The Resurgence of Big Government

Following the economic disasters of the 1960s and 1970s, brought on by the statist policies of the political left, America seemed to change course. Commentators called the shift the “swing to the right”—that is, toward capitalism. From about 1980 to 2000, a new attitude took hold: the idea that government should be smaller, that recessions are best dealt with through tax cuts and deregulation, that markets work pretty effectively, and that many existing government interventions are doing more harm than good. President Bill Clinton found it necessary to declare, “The era of big government is over.”

Today that attitude has virtually vanished from the public stage. We are now witnessing a swing back to the left—toward statism. As a wave of recent articles have proclaimed: The era of big government is back.1

The evidence is hard to miss. Consider our current housing and credit crisis. From day one, it was blamed on the market and a lack of oversight by regulators who were said to be “asleep at the wheel.” In response to the crisis, the government, the policy analysts, the media, and the American people demanded action, and everyone understood this to mean more government, more regulation, more controls. We got our wish.

First came the Fed’s panicked slashing of interest rates. Then the bailout of Bear Stearns. Then the bailout of Freddie Mac. Then a $300 billion mortgage bill, which passed by a substantial margin and was signed into law by President Bush. No doubt more is to come.

All of this intervention, of course, is supported by our presidential candidates. Both blame Wall Street for the current problems and vow to increase the power of the Fed’s and the SEC’s financial regulators. John McCain has announced that there are “some greedy people on Wall Street that perhaps need to be punished.”2 Both he and Barack Obama envision an ever-growing role for government in the marketplace, each promises to raise taxes in some form or another, and both support more regulations, particularly on Wall Street. Few doubt they will keep these promises.

What do Americans think of all this? A recent poll by the Wall Street Journal and NBC News found that 53 percent of Americans want the government to “do more to solve problems.” Twelve years earlier, Americans said they opposed government interference by a 2-to-1 margin.3

In fact, our government has been “doing more” throughout this decade. While President Bush has paid lip service to freer markets, his administration has engineered a vast increase in the size and reach of government.

He gave us Sarbanes-Oxley, the largest expansion of business regulation in decades. He gave us the Medicare prescription drug benefit, the largest new entitlement program in thirty years. He gave us the “No Child Left Behind Act,” the largest expansion of the federal government in education since 1979. This is to say nothing of the orgy of spending over which he has presided: His 2009 budget stands at more than $3 trillion—an increase of more than a $1 trillion since he took office.4 All of this led one conservative columnist to label Bush “a big government conservative.”5 It was not meant as a criticism.

Americans entered the 21st century enjoying the greatest prosperity in mankind’s history. And many agreed that this prosperity was mainly the result of freeing markets from government intervention, not only in America, but also around the world. Yet today, virtually everyone agrees that markets have failed.

Why? What happened?

To identify the cause of today’s swing to the left, we need first to understand the cause and consequences of the swing to the right.

Although the swing to the right was portrayed as an embrace of capitalism, it was primarily a rebellion against the disastrous government policies of the left. Recall that the 1960s and 1970s were a time of incredible government growth—the establishment of the massive welfare state of the so-called Great Society. Medicare and Medicaid were launched, and welfare programs were greatly expanded. Government interference in the economy was at its greatest in U.S. history. Industry was heavily regulated, from how much airlines could charge and what destinations they could service, to the routes trucking companies could use and how much they were allowed to charge for freight, to the commissions that stockbrokers could charge. The Federal Reserve dictated not only the interest rates at which banks could borrow from one another, as it does today, but also the interest rates that banks could pay on savings accounts.

As a consequence of all this, inflation was rampant, in double digits for much of the 1970s. American industry struggled and became less competitive. The stock market, as measured by the Dow Jones Industrials, was basically flat from 1965 to 1982. Economic growth was nonexistent, with the 1970s characterized by repeated recessions. Unemployment was high. And because the combination of inflation, stagnation, and unemployment was a phenomenon unanticipated by economists, a new term was coined: stagflation.

This economic chaos is what Americans rebelled against in 1980 by electing Reagan. However, instead of embracing full, unregulated, laissez-faire capitalism—in which the state is separated from the economy—the Reagan administration and conservative policy makers repealed only some of the disastrous interventions strangling the economy. They lessened our crushing tax burden, rolled back a few of the most burdensome regulations, and undid some of the most destructive controls. It was a step in the right direction, but it was merely a pragmatic solution to an immediate crisis.

The intellectual groundwork for this solution had been laid largely by free-market leaning economists such as Milton Friedman and Friederich Hayek. Presenting and building on the work of predecessors such as Adam Smith, Frank Knight, Ludwig von Mises, and many others, they successfully dismantled virtually every economic charge against capitalism and demonstrated, from many aspects and angles, the economic impotence of statism. But on capitalism’s moral superiority—on whether capitalism is a good and just system—they had nothing new or persuasive to say. In fact, most of these advocates of free markets downplayed or denigrated the significance of morality altogether.

To be sure, some figures in the 1980s spoke of economic prosperity in vaguely moral terms. Reagan, for instance, spoke of a new “morning in America.” But neither he nor his supporters could explain why seeking wealth and pursuing one’s own economic well-being, essential characteristics of capitalism, are morally proper.

From a young age, and throughout life, Americans are taught that pursuing self-interest is petty and wrong. The noble, we are told, is the self-sacrificial. Denying the self is good, we are told, especially when it “helps others.” In the noncontroversial words of Senator McCain, “[S]erving only one’s self is a petty and unsatisfying ambition. But serve a cause greater than self-interest and you will know a happiness far more sublime than the fleeting pleasure of fame and fortune.”6

The economic advocates of freer markets did nothing to dislodge this premise; often they did worse than nothing: They reinforced it.

Thus the view remains prevalent in America that although making money is practical, only “giving it back” is moral. Bill Gates might be admired for the business smarts that earned him tens of billions of dollars, but he has routinely been condemned for creating his fortune and is now regarded as “noble” only because he has given away billions to charitable causes.

And not only are self-interest and individual prosperity viewed as morally suspect; so too is the mode of action demanded and protected by a capitalist system: the profit motive. A person pursuing his own profit, conventional morality teaches us, is unprincipled and without scruples and will engage in any form of corruption if it suits his purposes. A free market unleashes greed. Corporations, businesses, capitalists, workers, traders, speculators, individual investors—each acts to make money, to make a profit for himself. Thus, given the contempt for self-interest, the conclusion is inescapable: Capitalism unleashes vicious, not virtuous, action.

Although some on the right try to evade this conclusion, many openly acknowledge it. Instead of searching for new moral principles to defend the selfish nature of capitalism, they bemoan that nature. In a time of economic crisis, these individuals—largely religious conservatives and neoconservatives—proclaim the economic success capitalism brings. But they hate the fact that business is motivated by self-interest and profit-seeking, and they say so.

Because of capitalism’s inherent selfishness, Irving Kristol, a leading neoconservative “defender” of the free market, can muster only two cheers, not three, for capitalism. And the prominent conservative writer Michael Novak, in a speech claiming to defend capitalism morally, could not manage even that.

Capitalism is by no means the Kingdom of God. It is a poor and clumsy human system. Although one can claim for it that it is better than any of its rivals, there is no need to give such a system three cheers. My friend Irving Kristol calls his book Two Cheers for Capitalism. One cheer is quite enough.7

The swing to the right was a swing to avoid economic catastrophe—a “practical” move, not a moral one. And given the lack of moral justification, the swing could not last.

Confronted with the prospect of economic collapse, Americans—the most reality-oriented people on the planet—listened to practical solutions. They were willing to put aside the teachings of their morality to avert disaster, particularly when they could see the ravages to which these teachings led when followed consistently, as they were being followed in the Communist bloc, and when their pragmatic reaction was given a vaguely moral spin, as it was when Reagan spoke of a revival of America’s independent, can-do spirit.

But once the collapse was avoided and some prosperity restored, the meaning and demands of the temporarily repressed morality had to resurface. If it is unfair that some Americans cannot afford homes, to take but one example, then the government should require (i.e., force) banks to lend them money—hence the Community Reinvestment Act (CRA). So what if this will lead to some economic inefficiency or problem down the road? People are in need now. Morally, everyone knows, we cannot turn our backs on the poor.

Some economists who inspired the swing to the right conceded that government intervention is needed when the market does not lead to the results we believe are morally right. And in any case, because most supporters of freer markets could not or would not challenge conventional moral teachings, they had no answer to those who asked, “Why shouldn’t we sacrifice a little bit of economic efficiency to do what’s right?”

The conflict between the alleged immorality and the perceived practicality of capitalism has been and is the bane of liberty in America. If capitalism is so flawed morally, how can we trust it economically?

If selfishness and the profit motive are immoral, then no wonder they are blamed for any and all economic crises. Nor is it any wonder that the government—which we are assured is not self-interested—is posited as the solution to such greed-induced crises. Politicians and bureaucrats, we are told, are working not for their own benefit, but for the “common good” or “public interest.” Thus, economic disasters cannot be their fault; the blame must lie on the shoulders of greedy businessmen.

Because Americans accept the notion that self-interest is morally wrong, they have come to equate businessmen with crooks, on the grounds that both pursue self-interested goals. The argument goes, in effect, like this: Left to his own devices, free from the watchful eye of our public servants in Washington, a businessman will try to make a buck by raiding the cookie jar rather than by producing and selling cookies.

So, although in the wake of the economic disaster that was the 1970s Americans came to think that some freeing of markets was necessary, they were never morally comfortable with capitalism. And almost all of the culture’s voices—on the left and right, Democratic and Republican—told them they were right to be uneasy, that capitalism unleashed greed and destructive “excesses.” As the 1970s faded from memory and prosperity returned, a familiar pattern reemerged: Whenever a new economic problem surfaced, the cause had to be “greed” and “market excess”—and the cure, government intervention. The swing to the right had come to an end, and the pendulum had reversed course.

Consider again the current problems in the housing market. The causes are complex, but the driving force is clearly government intervention: the Fed keeping interest rates around 1 percent for a year, thus encouraging people to borrow and providing the impetus for a housing bubble; the CRA, which forces banks to lend money to low-income and poor credit households (otherwise called sub-prime lending); the creation of Fannie Mae and Freddie Mac with government guaranteed debt, leading to artificially low mortgage rates and the illusion that the financial instruments created by bundling them are low-risk; government licensing of the rating agencies, which has eliminated competition among raters of financial securities and entrenched a suspect business model; deposit insurance and the “too big to fail” doctrine, which have created huge distortions in incentives and risk-taking throughout the financial system; and so on.8

These are the real causes of the housing and financial crisis. But this fact, open to anyone who makes the effort to see, goes unnoticed because commentators, politicians, and policy makers know the popularly accepted “cause” in advance: the “greed” of banks, mortgage brokers, lenders, and borrowers—the “greed” that produced “market excesses.” The solution? Rein in the selfishness of these market participants with new government interventions and more government regulators. Thus the very cause of the housing mess—government interference in the market—is adopted as the solution, and the government’s power to dictate our economic decisions grows and grows.

This was the historical pattern of the 20th century. In every major economic crisis, the evidence implicating government interventions went unnoticed, and blame was laid instead at the feet of the market.

The Great Depression? Despite massive evidence that the Federal Reserve’s and other government policies were responsible for the crash and the inability of the economy to recover, “greedy” investors, speculators, and businessmen were blamed. Consequently, in the aftermath, the government’s power over the economy was not curtailed but dramatically expanded.

The energy crisis of the 1970s? Despite evidence that it was brought on by price controls, fiat currency, and legal restrictions on our capacity to produce energy, “greedy” oil companies were blamed. The prescribed “solution” was for the government to exert even more control.

Time and time again, the failures of statism have been blamed on capitalism and cited as a rationalization for more statism.

So, what we witnessed in the 1980s and 1990s was a period of unshackling markets a little bit in order to prevent economic disaster within a longer-term trend of growing government power over our economic lives. Reversing this longer-term trend requires that capitalism be seen not as an unpleasant and temporary fix, but as the noble ideal and moral solution that it actually is. In other words, reversing the trend requires a profound shift in the nation’s moral convictions. It requires a radical change in Americans’ conception and evaluation of self-interest.

To be self-interested is to be dedicated to the actual requirements of your life and long-term happiness. This, Americans must come to understand, demands much of a person. To be self-interested, one must first figure out which goals and values will in fact advance one’s life and happiness; then one must determine which actions will in fact secure these goals and values. None of this knowledge is trivial or self-evident; it is essential to good living, and comes only from rational thinking.

Americans must come to realize that a person who lies, cheats, and steals does not qualify as self-interested, precisely because he does no such thinking. He does not consider the long-term requirements of his life and happiness, map out a course to achieve them, and then pursue that course with passion and rigor. Rather, he takes the “easy way” by seeking unearned money, ersatz love, and political power that enables him to “get away” with such things. He does not think and act rationally; he does whatever he feels like doing. And regardless of whether he is caught and jailed for his crimes, or whether his trophy wife cheats on him or divorces him and takes him to the cleaners, or whether his political “career” collapses as his indiscretions are aired on national television, he is not and cannot be happy—because happiness is a consequence of rational thought and productive effort, not of evasion and parasitism.

Americans must come to understand that a selfish person is the opposite of the stereotype: A selfish person is a thinker and a creator.

It is true that capitalism unleashes selfishness. But Americans must learn what this actually means: Capitalism unleashes the thinkers and creators of the world. By protecting the individual’s right to life, liberty, property, and the pursuit of happiness, capitalism leaves each individual free to use his mind and produce goods. When you consider some of the giants of American industry—from John D. Rockefeller to JP Morgan to Henry Ford to Sam Walton to Bill Gates—two things stand out: the ideas these men originated and the novel products and business innovations they created. These men created products and services that improved our lives by orders of magnitude—and they were able to originate and produce such goods only to the extent that the government left them alone. Americans must come to realize that our quality of life stands in direct proportion to the freedom of industrialists and businessmen to act selfishly—and that the only way to defend such freedom is to recognize and uphold the morality of self-interest.

Americans must come to realize that we have nothing to fear from businessmen acting selfishly. On the contrary, we can only gain from their rational, productive efforts. We can learn from their example and profit from the opportunity to trade with them. Our unprecedented prosperity and standard of living exist not despite but because of these men. To shackle and tether such individuals with government regulations and interventions—to treat them as potential or actual Al Capones—is both unjust and self-destructive. Where would we be without our cars, medications, and computers?

Liars and cheats and crooks exist in every era and every culture, but under capitalism their opportunities diminish and their “lifestyles” become more difficult. Because capitalism entails a wall of separation between economy and state, their path to power is cut off. In a capitalist society, no businessmen or lobbyists would be skulking around Washington in search of favorable government interventions—whether subsidies for themselves or shackles for their competitors—because the government could not intervene in economic affairs. No politicians would be promising a new prescription drug benefit to be paid for by soaking the rich or by treating the middle class as beasts of burden, because the government would be constitutionally prohibited from “managing” the economy. Fewer business scandals on the order of WorldCom or Enron would arise, because unscrupulous businessmen would not stand a chance competing against fully free businessmen with long-range vision and integrity, men such as JP Morgan and Sam Walton (not to mention that in a capitalist system, actual crooks would be jailed).

Americans must come to understand that appeals to the “common good” and the “public interest” are not moral claims but licenses to evil. Because the American public is just a number of separate individuals, whenever some group trumpets action in the name of the “public interest”—say, a new prescription drug benefit or Social Security scheme—it is declaring that the wishes of some individuals trump the rights and interests of other individuals. But everyone has a moral right to pursue his own happiness, free from coercive interference by others. If it is to have a legitimate meaning, the “public interest” can mean only this: The rights of each and every individual are equally protected by the government.

If Americans want to turn permanently toward a genuinely free market—and thus toward peak prosperity—they will have to reconsider their moral convictions. They will have to discover a new morality, one based on the requirements of human life and backed by detailed arguments and demonstrable facts. This is what Ayn Rand offers in her body of writings. She is the only champion of capitalism who would and could defend capitalism on moral grounds, as indicated by the radical titles of her books Capitalism: The Unknown Ideal and The Virtue of Selfishness. Those who want to fight the trend toward statism—those who want to effect a real and lasting turn toward capitalism—would do well to study her thought.

About Yaron Brook

Yaron Brook (PhD, finance, 1994, University of Texas at Austin) is president and executive director of the Ayn Rand Institute. He lectures on Ayn Rand’s philosophy of Objectivism, business ethics, and foreign policy at colleges, community groups, and corporations throughout the world. His articles have appeared in academic business journals, popular newspapers, and magazines. His numerous media appearances include interviews on Closing Bell (CNBC), the O’Reilly Factor and Glenn Beck (Fox News Channel), and Front Page with Allen Barton (Pajamas TV). As an entrepreneur, Dr. Brook co-founded the venture-capital consulting firm BH Equity Research in San Jose, California. And as an award-winning professor, he taught finance at Santa Clara University before joining ARI.

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