would have otherwise been possible. These actions, along with low short-term interest rates set by the Federal Reserve and tax advantages for home buyers, sparked a housing boom. Home prices soared and investors flocked to purchase mortgage-backed derivatives. Speculation became rampant, and houses were bought simply to resell, or “flip,” when prices rose.

Eventually, the bubble burst. Housing prices collapsed and thousands of home buyers defaulted on their mortgages, sending derivative prices into a death spiral and sparking a Wall Street sell-off. The rest is history: a history that the government is apparently anxious to repeat. The Fed is still pushing its easy-money policies with a vengeance, down-payment subsidies for low-income home buyers are still available for the taking, and lenders are still being pressured to ease standards for minorities and for low-income home buyers. The thinking appears to be that if housing prices can be driven back up to their pre-bust levels, everything will be fine. Homeowners who are currently “underwater” (meaning they owe more on their homes than the homes are now worth) and all those banking and investment houses that saw the value of their mortgage-based securities plummet will supposedly be back in the black.

There is only one problem with this scenario: The pre-bust price levels are not sustainable. We have the bust to prove it.

In the midst of the attempt to reinflate the bubble, politicians, needing to deflect blame for the collapse, have settled on Wall Street and the mortgage lenders as the most plausible villains. (Which is not to say they are blameless; the State-banking partnership is as old as the republic.) Last September the Federal Housing Finance Agency, which oversees Fannie and Freddie, announced it was suing the nation’s 17 largest banks—some of which the government had recently bailed out—for selling risky mortgages to the two GSEs. Yet just two months before, the Department of Justice “requested” that a number of banks lower lending standards for minorities with poor credit ratings, threatening them with discrimination charges if they failed to comply.

How did banks get into this damned-if-you-do-damned-if-you-don’t nightmare? It started in 1977 with the Community Reinvestment Act (CRA). The act requires “each appropriate Federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions.” As Thomas Sowell wrote in his book The Housing Boom and Bust, the act, though seemingly innocuous, was based on the “implicit assumption that government officials are qualified to tell lenders to whom they should lend money entrusted to them by depositors or investors.” Sowell notes that lawmakers never seriously questioned this assumption.

The CRA Gets Teeth

At first the CRA had little impact but it was given teeth by subsequent legislation. The main impetus for additional regulation came from Federal Reserve studies run in the early 1990s showing differing home loan approval rates for black and white applicants. Largely ignored were the findings by these same studies of no racial differences in default rates among approved borrowers. As Sowell explained in Economic Facts and Fallacies, had minorities been unfairly denied loans, their default rates should have been significantly lower than the rate for whites. Instead, the equal default rates indicate the various groups were being held to the same standards.

Imagine a thoroughly racist loan officer looking for the slightest excuse to deny a loan to a minority home buyer. Minor flaws that he would ignore if the applicant were white are eagerly used as justifications for rejecting a mortgage to a minority applicant. Only black and Hispanic borrowers with stellar credit ratings would have their loans approved. The few loans the officer did make to minority borrowers would have a far lower default rate than those he made to whites. The data, however, showed no such differences.

Regardless, lending institutions were subjected to a firestorm of media abuse. Under pressure from both Congress and the White House, federal regulatory agencies loosened lending rules and imposed penalties on lenders failing to meet politically dictated racial quotas.

In 1993 the Department of Housing and Urban Development (HUD) began legal actions against mortgage bankers who declined “too many” minority loan applications. HUD also pushed Freddie and Fannie to increase their purchases of low- and moderate-income (LMI) mortgages. In 1995 regulators required banks to prove they were making a mandated number of loans to LMI borrowers, directing them to use “innovative or flexible” lending practices to achieve their quotas. Still other ways were found to pressure banks into making risky loans. For example, when Congress repealed legislation prohibiting banks from affiliating with securities and insurance companies, it denied the restored freedom to banks with CRA ratings below “satisfactory.” Similarly, regulatory permission for mergers and for opening branch offices was tied to banks’ CRA community service activities, such as hiring minorities, making donations to approved nonprofit organizations, and earmarking loans for minority-owned businesses.

In 1999 the New York Times reported that Fannie Mae, under increasing pressure from the Clinton administration to buy more LMI loans, encouraged banks “to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans.” Clinton’s successor, George W. Bush, contributed to the expanding bubble as well, signing the American Dream Downpayment Act in 2003, which provided, and still provides, down-payment subsidies to low-income home buyers.

The drive to make homes more affordable actually made them less so. Prices soared as hundreds of thousands of first-time home buyers flooded into the market. Still, few people buy a home outright; most take out a mortgage. As long as the monthly payments were affordable, home sales could continue apace. To drive monthly payments down, politicians and lenders only needed to get a bit more creative. With plenty of reserves thanks to the Fed’s easy-money policies, banks were more than eager to step up. No-down-payment loans became commonplace, as did adjustable rate mortgages (ARMs) and even so-called “liar loans” for which borrowers were not even required to show they could pay the money back. It did not matter because, of course, housing prices would continue rising forever. If anyone defaulted on his mortgage, the lender would just foreclose on the house and resell it for a tidy profit.

According to Peter J. Wallison and Edward J. Pinto in Forbes (Feb. 16, 2009), in late 2004:

[The chairmen of Freddie and Fannie] were telling meetings of mortgage originators that the GSEs were eager to purchase subprime and other nonprime loans.

This set off a frenzy of subprime and Alt-A [rated between subprime and prime] mortgage origination, in which—as incredible as it seems—Fannie and Freddie were competing with Wall Street and one another for low-quality loans. Even when they were not the purchasers, the GSEs were Wall Street’s biggest customers, often buying the AAA tranches of subprime and Alt-A pools that Wall Street put together. By 2007 they held $227 billion (one in six loans) in these nonprime pools, and approximately $1.6 trillion in low-quality loans altogether.

From 2005 through 2007, the GSEs purchased over $1 trillion in subprime and Alt-A loans, driving up the housing bubble and driving down mortgage quality.

Critics argue that only 6 percent of the subprime loans made to low-income home buyers were provided by CRA-covered banks. However, CRA loans contributed disproportionately to the defaults. According to Bank of America’s October 2008 quarterly report, CRA loans represented only 7 percent of its total mortgage lending, yet these loans made up 29 percent of its mortgage losses.

CRA Infection

The CRA’s largest impact, however, was that it led to an overall drop in lending standards. As Thomas E. Woods, Jr., reported in Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse, “The push for relaxed lending standards for low- and middle-income borrowers was so pervasive and systematic, persisting for a full decade, that it is no surprise that it should have spilled over into the standards for higher-income borrowers as well.” Low standards did more than just “spill over,” however. HUD pressured mortgage lenders not subject to the CRA to sign “Memoranda of Agreement” stating they would make more loans to minority and low-income borrowers. Countrywide Financial was the first lender to sign and, perhaps not coincidentally, the first lender to go bankrupt when the housing bubble burst. Once hailed as a leader, Countrywide is now reviled as a “predatory lender.”

Speculators, availing themselves of zero-down-payment loans and ARMs, purchased house after house with no intention of actually living in any of them. Instead they resold them as prices continued climbing. In the end, a number of homes were built strictly as investment vehicles. “Flipping” homes in this manner could be very lucrative—right up until the housing market crashed. Many speculators, caught between sales, defaulted on their mortgages. Because they had put little or nothing down, the losses were borne by whichever institutions held the mortgages when the music stopped—or by the taxpayers.

Many homeowners, seeing the value of their houses soar during the boom years, cashed in by refinancing their homes at the higher market values and pocketing the difference. When prices tumbled back down, they were left owing more money on their homes than they were now worth. Some, like the speculators, simply walked away.

Still, critics point out that the dollar value of CRA loans paled in comparison to the leveraged debt that Wall Street investors amassed. Imagine an upside-down pyramid of debt with the pyramid’s apex serving as its base. This apex was made up of home mortgages. Piled on this relatively small base were trillions of dollars in leveraged derivatives such as credit-default swaps (essentially insurance against bond or, in this case, loan failure) and other mortgage-based securities.

As top-heavy as this inverted pyramid was, the fact remains that it could have survived had its base been solid. Instead, its foundation was riddled with bad home loans because the government had coerced banks and other lending institutions into handing out money to people who could not afford to repay it. Further, Congress demanded that Freddie and Fannie buy hundreds of billions of dollars’ worth of these subprime loans, enabling lending institutions eagerly to make even more such loans with no incentive to vet borrowers. Investors were blinded to the risks by triple-A ratings handed out by a government-sanctioned cartel of credit rating agencies evaluating the mortgage-based securities.

Three years after the housing bust, the Federal Reserve is still following easy-credit policies. Last September it doubled down with an announced purchase of $400 billion in longer-term Treasury securities hoping to lower long-term interest rates and thereby boost spending and investment. At the same time the government is continuing to pressure banks to make risky loans and sell them to Freddie and Fannie, which were taken over by the government after they went bankrupt. (Last fall Freddie said it needed to borrow $6 billion more from the Treasury after it lost $4.4 billion in the third quarter of the year.) The new twist is that federal regulators are now suing banks for doing what the government demanded, and is still demanding, that they do. This is not too surprising given Washington’s need to pin the blame on someone, anyone, other than Washington. The politicians and regulators also need to be looking ahead, though, for the villains on whom they can blame the new and bigger bust that they currently have in the works. It is nothing short of breathtaking. But then, blowing bubbles always is.

Georgia’s law requires private and government employers to use E-Verify, a federal program, to ensure that workers are eligible to work in the United States. The law also increased the penalties for using fake documents to obtain jobs; offenders now face up to 15 years in prison and $250,000 in fines. Moreover, the law makes it a criminal offense to intentionally transport or harbor illegal immigrants, authorizes local and state law enforcement officials to arrest illegal immigrants and house them in state and federal jails, and requires documentation verifying legal status before people can apply for food stamps or government housing.

Alabama’s law goes even further than Georgia’s. It not only clamps down on illegal immigration, it also prevents illegal immigrants already in the state from establishing themselves. The law requires public schools to verify students’ residency status with birth certificates, bans illegal immigrants from state colleges, and outlaws transporting, harboring, employing, or renting property to undocumented immigrants. The bill also requires law enforcement officers to detain and investigate anyone they reasonably suspect is an illegal.

Opposition to the new laws emerged immediately in both states. In Alabama, churches and charities thought the wording so stringent that they worried about being implicated simply for ministering to illegal immigrants. Episcopal, Methodist, and Catholic church officials in Alabama sued Governor Robert Bentley and Attorney General Luther Strange. The American Civil Liberties Union (ACLU) of Alabama and Georgia, as well as other civil liberties advocacy groups, like the Southern Poverty Law Center, also brought forward lawsuits because the new law will likely result in racial profiling.

While the specific methods of implementation for Alabama’s and Georgia’s immigration laws could be altered in the hope of minimizing their social consequences by, for example, randomly checking people for citizenship instead of profiling people who look different or out of place, the negative economic results cannot be avoided or minimized unless the laws are ignored. New business paperwork, law enforcement, and incarceration will impose steep costs. All industries will suffer some negative effects, and the fortunes of a number of industries, such as agriculture, restaurants, landscaping, catfish and poultry processing, and construction, will be seriously compromised. Jeffrey Passel estimated in a 2006 study that across the nation, illegal immigrants make up 24 percent of the agricultural workforce, 17 percent of the cleaning industry workforce, 14 percent of the construction workforce, 12 percent of the food preparation workforce, and 9 percent of the production workforce.

The effects of the new laws are already being felt throughout the agricultural industry in both states. Illegal immigrants are now so afraid of imprisonment and deportation that they have stopped supplying their labor during harvest seasons. And it’s not just illegals who are fleeing the state. Green-card carrying immigrants also quit their jobs in protest and are leaving Alabama.

Wasted Crops

Alabama Live reports that central Alabama farmers requested an emergency suspension of the law because millions of dollars of crops were at risk of not being harvested due to labor shortages. In the Wall Street Journal, Alabama Deputy Commissioner for Agriculture and Industry Brett Hall was quoted saying: “We have a big problem on our hands. . . . [F]armers and business people could go under.” Economists say the law will hurt Alabama’s economy, but politicians such as State Sen. Scott Beason (a Republican) called their arguments “absolutely, positively wrong”. He also called the Alabama law “the biggest jobs program for Alabamians that has ever been passed.”

Meanwhile Jay Bookman of the Atlanta Journal-Constitution reports that Georgia’s law has already caused a severe enough labor shortage that farmers are at risk of leaving up to $300 million of crops rotting in their fields.

The construction industry, which has relied on immigrants in recent years, is also being hit hard. Despite the remaining slack from the housing crisis, delays in Alabama and Georgia are common. Nowhere is the story more tragic than in Tuscaloosa, Alabama, where residents and businesses downtown were hit by a tornado last April. Cheap, efficient labor was desperately needed. Yet reconstruction in Tuscaloosa has been slow and has lagged behind Joplin, Missouri, which was hit with a much more severe tornado a month later. While some of the delays in Tuscaloosa can be blamed on red tape, the harsh immigration law certainly has not helped matters.

Unambiguous Benefits

Despite politicians’ ill-informed rhetoric and pro-law rallies by Tea Party groups, the economics of the issue remain unambiguous: Immigration, whether legal or illegal, is a net general benefit for the people of a state or country. The argument is an easy extension of David Ricardo’s argument for free trade; blocking immigration hampers the free operation of an economy in much the same way that blocking trade does. It prevents resources, including labor, from being reallocated to those industries and locations where consumers most urgently want them.

The evidence shows that immigration does not take away jobs or even decrease wages for native workers. Julian Simon in a 1995 study found that immigration does not increase unemployment for U.S. citizens, even among minority and low-skilled workers. George Borjas and Lawrence Katz, in a study published in 2007, found that the only group adversely affected by immigration in the United States was high school dropouts, who saw a long-run 4.8 percent reduction in wages.

Borjas and Katz assumed that immigrant and native workforces do the same work, an assumption that does not bear out empirically. Even with that assumption, however, Borjas in 2008 estimated the net economic gain to native workers from immigration to be around $22 billion annually. When Gianmarco I. P. Ottavanio and Giovanni Peri corrected for this assumption in a 2006 study, they found immigration actually increased natives’ wages in the short and long runs because immigrants complement the native workforce.

More Workers, More Prosperity

As coauthor Luke points out from his farm experience, Americans usually don’t want the jobs that immigrants are willing to take.

The number of jobs in an economy is unlimited because our wants are unlimited. The more people working, the further down our list of wants we can get. Moreover, the more people working, the more potential customers—and hence business opportunities—we have. Immigrants buy or rent houses, purchase food and goods, and dine at restaurants. This is why the United States did not suffer mass unemployment as our population drastically increased over the last few decades, and why there wasn’t a jump in unemployment when women joined the labor force. (See graph.)

Another common argument for the Alabama and Georgia laws is that immigrants will flood U.S. cities beyond capacity in search of higher living standards. If people migrated en masse to those areas with the highest wage rates, one may wonder why all U.S. citizens don’t flood Malibu, California. The reason is that real estate values adjust upward to act as a natural brake on migration. In addition, while there is much need for immigrant labor in the United States, workers will come here only as long as the expected wage exceeds their domestic wages plus the costs of relocating. As more immigrants resettle, the relevant wage will drop, decreasing their main incentive for coming in the first place.

The Welfare Argument

A third justification for legal restrictions is to prevent immigrants from living off government programs. Anyone concerned about this should ask why the Alabama, Arizona, and Georgia laws focus almost all enforcement efforts on preventing immigrants from working. Although immigration laws have provided strong incentives for immigrants not to work, Simon’s 1995 study calculated that on net they paid more into government programs than they took out.

The justifications for Alabama’s and Georgia’s laws fail to pass the test of basic economics. Not only do these laws not bode well for the economy, they also tar the civil rights images of two states that historically have suffered poor reputations in that department. In a country founded on open immigration and the basic freedom of human association and commerce, laws of this nature are a travesty.

Even if it managed to squeak through and survive—aided by massive taxpayer infusions along the way—the euro’s vulnerability underscores the folly of a political currency. More so than any other currency in history, the euro has been a creation of technocrats working for modern nation-states. That the euro may well be on its deathbed hardly a decade after its birth demonstrates the futility of central planning. A durable monetary system, free from recurring crises, can only emerge spontaneously from voluntary exchanges in the marketplace.

The European Union and euro were officially created by the Maastricht Treaty in 1993. In addition to the political and cultural objectives, the EU and the single currency, which went into circulation in 2002, were significant steps in the effort to turn Europe into a unified economic zone patterned after the United States.

Before the introduction of the euro, a large business based in France that, say, had a factory paying workers in Italy and which bought machine parts from Germany would be vulnerable to shifts in the exchange rate between the franc, lira, and mark. But with a single currency the firm could focus on its customers and product lines, rather than worrying about the foreign-exchange market. This stability across the continent would (supposedly) give European businesses the same advantages that U.S.-based firms enjoy, since Americans in all 50 states use the dollar.

Because a currency’s ability to facilitate transactions only increases as more people use it, at first we might expect that the nations adopting the euro would want as many of their neighbors as possible to join. Yet in reality there were formal rules (called the Maastricht criteria, also the “convergence criteria”) that new applicants needed to satisfy before adopting the euro. The rules set standards for countries’ inflation rates, budget deficits, government debt, exchange rates, and long-term interest rates.

At first glance it seems odd that the developers of a new currency would want to restrict its usage. To repeat, the whole point of a currency union is to reduce transaction costs among the individuals using it. Thus it would seem that these benefits would only increase as the group grew.

Yet there are other factors at work, which the designers of the euro understood (if only imperfectly). In particular the euro is a fiat currency, meaning that the printing press could be used to achieve political ends. This explains why governments already using the euro are reluctant to admit relatively spendthrift governments into their club: There is a danger that the more profligate members will hijack monetary policy directly, or that they will require a monetary bailout (as we are seeing in practice).

Benefits of a Commodity Standard

Notice that these potential problems would be nonexistent under a fully backed commodity standard. For example, suppose that the creators of the euro, rather than reading the work of mainstream monetary theorists such as Robert Mundell, instead had studied the proposals of Ludwig von Mises in The Theory of Money and Credit. In this alternate universe the authorities in Brussels would stand prepared to issue new paper euros to any individual or institution (including governments and central banks) that handed them a fixed weight of gold.

Under this Misesian scheme the monetary authorities would maintain 100 percent gold backing of the currency; there would be the required weight of actual gold sitting in the vaults in Brussels backing up every paper euro in existence. In this scenario the authorities in Brussels wouldn’t care about the creditworthiness or the spending habits of the institutions applying for new euros. So long as the applicants handed over the correct amount of physical gold, the authorities would be happy to print up the appropriate number of euros.

The reason for this nonchalance is that the various users of the euro—if it were backed 100 percent by gold—couldn’t affect the euro’s purchasing power because they couldn’t affect future “monetary policy” regarding the currency. If the people in Region A used the euro, they wouldn’t be affected by (say) a default on bond payments by some government in Region B that also used the euro. The euros in existence, as well as the ones to be issued in the future, would have a constant redemption rate in gold, regardless of the fiscal solvency of a particular user of the euro.

In case the Misesian thought experiment is too fanciful, we have a much more pedestrian (if imperfect) example: U.S. state governments and their use of the dollar. If the California or Illinois state governments default on the billions of dollars in outstanding bonds that they have issued, no one is worried that this will lead to a collapse of the dollar itself, or that the relatively frugal states (such as Idaho) will elect to leave the “dollarzone” and adopt their own currency.

Thinking through the logic of the situation, it becomes clear that the reason for the difference is that the Federal Reserve (at least in the past) wouldn’t bail out insolvent state governments. To be clear, the people in Idaho might be affected by a default on California state bonds, but not because both areas used dollars as their currency.

However, if the Fed did start bailing out insolvent state governments, then the various states in the “dollarzone” might sit up and take notice. People in Idaho would realize they were paying higher prices because the Fed was creating billions of new dollars out of thin air to prop up the market for state bonds. In this environment a coalition of frugal state governments might demand that their profligate peers adopt austerity measures or else the frugal states would indeed abandon use of the dollar.

As this thought experiment illustrates, we can imagine a situation analogous to the crisis in Europe right here in the United States. All it would take is a Federal Reserve willing to issue extra dollars because member governments ran irresponsible fiscal deficits. We don’t currently link state government finances and the fate of the dollar because the Fed thus far hasn’t altered its policies based on state spending. Under a fully backed commodity standard, this independence of monetary and fiscal policies would be more absolute and would have prevented a crisis like the one now unfolding in Europe.

Those who have followed the mainstream economists’ handling of these issues know that gold convertibility is hardly touted as a solution to the euro crisis. In fact Paul Krugman recently blamed the crisis on the attempts to foist a “nouveau gold-standard regime” on European countries.

This is quite an extraordinary spin. How in the world could Krugman take a fiat currency, explicitly designed from day one by technocrats and without even a historical connection to a commodity money, and denounce it as a modern-day gold standard?

The answer is that Krugman is relying on the mainstream theory of optimal currency area. This theory tries to outline the optimal jurisdictions for different fiat currencies. In this approach the downside of having too large a region using the same currency is that the “optimal” amount of inflation might differ within the region, leading to unnecessary economic pain and hence political conflict.

In the present crisis Krugman and many others think the “obvious” solution would be for Greece to devalue its currency. This would make it easier to repay its debts and would make Greek exports more competitive, thus boosting economic growth.

Alas the problem (according to people like Krugman) is that Greece is not the master of its own economic destiny. Since it adopted the euro it is now powerless to inflate its way out of trouble. Thus the Greeks are condemned to suffer from fiscal austerity and a painful deflation of wages and prices (also known by the misleading term “internal devaluation”).

Now we can understand the (tepid) connection that Krugman and others are drawing between the current situation in Europe and the classical gold standard. Under the latter, if one country printed too much money its domestic prices would rise faster than those of its peers. The country would experience a trade deficit as its own exports became relatively expensive. The outflow of gold from the country would force officials to tighten monetary policy until wages and prices had fallen (if not in absolute terms, at least relative to the levels of other nations) and international competitiveness had been restored. Under the classical gold standard each nation’s currency was pegged at a fixed exchange rate to gold, so that no country could gain an advantage by devaluing its own currency. All adjustments to ensure sustainable trading patterns had to occur through changes in relative prices and wages, not through fluctuations in exchange rates.

Further Integration

The mainstream theory of optimal currency area sheds light on another (alleged) lesson being drawn from the present crisis: the need for fiscal union among the eurozone states. For example, Mario Draghi, the incoming head of the European Central Bank, recently said Europe needs to “make a quantum step up in economic and political integration.” Mainstream theory shows that it is suboptimal to have a single currency covering areas with governments enacting different fiscal policies, and hence the “obvious” conclusion is that the European governments must be brought under the control of a single agency.

As usual one intervention leads to another. After historically co-opting and then suppressing the market-chosen monies (gold and silver), the European governments in recent years upped the ante by creating a new fiat currency. Even though the ostensible safeguards failed miserably—Greece and several other participating governments have come nowhere near obeying the Maastricht criteria—the alleged solution is the creation of even more centralized power, with even less control by the people being so ruled.

The people of Europe are being conned. They do not need to sacrifice even more political sovereignty to a group of international bureaucrats and bankers. The dream of the euro—an integrated economic zone with a stable currency—can be achieved through the classical-liberal tenets of free trade and sound money. Continued experiments with fiat money regimes will lead us through a perpetual series of crises, until we are left with a single global fiat currency, the issuer of which has zero accountability to the hapless citizens forced to use it. According to many cynical observers, this after all may be the ultimate plan.

Walking through the home of a very rich American man from the early 1970s, I was struck by how much the quality of life for average people now exceeds what was available only to wealthy Americans 40 years ago. Let’s compare Elvis’s Graceland with how ordinary Americans live today.

Graceland began life in 1861 as a 500-acre cattle farm on the outskirts of Memphis, originally owned by S. E. Toof, a printer, who named the farm for his daughter Grace. Toof’s niece, Ruth Moore, and her husband eventually acquired the portion of the property where the house now sits, as well as surrounding acreage, completing the mansion in 1939.

It was planned as a showcase for their daughter’s musical talents, so acoustics were as important as aesthetics. (Their daughter went on to play with the Memphis Symphony Orchestra.) A 1940 article in the Memphis Commercial Appeal raved about the house’s “subtle beauty” and the architectural details, including the white marble in the fireplace. Even before Elvis acquired the property, the house had been recognized as being at the upper end of Memphis society homes.

Being a significant home in Memphis meant something beyond Tennessee. Memphis in the mid-twentieth century was no backwater. It was home to important military facilities, including the Memphis Army Depot, the Millington Naval Air Station, and a World War II prisoner of war camp. The first national motel chain, Holiday Inn, was founded there in 1952. The city was a cultural center as well, home to Stax Records, Sam Phillips’s Memphis Recording Service, and the nation’s first African-American-format radio station, WDIA. The city had a serious side too: The Commercial Appeal won a Pulitzer Prize for its 1920s coverage of the Ku Klux Klan.

When the Moores divorced they put the property (now reduced to 13.5 acres) on the market. Memphis realtor Virginia Grant had met Elvis’s mother, Gladys, by simply marching up to her pink Cadillac and rapping on the window when Grant spotted it outside a department store. Elvis’s fame was beginning to cause problems for the neighbors of the Presley house on Audubon Drive. Near-riots at his concerts and other appearances were worrisome. At the famous Gator Bowl “riot” in Jacksonville, Florida, in 1955, hundreds of screaming girls chased Elvis into his dressing room and tore his clothes. They also scratched messages on his car and wrote on it in lipstick. In 1957 the Presleys were looking for a more private and secure location. (Besides the deluge of fan mail to Elvis, his parents were getting over 500 letters a week accusing them of fostering juvenile delinquency.) Although Grant initially thought the Presleys wanted a farm, she recommended Graceland when she learned they just wanted a house on a large lot.

By the end of a day of shopping the Presleys had made an offer on Graceland, closing on the deal for $102,500—about $800,000 in today’s dollars. (Gladys died a year later.) At the time of purchase the house was 10,266 square feet; by Elvis’s death it had expanded to more than 17,000 square feet. Elvis redecorated and remodeled it extensively, adding features for himself (a swimming pool and a custom eight-foot square bed) and his parents (a chicken coop for his mother).

Presley lived at Graceland until his death there in 1977. Until 1981 the family continued to live in the house, although the neighborhood deteriorated as scores of souvenir shops opened to sell memorabilia, including vials allegedly of Elvis’s sweat, to the tourists who came to see the home from the road. In 1981 Elvis’s ex-wife, Priscilla (who became one of the executors of Elvis’s estate after his father, Vernon, passed away in 1979), hired a consultant to explore opening the house to the public as a way of generating the income necessary to maintain it. (Upkeep and taxes cost more than half a million dollars per year in the late 1970s.) After studying other famous houses open to the public, Priscilla and her advisers crafted a business plan that included purchasing the strip mall across the street to control the environment and, like San Simeon in California, from which visitors would be bused to the property. Hundreds of thousands of people now visit annually.

Comparing Our Lives to Elvis’s

In many respects Elvis Presley’s life looks to have been that of a wealthy individual with access to resources most of us lack. His two jets are parked across from Graceland; of course the vast majority of Americans lack any sort of plane. Elvis owned dozens of expensive cars and motorcycles, far more than most Americans are likely to own during their lives. But owning planes and cars is not the only measure of quality of life. If we think about the services Elvis was buying when he purchased his airplanes and cars, many Americans today come closer to living like Elvis than we might think.

Today firms such as NetJets make it possible for many more people to have access to travel by private plane. (NetJets offers shares as small as 1/16th, or about 50 hours of flying, according to the company’s website). For the rest of us air travel has become more convenient and cheaper since airline deregulation in 1978. One study in 1997 found that even after adjusting for changes in amenities, passengers were saving more than $19 billion per year. Average roundtrip fares have fallen by more than a third in real terms.

Of course even flying business class on a major airline is hardly the same thing as flying on Presley’s Lisa Marie, a Convair 880 that Elvis bought for $250,000 and spent $600,000 refurbishing, using the same design team that decorated Air Force One. Elvis’s plane had a bar, conference room, and bed (with seat belts); our commercial airliners do not. And undoubtedly if Elvis were alive today, he would have upgraded his plane to an even more luxurious model. But in terms of the ability to get from one place to another quickly and conveniently, today’s commercial passenger comes closer to Elvis’s lifestyle than most thought possible in 1977. Elvis might still need a private jet today to avoid the fans, but he wouldn’t need it to get where he wanted to go or ship off a new recording master to RCA from Memphis, whose airport is a hub for both Delta Airlines and Federal Express.

Cars

Similarly, Elvis’s many cars continue to set him apart from noncelebrities. But none of Elvis’s cars have a stereo equal to the one in my 2011 Subaru Outback, which synchs automatically with my Bluetooth-enabled iPhone, giving me access to more music in my car than Elvis had even back in the Jungle Room at Graceland. Moreover, my Subaru has tires, an engine, and safety features far better than were available even on Elvis’s 1973 Stutz Blackhawk, 1971 Mercedes, or 1975 Dino Ferrari. And Bluetooth isn’t the only technology Elvis could not have bought in the 1970s for any amount of money. My car has multiple airbags, a continuous variable transmission, and all-wheel drive.

Of course, Elvis wouldn’t likely be driving something as mundane as an Outback (unless his manager, Col. Tom Parker, had negotiated a contract for him to do so at a hefty fee), but even if Elvis were driving a top-of-the-line Mercedes today, the gap between his car and mine would be much smaller than the gap between his Ferrari and my parents’ 1970s Toyota Corolla. In part that is because items like cars have improved in quality, but it is also because improvements in finance have made it possible for ordinary people to have access to them. Elvis would still be able to turn up at a dealer and buy a car without a credit check; the difference is that this past summer I was able to buy my Subaru via the Internet without ever meeting the dealer and without the hours of paperwork and haggling that were a routine part of the car-buying experience as recently as the 1990s.

Everything from the selection of options to the financing was arranged by email, the web, or phone. The dealer had access to financing from investors via asset securitization of its loans; it was able to check my credit in seconds using online services; and I paid the deposit with a credit card over the phone (racking up frequent flier miles since I don’t have my own plane). Aside from a test drive, the only time a member of my family set foot on a dealer’s lot was when my daughter picked up the car.

Elvis could buy a car with a similar lack of personal effort in the 1970s because he had a staff to do things like wait in line at the bank to get a cashier’s check or cash, fill out forms, and negotiate details of the purchase. He was able to get excellent service because he was a celebrity. Today all of us have access to similar levels of service, thanks to entrepreneurs like Sam Walton, whose Sam’s Club brokered my Subaru purchase.

Televisions

One of the best-known features of Graceland is Elvis’s arrangement of three televisions (there were only three networks) in several rooms. Inspired by Lyndon Johnson’s use of three TVs to monitor the three network news broadcasts simultaneously, Elvis had a more sensible reason—so he could watch multiple football games. Here our lives really shine compared to his. In the mid-1960s, console TVs cost over $5,000 in today’s dollars. When Elvis was watching football on his three color TVs, my parents had a single black-and-white television, whose screen could not have been larger than 20 inches. My grandmother, who lived with us, splurged and bought herself a 24-inch-screen console color analog television (with a remote control!), around which we gathered on Sunday evening to watch All in the Family on CBS.

Today my living room has a 60-inch digital flat-screen TV, capable of much higher resolution than anything Elvis (or my grandmother) owned but which cost considerably less than just one of Elvis’s sets. Moreover, it features technology like a “picture in picture” display that makes it unnecessary to have three side-by-side televisions if I want to monitor more than one program. Elvis had to remodel his bedroom to have two TVs positioned so he could see them from his bed. I streamed video to my iPad while lying in bed the first night after I moved into my current home without having to summon a contractor.

Stereos

Another feature of Graceland is the top-of-the-line stereo presented to Elvis by RCA Records in gratitude for the benefits it reaped from his efforts. My music system sounds better than Elvis’s expensive stereo (and can play from the TV as well). Some audiophiles might disagree, since the gold standard for many is still a tube-based amplifier like Elvis had. But not only did I have a choice of sound systems, even an audiophile system would be cheaper, better, and smaller than anything in Graceland. Of course the rich still have better systems, yet the rest of us live better than they did in the 1970s. I tried unsuccessfully to find cost figures for Elvis’s system but I have no doubt that the combination of my iPhone, a networked hard drive, and a wireless music system provides me with many times the quantity of music available to even an avid collector like Elvis—with far greater convenience and at a fraction of the cost.

If we look at the more mundane parts of Graceland, the improvement in our lives is even more striking. Elvis was proud of the chandelier that hung in the foyer; lighting fixtures (aside from government-mandated CFL bulbs) are vastly superior in illumination, efficiency, and variety to what was available to him when he decorated Graceland. In the kitchen sits a massive early microwave oven; these are now compact and virtually disposable. (In 1981 a Sears microwave cost almost $500—over $1,100 in today’s dollars—but today it is just $119.) A feature worthy of comment in the original news accounts of Graceland was its marble fireplace. Granite countertops and similar features are now present even in apartments marketed to college students. If we dig into the support systems, the differences are even more dramatic. Home Depot sells furnaces more efficient and quieter than what Elvis had in the 1970s; windows today are dramatically superior in their construction and energy efficiency; and appliances such as washing machines and dryers have options unimaginable to even the wealthiest in the 1970s.

In his classic 1945 American Economic Review article, “The Use of Knowledge in Society,” F. A. Hayek termed the price system “a marvel” for its ability to improve the quality of life without any central direction. That’s just the right word. My family (along with yours) lives a quality of life most of us could hardly imagine in 1957 or 1977. It is a marvel that we have come so far so fast. Contrary to Harvard professor (and Massachusetts senate candidate) Elizabeth Warren’s recent claim that we owe a good deal of our success to government, the improvements are the results of innovations by engineers, business people, and others striving to create their own success and to find the resources to achieve their own dreams.

Today most Americans live lives that approach and in some cases exceed the material well-being available only to rich celebrities just 40 years ago. Given how much Elvis Presley loved his fans, I think that’s something he would be happy to know.

Overestimating the power of Progressive ideas locally is difficult. Many who eschew the heavy hand of the federal government—railing against corporate bailouts, Medicare, or government ownership of companies—embrace even more extensive government manipulation of private market activity closer to home.

For example, taxicabs are almost all privately owned and operated in the United States, yet municipal taxi commissions and boards regulate virtually every aspect of the business. The codes themselves can include a dizzying array of regulations, from specific details about where cab companies can locate, to how many hours they can operate, what price they can charge, and what equipment they can use to accept calls. My own survey of taxi regulations in 15 cities uncovered 27 separate types of regulations.

Considered separately each regulation may seem reasonable, but the cumulative result has been to protect exiting companies from competition, depress wages for drivers, discourage innovation, and limit services to new customers and markets. Taxi regulations and codes fix prices by law, mandate the way fares are collected (meters), dictate hours of operation (24-hour dispatch service), regulate financial operations (by requiring financial reporting), promote public safety (vehicle inspections), set standards for language fluency and driver competence (tests), and include dozens of other regulations.

Over time many of these ordinances have grown in scope. Where a code might have first been established to ensure a basic minimum level of safety, perhaps requiring vehicle inspections for brakes or lights, modern codes can stretch to dozens and hundreds of pages involving complex and often complicated procedures and standards as the commission legislates every detail of running a taxi business. New York City has just completed a public bidding process for selecting the kind of vehicle taxi drivers will be allowed to use.

This detailed approach to regulation of private business is consistent with the Progressive mindset and political philosophy. Progressives for the most part adopt what political scientists call a “public interest” view of government. Elected officials are said to represent the will of the people, and civil servants thus dutifully carry out their vision of the public will. The problem is that public officials and taxi boards don’t always pursue the public interest, lack sufficient information about the taxi market itself, and often rely on cumbersome, outdated decision-making to enforce their codes and rules.

For example, most taxicab codes assume that operators are full-time employees. In fact most drivers are part-time and choose to drive taxis for lifestyle reasons as much as to maximize their income. My study of the taxi market in Port Chester, New York, estimated that two-thirds of the drivers are part-time. In addition, fares and trips were not evenly distributed throughout the day: They peaked at specific times such as the morning and afternoon rush hours and lunch. Full-time drivers tended to earn fares throughout the day. Part-time drivers met excess demand. In addition, most revenue was earned taking patrons outside the city (and the reach of the taxi commission).

Regulation vs. Diversity

Most taxi codes can’t accommodate this kind of diversity within the industry. The regulations are one-size-fits-all, and almost all either fail to address or acknowledge the valuable role part-time drivers play in meeting customer demand. Part-time drivers, for example, often handle calls through a cell phone and focus their activity around fixed passenger pickup places such as taxi stands, the airport, or train stations. They often charge fixed prices for specific types of trips, regardless of distance. Many drivers also develop a steady and stable client list through personal service.

Yet taxi regulations force the same requirements on every car, driver, and company regardless of service provided. Often part-time drivers are still required to have meters that calculate fares based on distance (when flat fares can easily be negotiated), be officially attached to a dispatch company, or meet requirements such as maximum age limits on vehicles regardless of amount of use. Quite simply, the taxi codes can’t keep up with the dynamics of the service provided.

Some cities regulate taxis at even greater levels of detail. Many cities require companies to submit financial reports to the local government so officials can evaluate their fiscal solvency when they renew dispatch company licenses. Ordinances require dispatch companies to lease office space regardless of the number of calls or the technology that enables them to handle calls in a home office. Many ordinances also require all companies, regardless of their market or client base, to formally affiliate with a dispatch company.

In a survey of taxicab regulations in Ohio, Taxicab Regulation in Ohio’s Largest Cities (1999), the Buckeye Institute found that cities regulated prices in a variety of ways. For example, two cities—Akron and Canton—did not regulate taxi fares at all. They let individual companies decide what prices to charge. The state’s largest cities—Cincinnati, Cleveland, and Columbus—set maximum rates. Only Toledo and Youngstown set rates by ordinance.

In my survey no single regulation was found in a majority of cities. In fact, fewer than half the cities surveyed required fares to be set by distance-based meters. Only 40 percent regulated logos and taxi colors, or mandated radio dispatching. One-third capped the number of vehicles, required public hearings for licenses, or mandated service hours or physician certificates. In terms of overall burden the most restrictive cities required 13 separate regulations while others required just a handful.

Optimal Numbers

Perhaps the most illustrative example of the “government knows best” mindset is found in regulations limiting the number of cabs, drivers, and companies. The theory is that there is an “optimal” number of vehicles for a given market size and the commission’s staff can figure out what that is. It is also presumed that the regulatory board will make decisions about what rules to enforce based on objective criteria. A cottage industry has even emerged of consulting firms that have developed sophisticated statistical models to estimate the number of taxicabs that should be allowed to operate in a city.

In the real world, however, the demand for taxis is dynamic and markets are often separated by the types and needs of diverse customer bases. In Dayton, Ohio, one company focused on airport services, another on spontaneous calls from the street (street “hails”), and a third on specialized services to the local transit agency.

Moreover, the boards and commissions themselves are mostly run by citizens with little knowledge of the taxi market and staff that have little background in the specific workings of the industry.

Not surprisingly, inefficiencies reign. One indicator of inefficiency is the black market for taxi medallions (government-granted licenses that allow someone to operate a taxicab). Caps on the number of taxis as well as other regulations increase the costs of entry into the business, restricting supply well below demand. Common sense (as well as basic economics) suggests that if enough taxis are plying the streets of cities to meet demand, illegal medallion markets would not exist.

In fact medallions in the black market can command staggering sums. In New York City a cap on taxicabs created an illegal market of “gypsy cabs” that may have reached 30,000 in the 1990s. While the city government is slowly increasing the number of medallions, the official price runs upwards of $600,000. In fact, two medallions recently sold for $1 million each in a private sale in October 2011. In Boston the going rate for a black-market license is $400,000. In less restrictive cities licenses still can cost $25,000 or $30,000.

Pricing Out the Competition

While this price might not seem high for many middle-income families, the typical annual wage for a taxicab driver hovers around $30,000. In effect the high prices for a medallion make it virtually impossible for drivers to save up enough money to buy their own cab or start their own company. Increasingly severe restrictions are a boon to existing medallion holders because the value of their licenses increase. Thus one of the more pernicious effects of tightly regulating the taxi market and preventing supply from fluctuating to meet demand is dramatically fewer entrepreneurial opportunities. Low-income and minority communities are hit the hardest when markets that should have easy access are closed.

Meanwhile existing cab companies, which often have representatives on the boards and commissions that regulate their industries, typically use their influence to prevent competition. Local taxicab ordinances often have “need and necessity” provisions for new applicants that end up protecting a cartel of existing taxicab companies. Under such provisions the presumption is that the commission or board has already set the optimal number of cabs and level of service for the city. A prospective cab company must present evidence that it will serve a part of the market that is not currently being served by existing companies. Often applications are denied simply because existing companies showed they have the capacity to serve the market if it existed. New applicants are caught in a regulatory Catch-22. They have to prove that a market exists for their service. But if that market existed, established companies argue, they would be serving it. Therefore the underserved market doesn’t exist. Application denied.

Unfortunately taxicab regulation demonstrates yet another hard, cold reality of politics: Once the regulatory authority is established in local ordinances, local politics make it difficult to deregulate. The benefits of regulation are concentrated in the hands of a few key players, usually existing taxicab owners and medallion holders, who have strong financial incentives to lock out new competition. They have access to the regulatory apparatus and relationships with regulators that put upstart companies and innovators at a distinct disadvantage. Entrepreneurs are not free to compete in the marketplace. To enter the market they need the permission of regulators influenced by those with a stake in maintaining the status quo.

Laudable Beginnings

Progressives led municipal reform movements across the nation during the 1880s and 1890s in a laudable attempt to purge cronyism and patronage from corrupt political systems. They led efforts to create electoral transparency and fiscal accountability, and recast politics in a more “professional” framework. Many of these municipal reforms led to the professionalization of city management. Even the institution of civil service was a step forward for most cities. Civil-service standards and exams for police and firefighters helped professionalize services. Although the downstream effects of public-sector unionization led to bloated budgets and inefficiency, fiscal transparency and accountability were laudable reforms.

Progressivism, however, has a dark side few fully appreciated at the time. Caught up in the emotional appeal of “scientific management,” many thought government could and should be run like a business. One of the highest profile Progressives was President Woodrow Wilson, a father of modern-day public administration, who wrote pioneering articles in the late nineteenth century advocating the separation of administration from politics in government. The theory put the trained expert—the bureaucrat—at the center of political administration.

Few areas of urban policy reflect the overly optimistic worldview of Progressive thinking, and the negative consequences for consumers and suppliers, as much as taxicab regulation. The fatal flaw in the Progressive view is the belief that administration could in fact be separated from political pressure. Unlike the private market, where greed, egos, and inefficiency would be punished by losses, legislative election cycles are poor mechanisms for providing accountability.

I’m not convinced.

To be sure, it’s easy to see why an uncritical observer might think people like Krugman and Robinson are right. We can certainly look back on centuries—millennia, even—during which poor people have gotten the short end of the stick, in which poverty has coexisted, heart-breakingly, with great wealth. And perhaps those memories make it tempting for some people to buy the civics-class story that the only thing standing between us and a world full of Dickensian nightmares is activist government.

But that would be a mistake. The poverty and exclusion evident throughout history, and still very much a part of today’s world, can frequently be traced precisely to the unjust acts of government officials and their cronies. When people are denied ownership of land they’ve homesteaded with their labor so feudal overlords can turn them into serfs, the culprit isn’t freedom, or the market—it’s government support for the wealthy and well-connected. Ditto for cases in which people are denied the right to work by laws, like England’s old Acts of Settlement, that limit their ability to travel in search of new opportunities.

More generally: There’s no reason to trust activist government because the people in charge can be expected, time and again, to back those with power and influence over those without. Being poor doesn’t make you a favored object of government attention—instead, it means you’re likely to be used and abused. Politicians will claim to be defending your interests when they’re really promoting their own. They’ll continue to enact rules that limit your ability to support yourself and make it costly for you to provide decent shelter and clothing for yourself and your family. And law enforcement agencies will subject you to violence—whether they’re enforcing drug laws or immigration restrictions, or ensuring that you conform to zoning regulations and local codes designed to be easy for middle-class people to follow while making your life costly and difficult.

Government action in contemporary society makes and keeps people poor. Licensing laws, zoning regulations, and similar restrictions make it hard for poor people to enter particular job markets and to operate businesses out of their homes. Without these kinds of government regulations in place, people would be less likely to be poor.

Poverty is a systemic problem. It’s a product of lots of different, overlapping, mutually reinforcing factors. Getting rid of just one abuse or inequity here or there might well leave many people poor. But systemic change, change that addresses all the different factors that make poverty a persistent, ugly feature of our lives, can make a profound difference. And the kind of systemic change we need is change that eliminates State-secured privileges and State-imposed liabilities, not another State-created bureaucracy designed to ameliorate problems the State itself has created.

State Poverty

Government’s role in making and keeping people poor is just one of the factors that make poverty endemic and make it hard to survive while poor.

For instance: Governments don’t treat recipients of the antipoverty aid they disburse especially well. It’s important to avoid comparing idealized State practice with imaginary worst-case practice in the government’s absence. If we focus on actual government practice we find that poor people are not served particularly well by the State, which routinely intrudes into the lives of recipients of assistance, violating their privacy and seeking to regulate their behavior. People pay a high price for aid from the State. Government aid programs come with hidden price tags.

And governments increase the number of poor people in part precisely through some antipoverty programs, which can create perverse incentives both for people to remain poor enough to qualify for government funds and for bureaucrats to keep people poor in order to retain their own jobs.

Governments raise the cost of being poor. Building codes and zoning regulations raise the cost of housing and so make it harder for people to find inexpensive homes. Some people are forced to live without permanent housing at all, while others must spend much larger fractions of their incomes on housing than they otherwise would. As for food, that’s also more expensive thanks to agricultural tariffs and import quotas. In the absence of government policies that make meeting their basic needs unnecessarily expensive, poor people would have more disposable income and would be more economically secure.

More than that, though, governments actively take money from poor people. Many poor people pay more in taxes than they get back in services under the State’s rule. These people would have more resources on net in the absence of the State’s demand for tax money. In addition many people are poor, or poorer, today because the State has actively stolen land and other resources from them or their ancestors or has sanctioned such thefts committed by the wealthy and well-connected. (Think eminent domain among other methods.) Historically the existence of a peasant class and of a class of displaced urban workers willing to accept employment on dismal terms is inexplicable without reference to State violence or State tolerance for or endorsement of violence by the wealthy and well-connected.

The government raises the cost of obtaining key goods and services. The State does a range of things (notably requiring professional licenses, hospital accreditation, and prescriptions and enforcing drug and medical device patents, and other restraints on trade) to make particular services such as health care especially expensive.

All these different factors fit together, each one making people’s conditions worse than they’d otherwise be and making the effects of the other factors more severe. People often start out with less money because of large-scale past injustices. They have less money now because of government limitations on the kind of work they can do and where they can do it. Their ability to provide decent lives for themselves and their families is further limited because the government raises the cost of living, and government regulation of the economy drives down the overall level of productivity even further in ways that obviously hurt the poor the most.

In sum the government plays a crucial role in creating and perpetuating poverty—and that’s really the most important thing to recognize. But of course that doesn’t mean that, absent the government’s abuses, people wouldn’t have accidents, confront disasters, and make unwise choices. With costs of living reduced, as they would be if the government completely left the economy alone, people would find it easier to deal with these challenges. They’d still need one another’s help, but those who think there’d be no way to get this kind of help except through tax-funded government agencies are mistaken.

The existence of State antipoverty programs crowds out alternatives and reduces the effectiveness of those that remain. It’s easy to view these alternatives as essentially ineffectual and anemic. But a crucial reason they’re not more vibrant is that State action commandeers money and attention that might otherwise be directed to these alternatives, creating the illusion that in the government’s absence, they couldn’t be much more effective.

Support for poverty relief doesn’t just come from tax funds now. People give money to charitable causes over and above their tax bills today, despite the huge sums the State claims. There’s no reason to think they would not do so if the government absented itself from economic life. It is naive to suppose that the wealthy and powerful are opposed to State funding for services to the poor at present; the poor have far less clout than the wealthy and powerful, and yet the State provides minimal services for poor people. Why suppose that wealthy and well-connected people willing to see the State spend their tax money to support services for the poor would be dramatically less willing to contribute to the support of such services if the government weren’t involved? (Why do people give money to good causes, including voluntary programs that help the poor? Why do wealthy and well-connected people endorse State spending on programs that provide services to poor people? Presumably for a combination of reasons, including, in no particular order, compassion, social norms, the desire for good reputations, the desire to avoid bad reputations, and the desire to avoid social disorder. All of these reasons would be operative in a free society.)

Mutual Aid

In addition, mutual-aid networks could provide many of the services well-intentioned statists want the government to offer. Societies in which people pooled risk and provided pensions, health care, and other services functioned effectively before the rise of State social services, and there’s no reason they couldn’t do so again in the government’s absence—and, indeed, wouldn’t function much better given that people would have access to more resources and the State would not be regulating them out of existence.

Both charity and mutual aid are more viable than government-run antipoverty programs, more able to help poor people, precisely because those programs have high administrative costs. (Thanks to Tom Woods for this point.) Programs supported freely by people in the government’s absence would not feature such high costs. Because donors could choose among multiple programs, there would be persistent pressure for administrative costs to be reduced.

In addition, social norms could ensure predictable, consistent support of community-wide aid programs without taxation. General acceptance of a social norm entailing regular contributions to a community income support fund, or leaving the edges of fields available (as in Leviticus) for gleaning, could ensure that poor people who needed it could rely on community assistance.

State-managed antipoverty programs draw on tax resources taken unwillingly from people. People work less energetically and enthusiastically when they know that some of what they produce will in effect be taken from them at gunpoint. Thus taking resources from people through taxation to fund antipoverty programs can function as a drag on the economy. By contrast, when people give willingly to support antipoverty efforts, their own objectives are not being thwarted; if they wish to support these efforts, they will be willing to work hard to do so. With the government out of the economy, people can work enthusiastically to earn wealth and foster overall economic productivity even as they support significant antipoverty efforts.

Advocates of government antipoverty programs sometimes worry that the absence of the State would mean a return to the misery and squalor typical of many people’s lives in the eighteenth and nineteenth centuries; they too often attribute these conditions to the absence of State regulation and antipoverty programs. But it’s important to emphasize that these conditions reflected the much lower overall levels of societal wealth. People weren’t poor because of the absence of State regulations and antipoverty programs; they were poor in part because there was very little wealth overall and thus less for those who wanted to help the poor. (Thanks to Tom Woods again on this score.) And of course the misery and squalor weren’t entirely natural or inevitable: Some resulted from persistent—and remediable—injustice on the part of elites and their political cronies.

Rectification

It’s also important to emphasize that getting the State out of the economy doesn’t—can’t—mean simply stopping State intervention. It also has to mean providing rectification for State-committed and State-sanctioned wrongdoing. Politically privileged elites have stolen land and resources from poor, working-class, and middle-class people—directly and by securing tax-funded subsidies and government contracts. There’s no way to understand the distribution of wealth and power in contemporary society without acknowledging this history of theft and violence. To the extent that it’s possible, past injustice ought to be remedied. For instance, people ought to be able to homestead land engrossed by the State, especially land allocated arbitrarily to the State’s cronies. If land and other resources were made available for homesteading or returned to those from whom they were taken, the poverty of the State’s victims could be significantly reduced.

Structural changes would also make poverty less likely in the absence of government intervention. Rules that made it harder for absentee landlords to sit on undeveloped, uncultivated land could open up this land for homesteading by people with limited resources and thus provide them an avenue to greater economic security. Eliminating subsidies and legal privileges for hierarchical corporations would increase the likelihood that people could enjoy the job security associated with working for themselves (with less risk than accompanies being an independent contractor in a less healthy economy) or in partnerships or cooperatives and that, when they did work for others, they could bargain successfully for better compensation.

Libertarianism isn’t a philosophy of atomism. Libertarians have every reason to value interdependence and shared responsibility. Obviously, that’s true of the interdependence fostered by the market order. But it’s also true of the interdependence of friends and family members and strangers who work together to help one another meet life’s challenges. People working together don’t need the government’s help to deal with poverty. The government often makes the problem worse, and it’s definitely not needed to remedy deprivation and economic insecurity.

Poverty has multiple causes—but many of those causes interact with and reinforce one another. Many are created by government action. If we get the government out of the economy and see to it that past injustices committed or sanctioned by the government are remedied, we can effectively meet the challenge of poverty together.

It is. On the other hand, this is not: “If Napoleon lost the Battle of Waterloo, then Spongebob Squarepants is the Mayor of Minneapolis.”

Confused? Welcome to our government-school curricula.

In the July/August 2011 issue of The Freeman, Neal McClusky warned of the efforts of the U.S. Department of Education to establish a national curriculum in our schools (“Coming Soon: The Federal Department of Standardized Minds”). As a teacher, I agree this would be a serious mistake. A monolithic school system would eliminate what little opportunity for innovation educators still possess and would force students into cookie-cutter courses, regardless of the students’ needs and abilities. It would lower our disgraceful levels of academic performance even further and, most ominously, it could facilitate the establishment of a national system of propaganda masquerading as education.

To understand why a national curriculum would lead to these consequences, we need only to look at the consequences of curricula already established by state and local governments.

The SpongeBob example is indicative. It illustrates a topic from the logic section of the high school mathematics curricula of several states, including New York and California. It is based on Bertrand Russell’s formal-logic convention known as material implication, the explanation of which could easily run to the length of a book and confuse most highly educated adults. If you examine any series of high school mathematics textbooks published in the United States within the last 30 years, you are certain to find material implication along with abstruse aspects of number theory, non-Euclidian geometries, and a host of other unrelated, obscure topics. This constitutes the knowledge of mathematics that state bureaucrats require our children to learn.

Before becoming a teacher I spent 26 years as an executive managing departments that specialized in the use of applied mathematics for a major bank. In 1998 I established a unit responsible for guiding the development of quantitative tools for a franchise that boasted 125 million customers spread out over 102 countries. Given the scope of the assignment, I had carte blanche to employ the best analytical talent available. I hired half a dozen scientists and mathematicians from the National Laboratory System, the National Institutes of Health, and an Ivy League faculty. One of my analysts was described by a Nobel laureate as the “best research scientist under 40 in the world,” another as “the best thing to come out of Los Alamos since the bomb.” As much as I like bragging about my unit, there is a reason I’m bringing this up: Not a single one of these exceptionally talented individuals was an American citizen. With one exception, though, they all held doctorates from leading American universities. This absence of qualified American analysts was not a coincidence: Americans were systematically underrepresented in the bank’s several other analytical units, as well as in the analytical units of our competitors.

Incoherent Curriculum

I began teaching mathematics and social studies at the high school level in February 2003. By June of that year I understood clearly why there were relatively few qualified Americans in quantitative analytical positions in banking. Our state curricula have rendered the subject of mathematics both incomprehensible and largely irrelevant. The blueprint for the last half-century of U.S. instruction in quantitative skills was developed primarily by two groups: professors of abstract mathematics and progressive professors of education. A striking characteristic of the mathematicians was their limited knowledge of the practical applications of their discipline. A striking characteristic of the educators was their willingness to accept any content from the mathematicians, regardless of how arcane it was. The result was “the new math,” a disintegrated hodgepodge that has caused mathematics to become unfathomable to young minds.

The nature of the government school curriculum development process militates against the creation of an integrated, hierarchical presentation of any subject matter. State curricula are developed by large committees of experts who often have their own pet themes and topics they wish to insert into our schools. The result invariably becomes a laundry list of unconnected information. Once assessment criteria are established, the “knowledge by fiat” process is complete and these curricula become impervious to revision, regardless of whether they are relevant to students’ future adult lives.

This process has generated curricula that make it extremely difficult for students to develop a coherent knowledge of mathematics. Teachers are required to introduce topics seemingly at random, and in many instances it is impossible for teachers to tie these topics to other information the student has encountered. The quadratic formula, which is indispensable in the design of objects from flashlights to the Golden Gate Bridge, typically is introduced well before most students are capable of understanding its derivation or even its purpose. Since students are required to know this formula, they often “learn” it by singing it to the tune of “Pop Goes the Weasel.” In geometry we require adolescents to learn excruciatingly complex definitions and terms in order to prove the simplest theorems. Euclid’s Elements was devised about 300 BC and until the nineteenth century was regarded as the standard of geometric proof. Only after the widespread acceptance of non-Euclidian geometries did mathematicians realize Euclid’s system relied on more fundamental axioms than he stated. As mathematics professor Morris Klein has pointed out, for 22 centuries mathematicians failed to detect Euclid’s lack of rigor, yet today we expect adolescents not only to see this but also to grasp the need for proof that involves axioms that are more difficult to understand than the theorems they support. No justification or motivation is provided for this approach to geometry.

What is the effect of these state curricula? Students come to view mathematics as a senseless game unrelated to reality. They have to memorize procedures and then spit them back so they can test well enough to move on to memorize higher level, mind-numbing procedures that they will spit back at some later date. Mathematics has enabled man to grasp everything from the nature of subatomic particles to the shape of the universe. It is now almost universally regarded by American students simply as a series of “floating abstractions,” with no ties to anything relevant or real, on the same metaphysical level as Santa Claus.

One of the most disconcerting phenomena I have encountered since I have become a teacher is that by the time they reach high school, large numbers of students do not want to understand the basis of mathematics. They are actually resistant to any attempts to show how the material we are covering comes from the real world. I have lost track of the number of times students have said, in effect, “Don’t explain this topic to me. Just give me the formula and let me memorize it.” This should frighten anyone involved in education. Our schools are producing students who have reached the stage where they have given up any attempt to grasp the conceptual foundation of mathematics. To them, learning mathematics is simply a matter of learning how to manipulate a series of strange little symbols whose meanings defy comprehension. Thanks to our state mathematics curricula, young men and women are declaring nakedly that they have the learning processes of parrots.

There are several improvements to our mathematics curricula that could be made immediately if state involvement were ended. The most obvious would involve a complete overhaul of content and a careful ordering of topics so that students can obtain a hierarchical understanding of this subject. Additionally, to provide students with an appreciation of the practical necessity of mathematics, its instruction should be coordinated carefully with instruction in science. Basic mathematics is about measurement. Students need something to measure to make this subject relevant and to motivate an awareness of its enormous power. Coordinating it with science would achieve both of these ends. Unfortunately the lockstep approach to knowledge transmission dictated by state departments of education makes any of these improvements impossible.

The most disturbing consequences of government control of curricula, however, occur within the social sciences. These courses typically are developed by individuals who either have no experience with free markets or who are openly hostile to them. As a result the distinction between education and indoctrination is often ignored. These beliefs are rarely questioned.

A review of the various states’ performance standards in the social sciences discloses little evidence of anti-market bias. Instead the aversion comes primarily from two sources: a tendency of people who are attracted to employment in the government sector to embrace statist politics, combined with the acceptance by many teachers of fallacies regarding the nature of a free society.

Anti-Market Proselytizing

There are strong incentives for government school employees to favor the expansion of government, and teachers’ unions don’t even pretend to be evenhanded ideologically. The political orientation of most teachers has been demonstrated recently by their reaction to our current economic malaise. Any attempts to rein in government spending, especially on education, are met with harsh condemnations within the government school community. National Education Association president Dennis Van Roekel has described the attempts of various state governments to confront ballooning pension liabilities as “blistering attacks on working families” and has characterized the actions of lawmakers as “fitting for comic book arch-villains.” American Federation of Teachers president Randi Weingarten likewise has greeted any efforts to improve school efficiency with denunciations that border on allegations of child abuse. Every discussion of the causes of the cutbacks in education, within any government school forum, has been overwhelmingly one-sided, with teachers blaming everyone who favors limited government.

Anti-market proselytizing is the most dangerous consequence of entrusting the education of our children to a government-run monopoly. If schools presented the ethical and political justifications of a free society fairly, there would be no reason to fear the introduction of any other viewpoints, regardless of how cogently they were argued. The problem is our system is rigged against this. As Isabel Paterson pointed out in The God of the Machine, “[E]very politically controlled educational system will inculcate the doctrine of state supremacy sooner or later. . . . Once that doctrine has been accepted, it becomes an almost superhuman task to break the stranglehold of the political power over the life of the citizen.” We have not yet reached this point, but it is clearly where we are headed. Avoiding it will require profound changes in the structure of our schools. Contrary to the aspirations of the U.S. Department of Education, ending the State’s role in curriculum determination is an excellent place to start making these changes.

Ridiculous Fads

Educators have been remarkably unscathed by the consequences of their teaching methodologies. This has led to the adoption of ridiculous fads, primarily at the local level, that have generated significant cognitive damage. In The War Against Grammar, classics professor David Mulroy describes how many school districts effectively no longer require instruction in formal grammar. The “invented spelling” movement likewise has resulted in the relaxation of the requirement that beginning readers learn to spell correctly. Instruction in handwriting may be on the chopping block presently. In reading, the abandonment of phonics in favor of “whole-word recognition” has led to a generation of nearly illiterate Americans. This occurred despite overwhelming evidence of the inadequacy of the whole-word approach. None of these developments could have transpired if there had been a genuine marketplace for ideas in instructional methods.

The latest fad, surely to be incorporated into any set of national standards, is the call for a “21st-Century Curriculum.” Although inchoate, it portends to be the next step in the abdication of the responsibility to train students’ conceptual faculties. It focuses on the development of skills in the use of multimedia, technology, and “collaborative problem solving,” but there is no mention of students’ glaring deficiencies in mastering the rudiments of learning. It incorporates Howard Gardner’s theory of multiple intelligences that, although not Professor Gardner’s fault, has given rise to the romantic notion that every student can excel at something. This will likely lead to a distorted emphasis placed on music, art, dance, and athletics despite the limited career opportunities associated with these skills. This curriculum will replace the vestiges of a rational, structured approach to education with less content, an emphasis on “life skills,” and the practice of plunging the intellectually nascent into “real-world contexts” wherein they engage in “problem-based learning.” Our 12-year-olds may no longer be able to read, but maybe they will finally resolve the Arab-Israeli conflict.

The only students who currently receive any benefits from improved curricula are high-achieving high school students. The competition among Advanced Placement, International Baccalaureate, and college-extension courses provides the academically elite with several options to meet their requirements that are far better than their government school alternatives. The institutions that provide these courses devote a great deal of time and resources to assuring they are appropriately structured, accurately graded, and competently taught. Unlike their state counterparts, these purveyors do not have a captive market. They must strive constantly to improve their quality while minimizing expenses. This is what students of every caliber in every grade desperately need: expanded, high-quality curriculum choices. Sadly, in the absence of the State releasing its grip on course contents, all we can look forward to is the possibility of another level of federal interference.

Most of the attention of educational reformers has focused on teacher quality and parental choice. Although these concerns certainly are legitimate, they pale in comparison to the problems caused by government control of curricula. Incomprehensible courses taught by skilled teachers in charter schools are still incomprehensible. Moreover, it is dangerous to invest any entity—government or private—with the sole authority to determine the information to be taught to our children. We have unelected officials determining what constitutes appropriate knowledge. This is too close to the State determining the Truth.

If we want genuine educational reform, we must get the bureaucrat out of the classroom.

One portent of Progressivism is found in the Liberal Republican movement of the 1870s. Prone to Paris Commune panics, distressed by strikes and labor trouble, such reformers as Charles Francis Adams (descended from John Adams), Francis Amasa Walker (Boston laissez-faire economist and Indian manager), and E. L. Godkin (Anglo-Irish editor of The Nation) concluded that efficient, inexpensive bureaucracy was just the ticket. It could manage questions too important to be left to democratic processes, especially those touching on the lately acquired government-bestowed advantages of big business. (“Efficiency” had a great future before it.) This movement was urban, basically eastern, and closely connected with economic elites (Nancy Cohen, Reconstruction of American Liberalism).

Another tributary into Progressivism—populism—began in opposition to all the above. Populists stated the case for tariff- and debt-ridden farmers in the South and the West. Their key innovation, or deviation from the Jeffersonian-Jacksonian tradition, was the belief that “the powers of government . . . should be expanded,” as their 1892 platform put it. How far this idea actually reached depended on the particular populist, but this new approach brought some of them closer, in method anyway, to the later Progressive movement.

A third source of Progressivism was a university-based intellectual movement whose leading figures included Justice Oliver Wendell Holmes, philosopher John Dewey, economist Thorstein Veblen, and historians James Harvey Robinson and Charles A. Beard. What united them was historicism and cultural organicism (Morton White, Social Thought in America). The ferment amounted to “a pragmatic revolt against formalism, abstraction and deductive methodology in the social sciences” (Wallace Mendelson, Capitalism, Democracy, and the Supreme Court). Darwinism, variously read, and scientism were among their weaponry.

A vaguer force was post-millennial Protestant reform, originally based in Greater New England, but now of national scope. Kicked off center-stage by science, many Protestant clergymen engaged social causes in a distinctly Progressive spirit. All these tendencies, plus an ingrained American penchant toward panic, pointed toward a busy future.

These forces (and perhaps others) converged on certain economic, social, and political problems stemming from America’s rapid industrial growth: the Gilded Age’s blatant corruption and subsidies (embodied in the railroads, their origins, and practices), labor strife, urban poverty, economic concentration, and financial manipulation. (Subtext: no stone unturned, no child left alone, no person unregistered, and no physical entity unregulated.) (See my October Freeman article, “The Gilded Age: A Modest Revision.”)

Progressives were fierce critics of federal courts, which they saw as the bulwark of big business. (This was never exactly untrue.) Their foremost concern was how to sustain the new industrial order while conserving American values and institutions. As they saw it, the main alternatives were: 1) restore competition by various means, including antitrust laws, or 2) accept and closely regulate an economy of large corporations. These conflicting visions constituted a serious fault line within Progressivism.

East versus West Approximates Hamilton versus Jefferson

New Republic editor Herbert Croly tried to bridge the Progressives’ divide by setting Hamiltonian means alongside Jeffersonian ends—a “synthesis” that could not survive the slightest clash with real life. Taking “Jeffersonian” as answering roughly to Plan I (restore competition) and “Hamiltonian” as answering to Plan II (accept and regulate big corporations), we can spot the rough geographical outlines of what were (as much of the literature suggests) two quite different forms of Progressivism.

Self-identified Progressives were concentrated in the GOP. Eastern Progressives proposed to regulate big corporate businesses, whose rise they viewed as inevitable. Thus for the eastern wing of the Republican Party “the problem was not how to remedy the evils of the new finance capitalism. [It was] how to manage the discontent it aroused, particularly in the once-docile middle class.” The eastern Progressive icon, Theodore Roosevelt, “wished to see the American people governed by a liberal oligarchy; he did not want them governing themselves.” By contrast, western Progressives tended to see “big business as an artificial menace to self-government, not merely aided but made possible by a whole system of special privilege” (Walter Karp, Politics of War). This means, in effect, that westerners thought some of the damage could be undone. Western Progressivism owed more to populism; it was “more rural and sectional than nationwide” and “represents, in a sense, the roots of modern American isolationism. [It was] less pacifistic and isolationist than it was nationalist,” but “opposed to imperialism or colonialism or militarism.” Such Progressives rejected American imperial initiatives precisely because of their apparent connections to Wall Street and the British Empire (Richard Hofstadter, The Age of Reform).

Given this political geography, there was considerable overlap between farm spokesmen and these “populist” Progressives. Historian Elizabeth Sanders writes that the farm bloc pursued specific reforms through statutory regulations enacted by Congress and enforceable in the courts, and not through expert commissions and administrative bureaucracies. To that extent, then, they were antibureaucratic. The more developed parts of the Midwest and Pacific coast fell midway between populism and eastern Progressivism, while peripheral western zones and much of the South remained essentially populist.

Further: “[I]t was the periphery that furnished most of the opposition, in both parties, to Wilson’s preparedness efforts, for in this momentous sense . . . the agrarians were not statists: far more than other sections, the periphery opposed war, standing armies, and imperialism” (Sanders, Roots of Reform, italics added). Certainly, these positions ought to count on the antistatist side of the ledger, unless war, militarism, and empire are not causes and instruments of aggravated statism. (President Wilson’s ruthless purge after 1917 of antiwar Democrats has long obscured the antiwar aspects of populism in the South. See Anthony Gaughan, “Woodrow Wilson and the Rise of Militant Interventionism in the South,” Journal of Southern History, November 1999.)

It was not just farmers with whom quasi-Jeffersonian western Progressives identified. Senator William Borah (R., Id.) saw himself as a defender of small business and carried on a two-front war against large corporations and state bureaucracies. A noninterventionist foreign policy completed the package. And somewhat jarringly perhaps, Georgism was the default economic position of many Progressives. This makes sense, however, because Henry George’s reform program, like that of the farm bloc, rejected administrative solutions. (Ransom E. Noble, “Henry George and the Progressive Movement,” American Journal of Economics and Sociology, April 1949.)

Creeping American Statism

There are attempts from time to time to father American statism on Progressivism. This will hardly do. First, union-nationalist theorists like John W. Burgess and Orestes Brownson reveled in the vastness of national sovereignty after 1865. In cases like In re Neagle (1890), the U.S. Supreme Court theorized abstrusely on national sovereignty per square foot. At the level of ideas there was quite a lot of statism about. Second, as legal historian William Novak writes, a steadily rising curve of interfering (“statist”) state and federal legislation runs from the 1870s into the 1920s. This upward trend was across-the-board and predated Progressivism. (“The Legal Origins of the Modern American State,” in Austin Sarat et al., Looking Back at Law’s Century.)

Here is one example. After the biggest western land-grabbers crowded small farmers onto marginal lands, especially in California (see my “The American Land Question,” Freeman, July/August 2009), the cry went up for federal engineers to build colossal dams in the arid West to help small farmers become competitive. These projects reinvented ancient hydraulic despotism, coupling it rhetorically with a Jeffersonian end. (Donald Worcester, Rivers of Empire). Here Veblen’s favorite social class, the engineers, did wondrous works and overcame nature itself over many decades. It was impressive—but hardly chargeable to Progressivism.

Progressivism, Law, and State

Eastern, urban Progressives were committed to efficiency, expertise, regulatory bureaucracy, and scientism. Their program was effectively a political phase of corporate liberalism, of which Teddy Roosevelt, an artificial westerner, and Woodrow Wilson, an ex-southerner, offered somewhat different brands. (Wilson’s corporate liberalism did not wear the Progressive label.)

An important point of historical controversy concerns the relation of big business to Progressive legislation. Gabriel Kolko has argued that many key statutes were prepared by big-business lawyers and contained provisions intended to cartelize industries by restricting competition and discouraging new entrants. Sanders counters that the resistance of the farm bloc and organized labor sometimes kept business from getting exactly what it wanted (Kolko, Triumph of Conservatism; Sanders, 179–182).

The related “capture” thesis holds that, whatever the intention of legislators, the businesses to be regulated will eventually dominate the relevant bureaucracy. American socialist William J. Ghent commented that regulatory bodies were “Irresponsible to both the people and the people’s officials” and “peculiarly liable to the influence of the Big Men” (Our Benevolent Feudalism). In private, businessmen themselves agreed with Ghent.

To the extent that eastern Progressives were able, between 1900 and 1916, to control legislative agendas nationally and in the states, they unleashed the reign of bureaucratic tidy-mindedness. In southern states legislatures fine-tuned racial segregation and classification (George M. Frederickson, White Supremacy: A Comparative Study in American and South African History). In a cross-section of states, legislatures blessed the pseudoscience of eugenics and provided for sterilization of unwanted classes. At the federal level Justice Holmes helped out by finding such laws constitutional. (See Edward Black, War Against the Weak.)

There was also what we might call “departicipation”—a trend that reflected upper- and middle-class WASP panic about the working classes, immigrants, and “unassimilable” races. Instances of departicipation included judicial rules narrowing legal standing, increasing top-down control over juries, and eroding common-law concepts; voter disenfranchisement North and South; city manager regimes with at-large voting in city elections and standing armies of police; and finally, detailed task-management in the workplace, or Taylorism. (On the last, see Kevin A. Carson in the September 2011 Freeman).

In foreign affairs many eastern, corporate-liberal Progressives favored forceful American expansion into overseas markets. If this required empire—and even war to secure the deal—they were up for it.

Progressivism: A Partial Defense

Murray Rothbard famously called World War I the “fulfillment of Progressivism,” a substantially true assertion, if eastern Progressivism is meant. (It was.) One would not wish to defend those Progressives. They gave us the War Industries Board, Prohibition, and much else besides. (Perhaps any war party would have given us some of those.) The war witnessed John Dewey’s endorsement of force as the royal road to progress and Randolph Bourne’s daring escape from Dewey’s instrumentalism and liberal practicality (White, Social Thought in America).

Even western Progressives were a bit mixed. Some pursued bureaucratic solutions at the state level. But on national issues of war and peace, and on the question of empire, western Progressives like Senators Borah and Robert LaFollette (R., Wi.), and U.S. Rep. Jeannette Rankin (R., Mt.) earned their keep. One suspects this is why contemporary conservatives prefer to jam all Progressives into a single category to be dismissed as statist at home and naive abroad—the better to flog their own impossible program of freedom at home and empire abroad.

Progressivism and the New Deal

Progressivism as an outwardly unified (but internally divided) movement effectively ended in the 1920s. American politics limped along, bereft of real ideas. This is normal. Then the Great Depression called forth the New Deal. The ensuing leap into governmental problem-solving wasted the memory of the former days—Novak’s previous 70 years of creeping statism. It would be easy, but inexact, to say that the New Deal continued and consolidated Progressivism—but which one? The first New Deal adopted a rather eastern Progressive program of corporatism and cartelization modeled on World War I legislation. Here was the test of Croly’s Hamilton-Jefferson synthesis, and it drove many relatively Jeffersonian Progressives out of the New Deal. The administration’s later (partial) retreat from corporatism did not bring them back (Otis Graham, Old Progressives and the New Deal).

The argument that equates Progressivism with the New Deal and the New Deal with fascism is also misleading. A little care is needed. Certain New Deal economic policies had definite structural resemblances to those of fascist Italy. The New Deal laid part of the groundwork for a uniquely American fascism, but did not finish the job. More building blocks would be needed. (Anyway, an exceptional people like Americans deserve an exceptional form of fascism—nicer, bigger, better, more efficient, and so on.)

John T. Flynn was one of those Jeffersonian Progressives who turned his back on the New Deal. He also helped launch comparisons between New Deal and fascist economic policy. But more important, he tried to discover what would be required for a completed exercise in American fascism. In As We Go Marching (1944), he developed a set of criteria. Measured by those, America was still only potentially fascist. It might be different in the long run. We didn’t have to take the same branch at every fork in the road. But we might.

Living in the Long Run

Flynn’s checklist for realized fascism was as follows: perpetual public debt, autarchy, socialization of investment, bureaucratic supervision of society, public-works militarism, overseas empire, executive dictatorship, and the institutional changes to make them all work together. Seventy-some years later, we are well along. Flynn was wrong of course about autarchy in the short run. He did not anticipate that one imperial State could become strong enough to force its economic rules on most of the world, while preaching about “free trade.”

Flynn was right, however, about what would hold American fascism together: executive power effectively above the law. (Shelley called monarchy the knot that tied the robber’s bundle.) Long ago, tidy-minded eastern Progressives championed executive power but did not perfect it. Other hands—“liberal” and “conservative”—did that. Today important “conservatives” and Chicago-tinged theorists proclaim executive supremacy a universal blessing. (See, for example, Eric Posner and Adrian Vermeule, The Executive Unbound.)

American Progressives, Sinners, and Republicans

So here we are, trying to find some shade under the twisted tree of Progressivism. There is a little, and if the tree is twisted, that is partly because so many have made it into various things it was not, while imposing a false unity on it. Some of it was bad; but Progressivism cannot take the blame for every bad thing that came along after it was dead. An awful lot’s happened since then, and there is a lot of blame to go around. One could wish for a happier ending.

These experts, armed with the most sophisticated methods available, gave the journalists what they needed. In turn the journalists—armed with what they uncritically accepted as good information—returned with coffee to their keyboards and reported.

Witness:

Mark Zandi, chief economist at Moody’s Analytics, is frequently the go-to guy for both parties when it comes to analysis of various jobs proposals. So, what did he think of President Obama’s speech last night? Here’s the report: “The plan would add 2 percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.” [Brad Plummer, “Ezra Klein’s Wonkblog,” Washington Post, September 9.]

And who are the willing consumers of this information? People looking for reasons to be hopeful. People looking for certainty. Who can blame them? Times are tough.

But this sort of reporting is just scientism on display. I’m not alone in thinking this. Economist Russ Roberts, reacting to similar reporting in the Financial Times, wrote at Cafe Hayek (September 13): “Really? That’s what they found? [The journalist] treats it like a discovery of fact. As in ‘[Alan] Blinder and Zandi weren’t sure of the distance between the earth and the sun but when they measured it, they found it was about 93,000,000 miles.’”

Roberts knows economists aren’t capable of auguring such things. Because when it comes to national-level prediction and forecast, economics has all the reliability of a Farmer’s Almanac. And that’s being charitable.

Certainty for Sale

Here’s the problem: People like Mark Zandi belong to a great power nexus that relies on scientism for its very existence. To repeat: People crave certainty. Politicians crave power. So the latter have to provide the former with at least the illusion of certainty to stay in office. But they can’t do it alone.

Economists—especially those who tend to get tapped by the media or by Washington elites—are the ones willing to strut around on the national stage showing their predictive plumage. Journalists, no experts themselves, report what they’re told. (And few try to spot the turkey behind all that peacocking.)

But as readers of this publication know, a nexus of politicians, economists, journalists, special interests, and a desperate lay public can hardly be virtuous. This industry enables peddlers of scientism to hock their wares in a world full of uncertainty. Indeed, a pseudo-certainty creates the circumstances under which great wishes can father great lies.

F. A. Hayek warned us about this, of course, when he said, “It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences—an attempt which in our field may lead to outright error. It is an approach which has come to be described as the “scientistic” attitude. . . .”

Since Hayek, a growing movement of great minds, across disciplines, warns us to clip our wax wings.

Chaos Rules

In 1961 Edward Lorenz discovered the “butterfly effect.” Ironically, when he figured out that tiny changes in initial conditions could mean seismic shifts in the rest of a system, he was studying weather and climate. I won’t discuss the irony here. Suffice it to say Lorenz is the one who taught us that complex systems—whether the climate, an ecosystem, or an economy—can also be chaotic systems. “I realized,” said Lorenz of his then-obscure finding, “that any physical system that behaved nonperiodically would be unpredictable.”

Although “chaotic” eludes strict definition, the term usually refers to a system that is sensitive to changes in initial conditions, shows order without regularity, and is immune to prediction and forecast.

In his still-vibrant Chaos (1989), James Gleick tells Lorenz’s story—including the latter’s discoveries and the implications of chaos. “Forecasts of economic growth or unemployment were put forward with an implied precision of two or three decimal places,” writes Gleick. “Governments and financial institutions paid for such predictions and acted on them, perhaps out of necessity or for want of anything better. . . . But few realized how fragile was the very process of modeling flows on computers, even when the data [were] recognizably trustworthy and the laws were purely physical, as in weather forecasting.”

Little has changed.

Aggregates, Agents, and Ants

I think the failure of macroeconomics can be boiled down to this: Macroeconomics deals primarily with aggregates, or macro-level trends. But to be truly accurate the macro level would have to be explained in terms of the micro—that is, individual agent behavior. Micro behaviors give rise to macro trends. Another way of putting this is that macro trends are dependent on micro behaviors. The trouble is, individual agents interact with—and react to—one another in diverse, complicated ways.

Similarly, it’s impossible to predict exactly what an ant colony will do when confronted with two picnics at equal distances from the colony. In that famous experiment we might be able to predict a single ant’s behavior if we have lots of local information about its pheromone secretion algorithms and such. But relative to each food source it would be impossible to predict the behavior of the colony as a whole. Such is life at the edge of chaos.

A Blind Spot

Now of course we have processors that can crunch tons of data. We have a new breed of mathematical wizards in the tradition of Paul Samuelson who can write whole tracts with as many equations as words. And we have whole new constituencies of politicians, pundits, and people ready to believe. So are we finally living in a time when macroeconomics can tell us what we need to know about unemployment in a year—as Newtonian mechanics tells us when Halley’s Comet will arrive?

Alas no, says mathematician William Byers. In his excellent The Blind Spot, Byers makes an audacious argument for humility in the sciences—both hard and human: “Human beings have a basic need for certainty. Yet since things are ultimately uncertain, we satisfy this need by creating artificial islands of certainty. We create models of reality and then insist that the models are reality. It is not that science, mathematics, and statistics do not provide useful information about the real world. The problem lies in making excessive claims for the validity of these methods and models and believing them to be absolutely certain.”

Interestingly, Byers also picks up on the idea of selling certainty. Whether he’s talking about the complicated financial instruments that obscured the problems leading to the financial meltdown, or the schematics for all the Keynesian fixes that followed, models are the conduits of pseudo-certainty. “The more complex the package and the more arcane the mathematics, the better,” says Byers. “What was being sold was the faith that the complex, human, world of economics and finance could be made over in the image of science, could be made objective and predictable.”

Byers goes on to explain that there is a kind of quantification bias at work. That is, if you can describe things in mathematics, you are in some sense speaking the language of nature. But limning the world in numbers has its limits—especially since so many of the important aspects of science are subjective. And so many aspects of nature are, well, uncertain. Numbers, argues Byers, are our attempt to create the illusion of objectivity—where objectivity is thought to be the very stuff of certainty. But “science does great damage when it turns into ideology, when it begins to worship certainty.”

The (Other) Freeman

Eminent physicist Freeman Dyson is no libertarian. But his call for humility in science (“Heretical Thoughts about Science and Society,”) extends to economics, too:

The politicians and the public expect science to provide answers to the problems. Scientific experts are paid and encouraged to provide answers. The public does not have much use for a scientist who says, “Sorry, but we don’t know.” The public prefers to listen to scientists who give confident answers to questions and make confident predictions of what will happen as a result of human activities. So it happens that the experts who talk publicly about politically contentious questions tend to speak more clearly than they think. They make confident predictions about the future, and end up believing their own predictions. Their predictions become dogmas which they do not question. The public is led to believe that the fashionable scientific dogmas are true, and it may sometimes happen that they are wrong. That is why heretics who question the dogmas are needed.

So if Dyson is right about the need for heretics, are those skeptical of macroeconomics heretics or “market fundamentalists”?

People who understand markets know they can’t do everything under the sun. Yes, markets can and do work wonders. But most truly liberal thinkers start with a particular kind of skepticism:

• Knowledge is dispersed, not centralized. Planning or tweaking by central authorities is a fool’s errand and results in perverse effects. (Skepticism of grand designs.)
• Centralized power tends to corrupt people. Coalitions of interests, bureaucrats, and moralists form to transfer resources from the masses or from competitors to the pockets of coalition members. (Skepticism of power wielded for the “public good.”)
• Value is not objective but rather subjective. This not only makes market exchanges possible, but makes it difficult for any central authority to claim it is operating in the name of a universal good. (Skepticism of claims to objective value. [See my “The Relentless Subjectivity of Value.”])

I could go on. Suffice it to say that to be a classical liberal is to be a heretic. And for heretics skepticism is a prime virtue. Yes, we tend to admire the market process. But unlike those who prostrate themselves before the golden calf of Aggregate Demand or Government as God, we are skeptics first and foremost.

Soothsayers and Charlatans

When it comes to heresy in economics Arnold Kling comes to mind. Writing in The American, he says: “I think that if the press were aware of the intellectual history and lack of scientific standing of the models, it would cease rounding up these usual suspects. Macroeconometrics stands discredited among mainstream academic economists. Applying macroeconometric models to questions of fiscal policy is the equivalent of using pre-Copernican astronomy to launch a satellite or using bleeding to treat an infection.”

Kling says economists should be more honest about their limitations. He thinks the Congressional Budget Office, with all its scoring, can do little to predict the effects of various policy scenarios, such as taxing and spending: “The CBO adds value to policymakers by ‘scoring’ the impact of policies on the budget. However, the ‘scoring’ of policies in terms of GDP growth or jobs saved is of no value. The CBO should simply refuse to do it, and the consulting firms that purport to provide such estimates should be regarded as the charlatans they are.”

An Uncertain Constituency

Though the methods used by these macroeconomists are no more reliable than “soothsaying or entrail-reading,” they belong to that great nexus of power, which creates incentives for folks to “step right up” for more of the same elixir.

Sadly there is no competing power nexus. And yet people are growing increasingly suspicious of these nostra. Just as Americans have grown weary of intervention in foreign affairs, they’re growing weary of intervention in the economy, too. Call it what you like—stimulus bills, jobs plans, back-to-work schemes, or whatever—fiscal interventionism is not producing the desired effect. And people are getting wise to it. In the old days they ran the charlatans out of town.

One other trait of the busybodies stood tall for all thoughtful folks to perceive: They were far too busy minding the business of all within their fiefdoms to mind their own business, to care for their own children, and to manage their own households.

Times are no longer simple and gentle and safe, but the busybody has not only survived but also prospered, become fruitful, and filled every crevice and cranny of the nation. Fifty years ago my father insightfully titled his speech to a San Francisco business gathering as I have this article. He observed that in the years following World War II, busybodydom had flourished like an obnoxious weed, threatening to crowd out the air and light of individual ideas and purposeful personal action, and in this manner destroy the nurture encouraged by stable and essential decisions. The past decades verified Jack Foley’s observation and warning and, unfortunately, we reside today in times dominated by throngs of busybodies.

Rules and regulations, orders and directives, all kinds and kindred of commands direct almost every avenue of our daily lives. Virtually all these directives emanate from busybodies and almost all of them are, or may be, enforced by the power of law; that is, the noncomplying person suffers a penalty, usually loss of liberty or property, occasionally the loss of his life. Our lives today are ruled by force writ large, a force that usually commands far less efficacious outcomes than would result from the free actions flowing from purposive and creative individual conduct.

When we consider legally compelled directives, we blandly think of the tripartite governmental structure of the federal government and the similar political construction of the several states, and we see in theory a legislative branch that enacts laws, an executive who administers those laws, and a judiciary that interprets rules and issues orders based on and about those laws. Myopically we do not see the whole regulatory blight that afflicts us because we overlook several obscured but essential components of law-making. Without limitation, consider the following busybody regulators.

Legislate and Delegate

First, state and federal legislators seldom enact detailed statutory law. Most often they pass broad policy statements and “delegate” detailed rule-making and enforcement powers to an administrative bureaucracy. The critical characteristic of this rule-making and law-enforcing apparatus is that it is unelected, usually unknown, and fundamentally untouchable and ungovernable. While the legislator theoretically oversees the detailed conduct of the administrator, in fact oversight is nonexistent in almost all instances. Hence the common retort to those who disagree with overwhelming and strangling legislation that “you can reject the legislators at the next election” is a sham and a chimera. Legislators come and go, normally after enhancing their own wealth remarkably, but the unelected bureaucratic rule-makers and rule-enforcers remain for a lifetime, ordinarily protected by compulsory civil service “safeguards” and most assuredly made wealthy by huge and untouchable pensions and other emoluments of the office.

Second, concentration on legislators obscures the rule-making and enforcement/enhancement of the executive. In federal terms the president often creates very real and effective restraints on individual rights and conduct by use of executive orders; to make matters worse, these orders are usually hidden from common view and secreted under some sort of “national security” or “rule of necessity” rubric. They may be printed and published but often remain cloaked in secrecy. Many governors possess and use similar powers.

Third, it is all too easy to overlook or forget the myriad municipal and quasi-municipal corporations that regulate the fiber of our lives. Busybodies abound and prosper in local improvement districts, school districts, sewer districts, government-owned and -operated utilities, park and recreation districts, and a Mongol horde of other quasigovernmental entities in addition to the more obvious and long-recognized city and county governments. Each and every one of these institutions possesses and exercises the power to enact and enforce rules that compel or constrain individual human behavior and, more odious, many of these rules are produced in the shadows and are difficult to locate until enforcement suddenly becomes an issue.

Fourth, the day of the judge as a limited dispute-decider has long passed. To a greater or lesser degree, federal, state, and local judges make regulatory law by purporting to “interpret” legislation in a manner not dissimilar to the rule-making and enforcement-enhancing activities of the administrative apparatus. Once again, many members of the judiciary serve for lengthy terms or for life and are seldom sanctioned by the voting public.

Root Causes

A search beneath the surface of this calamitous condition reveals at least two elemental causes. Reining in the busybody requires a brief analysis of each, neither of which is easily recognized nor fully appreciated.

To begin, people are inclined to be busybodies. No one should overlook or deny the infinite variety in human behavior; nonetheless permit some generalizations to illustrate my greater point. We humans tend to egotism, an ingrained belief that we can perceive a condition and prescribe a proper conclusion, and do so much more accurately and appropriately than any other person. In addition we tend to judge ourselves much less harshly than we do others, meaning we are more forgiving of our own mistakes than of the errors of our fellow man.

Busybodydom results from the conceit and concatenation of these everyday human traits. It causes perfectly ordinary—that is, flawed—persons to see what they perceive as a problem requiring a solution and to decide on the proper process by which to resolve the problem. More than that it encourages the observer to believe that his is the only suitable method and disposition, and it compels him to seek out others to join him in foreclosing any alternative process or solution by the force of law.

Rules and Orders

Second, one must appreciate the essential and elemental differences in types of legal commands, one of which encourages the current State’s incipient tendency toward busybodyness. Legal philosophers commonly divide legal commands into two categories: rules and orders. Such philosophers may disagree that rules and orders comprise the sum of human law, but these general categories illustrate the larger point of this essay.

In simple terms rules refer to statutory or regulatory enactments by legislatures and other similar governing bodies, which seek to identify a situation or condition, command by force of law an express outcome in all such and similar contexts, and prohibit and penalize any alternative individual or group action or outcome. On the other hand, orders simply refer to the legally enforceable decision by an arbiter of a dispute chosen by specified individuals or entities.

Even given the blurry line between rules and orders, appreciated only by the jurisprudential philosopher, this primary distinction illustrates one of the reasons that modern busybodies truncate human choice and inhibit productive individual action. Rule-making attempts to foresee most or all human interactions and to prescribe in advance all legally acceptable outcomes. Ordering conduct differs because it uses (or should use) the force of law only in a more limited fashion, purporting to decide a particular dispute between identified human beings or groups, and designing an outcome limited to those persons and others in direct relationship with them. The more limited the legal intrusion, the more open-textured the law. Orders tend to restrict creative human behavior less than do rules because orders arise in single instances (although English and American courts do tend to decide like cases in a similar manner under doctrines labeled by the quaint Norman-French-Latin phrases res judicata and stare decisis), where 1) discrete and specific facts can be assessed and evaluated and 2) only the individuals directly or closely affected (all of whom generally are able to participate in the proceeding) are governed and legally limited by the outcome.

Rules, to the contrary, attempt to forecast and prescribe limited permissible outcomes for all persons in all cases without the benefit of individual factual evidence and express relevant participation. Yet human beings are limited in their ability to forecast correctly; indeed we have trouble even figuring out how history has produced our current conditions. As a result, rule-making tends to stymie human action and the improvement of civilization by foreclosing individual choice.

In fact the beauty of the traditional Anglo-American common law lies in its primary reliance on orders and its reluctance to employ an abundance of rules. The open legal texture enabled creative individuals to compose new and untried outcomes that, in a given number of instances, resulted in a much better life not only for the persons directly affected but also for a multitude of other beneficiaries. Thus individual conceit and the surfeit of rules join and promote a more closed society. Consider the result: an obvious diminution of human freedom and restraint on free individual action to solve problems. Empirically, the busybody inhibits the improvement of the general human condition. Why does that happen? Simply because each competent actor is more able to make better decisions affecting his person and his future than is any other individual. Free and purposive human beings effect better results when they have something personal at stake, and no person is sufficiently foresighted and wise to recognize all aspects of a problem and all possible outcomes.

Further, the age of the busybody contains a moral component and induces a moral decline of the individual. One grows by choosing, by selecting between alternatives, and by enduring the burdens of his poor choices as well as enjoying the benefits of his better selections. The busybody foreordains decisions by rule of law and in so doing diminishes the choice-making opportunities and growth available to his fellow members of society. In this fashion the busybody stunts individual growth and deprives the larger society of the benefits of unfettered productive and constructive human action.