Do Free Markets Really Hurt Families?

By Matthew D. Mitchell & Tad DeHaven of Mercatus.

"Writing at Trad Dads, economist Levi Russell responds to our critique of Tucker Carlson’s much-discussed monologue on market capitalism. Though “interesting,” Russell concludes that our critique “ultimately falls flat.” As Russell raises some interesting points, we thought we’d take a moment to respond while shoring up our original arguments.

To begin, we should reemphasize that we agree with both Carlson and Russell that those whom Carlson calls “the ruling class” bear some responsibility for facilitating a divide between haves and have-nots. As we noted, there is “evidence that the economic and political elite have contributed to many of today’s most pressing social ills, including rising barriers to opportunity, and increasing economic uncertainty.”

However, we part ways with Carlson when he claims—without any evidence—that a “worship” of market capitalism is to blame. In Carlson’s view, decades of “corporate propaganda” have caused Republican leaders to worship at the altar of market fundamentalism. In so doing, they have developed a “system that weakens and destroys families…. A system that is the enemy of a healthy society.”

As we see it, Carlson has made two contentions here. First, he claims that “elites” have spent decades pushing for a system of extreme free-market fundamentalism. Second, to the extent that that system of free market fundamentalism has been achieved, it has been responsible for weakening and destroying families.

Is it true that elites push for market fundamentalism?

In our view, Carlson has it backward. Elites seem far more interested in obtaining protection from market competition than in achieving some free market fundamentalist dream. And as we previously noted, there is plenty of evidence to demonstrate this:

“For the better part of four decades, economists have amassed evidence of this. Their case studies of electricity, railroads, radio, airlines, taxis, oil, natural gas, banking, trucking, television, wireless spectrum, pharmaceuticals, ride sharing, hospitals, energy, alcohol shipment, and countless professions have made it clear that firms don’t want free market competition. They want government intervention. See, also, this helpful compendium of expert quotations on the matter, compiled by our colleague, Adam Thierer.”

And this makes sense. Free and open markets challenge the existing political and economic power structure. That existing political and economic power structure—a system which Randal Holcombe, borrowing from Gabriel Kolko, calls “Political Capitalism”—is maintained through cooperation between political and economic elites. Political elites use government favoritism to protect economic elites while economic elites use their financial resources to help political elites keep their jobs. Az Raghuram Rajan and Luigi Zingales put it in Saving Capitalism from the Capitalists:

“The behavior of government is determined, in part, by public mood. But to a greater extent, it is also determined by the special interests being regulated. This is why the free market system is fragile. Not economically (as Marx theorized), but politically. While everyone benefits from competitive markets, no one, in particular, makes huge profits from keeping the system competitive and the playing field level. Thus, nobody has a strong vested interested in promoting and defending free markets.”
Nobody. Especially not elites.

Russell grants that our “points about the dangers of special favors granted by government are well made.” So, it is possible that he agrees with us up until this point (note, by the way, that Russell has contributed to our understanding of the economics of special favors in agricultural policy). Therefore, let’s turn to Carlson’s second contention.

Has free market fundamentalism weakened and destroyed families?

There is plenty of evidence that not all is right in the land. As Carlson rightly points out,

“Anyone who thinks the health of a nation can be summed up in GDP is an idiot. The goal for America is both simpler and more elusive than mere prosperity. It’s happiness. There are a lot of ingredients in being happy: Dignity. Purpose. Self-control. Independence. Above all, deep relationships with other people. Those are the things that you want for your children. They’re what our leaders should want for us, and would want if they cared.”

He goes on to lament the “pathologies of modern rural America,” including “Stunning out of wedlock birthrates. High male unemployment. A terrifying drug epidemic.”

Absolutely. These are serious problems. But, strangely, Carlson pins these (genuine) problems on markets, saying that “families are being crushed by market forces.”

But what do these trends have to do with markets? In our initial post, we thought it relevant to point out that these developments have occurred at a time when market processes have grown more constrained by government intervention, not less so. According to the Fraser Institute, for example, measured economic freedom in the US has declined since 2000, losing most of the ground that was gained in the two prior decades.

Measured Economic Freedom in the US Has Declined Since 2000Share this Facebook Twitter

To this, Russell replies,

“Mitchell and DeHaven point out that Tucker refers to the American economy as a “free market economy.” They then spend the rest of their article explaining why, actually, the US economy is not free. The problem with this is that there is no such thing as a perfectly free market. It can’t happen in reality. There will always be some control by the state; the state will always be around to, at the minimum, define property rights and enforce them.

“Thus, Mitchell and DeHaven set up a nirvana fallacy of sorts.”

Russell is correct; there is no such thing as a perfectly free market. We never said there was. In fact, that’s part of our point: Carlson is blaming something that doesn’t exist. Our goal in pointing to these regulations and the myriad ways the government intervenes in the economy is not just to say that we don’t have a free market. It’s that the very problems that Carlson blames on the free market seem to have gotten worse as the market has become less free.

If the data don’t support the claim that “families are being crushed by market forces” is there at least a theoretical case for this idea? Is there a semi-plausible story?

Carlson points to declining male wages.

“Here’s a big part of the answer: male wages declined. Manufacturing, a male-dominated industry, all but disappeared over the course of a generation. All that remained in many places were the schools and the hospitals, both traditional employers of women. In many places, women suddenly made more than men.”

He then goes on to say that women don’t want to marry men who make less than they do. This, he says,

"causes a drop in marriage, a spike in out-of-wedlock births, and all the familiar disasters that inevitably follow—more drug and alcohol abuse, higher incarceration rates, fewer families formed in the next generation."

We can quibble with the numbers (it turns out that while today’s median male earner does not make much more than the median male earner from a few decades ago, things look quite a bit better when you follow the same person over time).

But for the sake of argument, let’s grant that at least in some parts of the country there has been an alarming rise in social “pathologies.”

Here, Russell steps in to pin some blame on creative destruction,

“Creative destruction might give us the highest GDP per capita, but it can be destructive socially as well. Those who are left behind in the endless search for innovation will suddenly find that there was some trade-off between the promises of higher incomes and the probability that they would lose their income. The rootlessness that results from this mentality is certainly destructive, as young people leave their communities and families not because of abuse or other justifiable reasons, but out of a sense of bettering themselves without regard to their moral duty to family and community.”

Debates about creative destruction often take this form. They focus on the desirability of creative destruction while simply assuming that it can feasibly be arrested (this, by the way, is the original Nirvana Fallacy, as articulated by the late Harold Demsetz 50 years ago). But what if policy cannot stop creative destruction? What if all it can do is fool people into thinking it doesn’t exist?
 
From our standpoint, some of the places worst hit by Carlson’s social pathologies seem to be rural communities that were once dominated by artificially protected industries like steel and textiles. Those protections encouraged workers in those communities to accumulate skills that were out-of-sync with consumer preferences. Protectionism was supposed to, well, protect these communities. Why didn’t it?

What to do?

Carlson is light on policy recommendations. He never gets around to explaining exactly what additional restraints on markets the government should impose. He does criticize payday lenders, low capital taxation relative to income taxation, marijuana use, and leveraged buy-outs.

Are there strong theoretical and empirical reasons to believe that government interventions like cracking down on payday lenders, increasing capital taxation, stepping up the drug war, or making leveraged buy-outs illegal will stop out-of-wedlock births, lower male unemployment rates, or arrest the opioid epidemic? If there are, we haven’t seen them. Our guess is that elites—not the intended beneficiaries—would likely capture most of the rents from these policies. Again, to simply assume that the policies will work as intended is to commit the original Nirvana Fallacy that Demsetz warned of.

A large literature suggests that marginal increases in economic freedom tend to be beneficial. As one review of 198 papers concluded,

“The balance of evidence is overwhelming that economic freedom corresponds with a wide variety of positive outcomes with almost no negative tradeoffs.”

Given this evidence, we’d suggest that a first step in reversing some of the social pathologies that Carlson laments would be to reverse the decline in economic freedom that began about two decades ago.

Another would be to strengthen the social bonds of civil society. Those of us who are skeptical of government interventions are not necessarily endorsing “radical individualism.” We do not, as Russell puts it, believe that families and communities should be pushed aside for “a laser-like focus on the individual as the fundamental unit of society.”

Our vision is one in which the individual is free so that she can then join voluntary organizations—life’s little platoons—to meet her physical and emotional needs. Humans thrive on and absolutely need groups: families, churches, clubs, bowling leagues. But the individual must be free to join those platoons at his or her own discretion. Yes; it takes a village. A free one."