Astrophysicist and novelist David Brin wants us to “Stop Using Adam Smith and F.A. Hayek to Support Your Political Ideology.” In his 11 December 2015 article in evonomics, Brin opposes “faith in blind markets” which is “a dogma that proclaims the state should have no role in guiding economic affairs, in picking winners or losers, or interfering in the maneuvers or behavior of capitalists”. He claims that neither Adam Smith nor Friedrich Hayek proposed laissez faire, letting the market work without interference.
Brin says the problem is the “idolatry of private property” or “unlimited propertarianism”. One problem, he says, is that excessive disparities of wealth and income destroy competition.
Here is the problem of today’s economies, according to Brin: “5,000 or so aristocratic golf buddies, who appoint each other to company boards in order to vote each other titanic ‘compensation packages’ while trading insider information and conspiring together to eliminate competition.” These are lords who are not subject to “rules of disclosure or accountability”.
Brin decries “the failure of any Supply Side predictions ever, ever, ever coming true”. That statement is contradicted by the Kennedy tax cut. See, for example the National Public Radio article, “JFK's Lasting Economic Legacy: Lower Tax Rates”. Kennedy proposed "an across-the-board, top-to-bottom cut in personal and corporate income taxes." Congress finally approved the tax cuts in 1964. The result was “one of the most robust economic expansions in history”. What made the cut in tax rates work well was that the new lower rates were meant to be permanent.
The ultimate supply-side policy would be a zero tax rate on additional income, spending, value added, and production. Taxes would be fixed cost per year, based on a resource that does not hide from the tax collector, nor flee to other countries, nor shrink down when taxed. That resource is, of course, land value. Henry George posited that the elimination of taxes on production and goods would bring forth a gusher of growth while providing greater equality, a proposition that has never been refuted by theory or facts.
Henry George posited that the elimination of taxes on production and goods would bring forth a gusher of growth while providing greater equality, a proposition that has never been refuted by theory or facts.
Property in produced goods is not a problem, and Brin does now show why that would be a problem. Unlimited property in land can be a problem, but critics such as Brin generally ignore land. Karl Marx taught them to focus only on Das Kapital.
To claim that corporations and partnerships today have no accountability is to claim that there are no regulations. Critics such as Brin need to confront the plethora of regulations, described in the study Ten Thousand Commandments by the Competitive Enterprise Institute.
David Brin fails to define “blind markets”. Those who believe that the US has complete economic freedom should read the Fraser Institute study, Economic Freedom of the World, which measures the economic freedom of over 100 countries, and ranks the US below more than a dozen other economies. Free markets would be able to trade with Cuba, have no taxes on their profits, and get no subsidies and ethanol mandates from government.
What about the aristocratic golf-buddy corporate boards? The problem is not lack of competition, since competition can be observed from advertising, price reductions for sales, and sheer profit seeking. Cartels—conspiracies to set prices and quantities—are illegal in the USA, contrary to critics who claim that firms are totally unconstrained.
There is a problem with corporate boards, namely the principal-agent relationship. Some corporations indulge their executives with excessive remuneration, including stock options, at the expense of the shareholders. Corporate governance could be reformed by the indirect election of boards. The shareholders would elect members of a knowledgeable committee that would then elect board members and hold them accountable. But that would require a fundamental change in corporate law.
Indeed there is a problem with corporate political influence, but labor unions and trial lawyers have political clout as well. I have written previously that democracy needs reforming into decentralized small-group voting. But that is not the problem that critics such as Brin write about.
Adam Smith wrote that “Ground rents, and the ordinary rent of land, are a species of revenue which can best bear a tax,” and Milton Friedman wrote that “the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.”
The problem with free-market thought today is not that they invoke free-market economists such as Adam Smith and Milton Friedman, but that the libertarians and free-marketeers do not fully grasp their public finance ideas. Adam Smith wrote that “Ground rents, and the ordinary rent of land, are a species of revenue which can best bear a tax,” and Milton Friedman wrote that “the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.”
The replacement of market-stifling taxes with a productivity-enhancing land value tax would indeed promote more competition, but such a concept is beyond the current imagination of critics of markets. However, since some of the critics such as Brin believe in economic evolution, we can hope that their thinking is still evolving, and perhaps they will discover land.
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FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.
Foldvary is the author of The Soul of Liberty, Public Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary's areas of research include public finance, governance, ethical philosophy, and land economics.
Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.