A MORAL DEFENSE OF FREE-ENTERPRISE
Commentary by Mike Stenhouse
Capitalism – not Redistribution – is Moral & Unifying
As Rhode Island suffers through one of the worst economic, educational and fiscal crises in its history, a new vision of revitalization is required for a better future for our children and citizens.
Ideas matter. Public policy has real consequences for real people. Recent policies in the Ocean State that have promised too much to too many have had the adverse effect of fraying our economic and educational fabric, and have failed our residents. Our state has become known as an entitlement magnet, while other Rhode Islanders struggle to maintain a positive outlook.
In fact, according to 247 Wall Street, Rhode Island has HIGHEST LEVEL OF SPREADING THE WEALTH public policies in the entire nation … or taxpayer funded “redistribution” policies. According to the Center’s 2014 Report Card on RI Competitiveness, the Ocean State grades at an F or D in 80% of the 52 national indices listed. Is there a connection between excessive income redistribution and our state’s persistent last place rankings. Our Center believes – YES.
A forward-looking, long-term plan to restore greatness to Rhode Island is needed to put our state back on a path toward prosperity and to restore pride and hope. While there is no magic wand, significant public policy reform, if implemented prudently, can dramatically enhance the well-being of Rhode Islanders within a generation.
What path should the Ocean State take to UNLEASH the great potential of its residents, its business sector, and its natural resources?
Read ahead for our rationale as to why a return to “Capitalism” or the “Free-Enterprise System” should be the path we choose.
“I believe that the free enterprise system is the greatest engine of prosperity the world’s ever known” … President Barak Obama
Should RI be an ‘Entitlement State’ or a ‘State of Prosperity’?
Rhode Island is not alone. The scope of the problem is immense and complex. The same Great Society thinking that has run up billions of dollars of unfunded liabilities and economic strife in the Ocean State has resulted in similarly unsustainable crisis in other cities, states, and countries. Recent local, national and global news makes it clear that the culture of dependency on government has failed to deliver on its promises to citizens – both those from whom money is taxed as well as those who receive government services . The worldwide financial crisis can be attributed to nothing more than expanded claims to new “rights”, coupled with over-reaching government promises and dysfunction.
No person has a “right” to anything that other people have to pay to provide.
The Constitution only guarantees the American people the right to pursue happiness. You have to catch it yourself” … Benjamin Franklin
The entitlement state culture has failed to deliver on its many promises to bring prosperity to various groups and has resulted in the stagnation and massive liabilities suffered by far too many cities and states in America.
This failed culture also runs in direct opposition to the rich history of America, which led the way in demonstrating how economic freedom was able to increase human prosperity and raise standards of living in countless ways over the past 200 years, to levels never before achieved in the history of our world.
In departing from this American standard, our national, state and local governments have taxed too much, regulated too much, promised too much, and borrowed too much. The history of the past few centuries shows that these types of government policies have resulted in fewer individual freedoms and reduced economic opportunity.
The negative effects of entitlement driven economies can be masked during boom periods, when there is money to pay for social services; when there is a high younger population that can support the elderly; and when there is willingness from the bond market to finance continued deficit spending at low rates. However, during periods when these conditions cease to exist, as we now largely have in America and throughout the world, the steep price of government dependence is exposed.
Defenders of the culture of dependency want citizens to believe that wealth inequality and oppression by the rich have stifled opportunity and are the cause of our economic failures, and that only policies aimed at reducing this inequality will help our economy, such as progressive taxation and heavy regulation.
Conversely, it is our contention, that in the United States, the natural spirit of the American worker and business entrepreneur, as well as trust in hard work, has been continually held down by the heavy hand of an increasingly intrusive government that confiscates private property and breeds dependence.
Once upon a nation, we called this tyranny. Whatever its name, this is not freedom and it cannot lead to prosperity.
Before the entitlement state culture became prominent, self-determining individuals knew they had to support themselves through their own productive work and they planned for potential tough times, by working hard, saving, keeping within their means, and assuming responsibility for their own lives.
In the Ocean State, we have been especially harmed by the entitlement culture. Rhode Island is no longer competitive with our regional state neighbors or nationally in many critical areas. With some of the highest tax burdens in the country, with a regulatory culture that restricts economic growth, with a failed educational system, and with a sense among our citizenry that all hope is lost … Rhode Island is in dire need of a new vision … a plan to restore true, earned prosperity.
A Departure from Capitalism has made the Ocean State Non-Competitive
One look at the Ocean State’s Competitiveness Report Card underscores our problems. The frequency of “F” grades is stunning! In fact, 2 of the 10 major categories score an F, with the other 8 scoring no higher than a dismal D. The report depicts how woefully non-competitive Rhode Island has become, both on a regional and national basis. As a result, with the weakest jobs outlook in the country (as of May 2014), Rhode Island was one of the first states to fall into the national recession and will likely be one of the last state’s to climb out.
Multiple other local reports support the concept that Rhode Island is in a severe economic crisis and that without dramatic public policy reform, the state is unlikely to emerge from its economic doldrums anytime soon.
Any meaningful reform that restores competitiveness to the Ocean State must be focused on driving down spending, long term debt, and ultimately … taxation. This is the only path to renewed prosperity. It will take a massive cultural shift away from the failed redistributive policies of the recent past and back towards the proven market-based policies that built our great nation.
Meaningful reform must also give middle- and lower-income families and entrepreneurs a real opportunity to achieve and raise their standard of living by freeing them to compete and fight for their own prosperity within a robust economy; to develop their individual skills through the process of taking risks, succeeding, and failing. This is how economic freedom works.
What Rhode Island needs is not more of the same burdensome tax-and-spend policies, but, rather, our state demands a plan to unleash the great potential and hope within each of us … a plan to Unleash Rhode Island. Americans are at our best when we are freed from the binds that inhibit our innate pursuit for achievement and when we are allowed to produce on our own merit and initiative.
“A house divided against itself cannot stand” … Abraham Lincoln
Government intervention is divisive by nature and creates confrontation among the populace.
Government action in the name of “fairness” is actually more unfair than the condition it seeks to rectify. It is a political mechanism that strains the social fabric of a free society, and tends to favor one group of citizens at the expense of another group; and for which there will always be some portion of citizens who are for and against the action.
Is it unfair when people desire to keep more of what they earn? Or, rather, is it unfair when some demand a greater share of what others earn?
There are no caste distinctions or limitations in America, yet through recent, progressive public policy we are indeed creating politically-correct classes of people; those to be protected and supported, and those who would be renounced and pilfered from. Class-systems and class-warfare are patently a European trait … and are un-American to the core.
Coercive redistribution policies demands that different people live by different rules and establishes contradictory values: seeking unearned prosperity for one group via the destruction of another group’s rightful property.
This philosophy is corrosive to a free society and will inevitably lead to the very kind of conflicts we see in our state and municipalities today … pitting various special interest groups against various taxpayer groups.
Political Entrepreneurs vs Capital Entrepreneurs
The idea that our insider, crony government culture has encouraged an increasing number of political entrepreneurs – who seek to spend (re-distribute) taxpayer dollars to form cohesive political coalitions that cause their constituents to become dependent on state assistance and who must regiment their lives to comply – should be an affront to any freedom-loving citizen … and also tends to divide our society.
Whether it be life-long politicians themselves, lobbyists, classes of citizens and businesses who receive government aid, or those whose business is part of the vast distribution infrastructure, a powerful coalition of special interest political entrepreneurs has been hatched and is thriving because of the enormity of the taxpayer dollars that are being redistributed.
Additionally, the process of designing and implementing public policy based on “fairness” inevitably becomes corrupt because it rewards the well-connected, is prone to bureaucratic and political favoritism, fosters cronyism and fraud, and leads to undue influence by powerful special interests. The 38 Studios debacle is not a surprising outcome resulting from this corrupt process.
The massive public promotion of entitlement programs by political entrepreneurs unintentionally encourages risky behavior by some individuals who may come to view entitlement programs as a kind of ‘government bailout’ if they are irresponsible with their personal or business activities.
Does Redistribution of Wealth = Equality or Fairness?
The American principle of equality is based almost entirely on the concept of God-given, natural rights. Our American ideal of equality does not apply to wealth or income. In fact, America has always celebrated the great diversity of our citizenry, each person individually blessed with different levels of talents, virtues, and creativity … with each person encouraged to achieve as much success as they can.
Public policy that funnels different people toward the same outcome, is restrictive and counterproductive; whereas public policy that allows each person to utilize their own free-will to determine their own outcome is the true meaning of freedom and emblematic of the American Dream.
Welfare payments, corporate handouts and bailouts, unemployment benefits, and other public assistance all represent a redistribution of income. For every “redistributed” transfer payment, there is a corresponding tax collection or a future tax liability. The revenue effects generally cancel, but the unintended incentives and dis-incentives can be divisive and profound. At the same time that these policies provide incentives to not rely on one’s self-determination, the disincentives for production are also increased.
Further, there are a number of arguments why over-reaching government programs that favor one group of citizens over another are harmful to our society. Regardless of the purported noble cause or call for fairness, the unintended negative consequences of most of these “transfer” programs are often overlooked, severe as they are:
Redistribution is demeaning and immoral. To categorize any group of people into any class structure and to treat them collectively in the same way is contrary to the American concept of individual freedom: It is immoral to stereotype an entire class of people in any way. It is demeaning to portray individuals in any class as incapable of having the intellectual or creative capacity to determine the best individual path for their own personal well-being and prosperity.
Redistribution is tyranny. Such programs that take from one group in order to provide to another group are clearly not consistent with the founding principles of government in America. These programs run counter to the values of individual achievement, property rights, and freedom to pursue one’s own happiness; and are not protective of the personal property or wealth of those from whom property is forcibly taken. It is immoral for government to confiscate property from one group in order to gain political favor with another group by attempting to buy their political support with our taxpayer dollars.
Our government was conceived to escape such forms of tyranny and to preserve individual property rights … not to diminish them by ceding them to an over-politicized government.
“The greatest tyrannies are always perpetrated in the name of the noblest causes” … … Thomas Paine
Redistribution fosters a culture of cronyism and special interest politics. Our taxpayer dollars are often confiscated by legislators as a means of securing votes, campaign contributions, and special favor with special interest groups, corporations, and other insiders. Notwithstanding other negative consequences described above, this is the most sinister and disturbing aspect of the big government, redistribution culture. Securing personal political gain at the expense of the taxpayer should be anathema to every US citizen. Reducing the amount of money available generally to special interest groups, will necessarily reduce corruption and cronyism.
We must restore the principle of government representing the taxpayer – not special interest groups – and enforce the great American ideal that government is a public trust and that good government should work for all its citizens. This ‘public trust’ doctrine requires public officials – as servants to the public – to place the protection of taxpayer private property rights (including money) as the paramount consideration when determining any public policy.
Too often, citizens are made to feel guilty if they do not support more government defined fairness or equality. As a free society, citizens must learn to resist these persistent calls to address such causes in the form of redistributive government programs, and instead should choose to support the needy voluntarily via family, community associations, private charities and faith-based organizations. Government programs tend to suffocate some of these more traditional institutions that are vital to a free-society.
Redistribution schemes harm the economy. Such programs are actually destructive to the very economic foundations that are necessary for people to be able to raise themselves up. Income transfer payments to pay for these schemes, means there will be a de facto tax on work and less capital available that can be invested to grow the economy; consequently, there will be lower economic growth and more people may become dependent on the state. Further, most transfer payments are not taxed; therefore the combined effect of a larger percentage of income being derived from transfer payments, along with a weakening of traditional earned income … there will necessarily be downward pressure on actual government revenues.
We have clearly seen this effect in Rhode Island as working people and business owners migrate to other, more tax-friendly states, taking their wealth with them and leaving behind a lower overall tax and consumer base … creating a viscous, downward cycle – a death spiral. Such government programs that intend to help a specified group of people, at the expense of others, actually perpetuate and worsen general economic conditions by degrading economic opportunity for everyone.
Redistribution policies do not redistribute wealth … but they do redistribute population.
Redistribution harms the very individuals it purports to aid. Such programs have failed to deliver on their promises and may actually do more harm than good to the individuals who are targeted for relief.
Is it truly in the best interests of people to become dependent on anything other than their own talents and creativity?
Are we breeding a culture of dependency, stifling innovation, and smothering our innate spirit to work and achieve excellence? Additionally, with the general economy weakened as a result of such policies, there will be fewer opportunities to obtain gainful employment or to put our individual creative talents to obtain employment or start a new business.
The most fundamental laws of economics also refute redistributive public policy. Consistent with basic ‘supply and demand’ theory, when prices go up, demand goes down and vice versa. When government taxes income at higher tax rates, there will necessarily be less income to tax and the result will be lower overall economic activity. Conversely, when government subsidizes non-productive outcomes – via welfare or unemployment benefits, for example – the incentives to overcome those challenges are reduced and the result will be more of that non-productive outcome.
“Entitlement state” polices that tax income so as to subsidize idleness are counterproductive to a prosperous society.
Instead we need to encourage more capital entrepreneurs who will risk their own money to provide products, services, and jobs so that more of us are free to become independent creators of wealth … to grow our economic opportunities and to achieve true prosperity, which tends to unite our society.
It is a great irony that the entitlement state, which was conceived to lessen insecurity and to avoid social conflict, now appears to have exacerbated exactly what is was designed to eliminate.
What is Capitalism?
Conversely, true capitalism is the newest, freest, fairest, and most productive economic system ever devised. It is a competitive system that harnesses the best interests of individuals so as to cooperate in creative and voluntary ways to provide the most desired products and services at the most best price; in other words, prosperity. Lower government interference, which, in turn, increases economic and educational freedoms, means that more citizens will be more free and united in purpose when it comes to the means to achieve prosperity.
Capitalism is the economic model that built America into the most prosperous and influential nation our world has ever known. It is an economic system grounded in individual freedom, where the risk of financial loss or prosecution serve as disincentives to imprudent or improper behavior. Capitalism should not be confused with political models: in its purest form, it should transcend traditional partisan divides.
American exceptionalism is based on the concepts of capitalism and universal human liberty, especially the right to sow the rewards of our own individual labors. The principle – that all members of our society are free to work hard and to achieve based on their own, individual dreams and abilities – is a core tenet of capitalism.
With the freedom and incentive to put their creativity to work, individuals and businesses generate new ideas and foster innovation, creating wealth and opportunities as well as an enhanced status of living for everyone.
The government is not the giver of all things and it is not the engine that produces wealth. Our government was designed to protect our rights and properties, not to infringe upon them and seize them for politicians’ personal political gain.
Capitalism – or the free-enterprise system – is the engine that produces prosperity. Capitalism is color blind in that it provides universal opportunity – rewards and risks – for anyone who chooses apply their individual creativity and talent to pursue excellence.
A return to the pursuit of individual happiness and the freedom to achieve personal excellence is the only way we can unleash our true potential and prosper as a people and as a state. In America, we still believe that hard work and free enterprise are the building blocks of true opportunity.
If we want to see near-term gains in the Ocean State, swift and massive reforms are necessary to undo decades of stagnation, cronyism and waste … all of which are bred by an over-dependence on government. Not only will our economy gain because more capital will be available to invest and grow it, but corruption and waste will decline, because there will less taxpayer money to fight over and spend.
A systematic dismantling of some of the more oppressive taxes and regulations that were implemented for political considerations, must be initiated as part of larger plan that will unleash our true potential. Will Rhode Island continue to follow its current path, a path we see failing throughout the world, or will we differentiate ourselves by unleashing the capitalistic forces that have been suppressed here in the Ocean State?
Did a failure of Capitalism cause the “Great Recession”?
No, however some would like you to believe this is the case. In reality, there is a more likely reason.
While the progressive-liberal movement and the “occupiers” claim that the 2008 recession was a failure of capitalism, our Center for Freedom contends that
… the real problem was the monkey-wrench of big-government within the gears of capitalism …
… motivated by the false notion that the government should legislate fair outcomes.
Consider the three major business sectors that failed in 2008 and that precipitated the recent recession: Housing, Banking/Finance, and Auto … three of the most heavily regulated industries in America. These industries have become anything but true examples of capitalism or free markets. It was government interference in these sectors that stifled the forces of the free-market system from working properly, allowing bubbles to occur and inadvertently encouraging risky behavior.
Over-regulation and government intervention is exemplified by the primary cause of the housing bubble burst.
In the 1990s, concerns were raised about inequalities in the housing market. So, for politically motivated ‘fairness’ reasons, the government intervened, requiring mortgages be granted to individuals who had not yet earned the privilege of being able to pay for a house. The resulting housing bubble and the current wreckage in the housing market is a predictable outcome of government interference in the free-market system.
This self-induced housing wound bled into the financial markets in the form of mortgage derivatives, a futile and destructive scheme to make profits from the non-profitable mortgage practices the government mandated upon the market. Making matters even worse, because of their connections to government, the banks and financial institutions knew that they would be bailed out by the taxpayers; so they took even more reckless risks. This is an important point that is often overlooked.
Taxpayer funded bailouts are yet another form of government interference and are not part of the capitalist system. The ‘risk-reward’ and the ‘never too big to fail’ principles of the free-market system were violated … and we are still paying for it today.
This unintended chain-reaction of harmful events in the housing market was caused by well-intended, yet imprudent, government intervention in the name of fairness. This interference across many industry sectors was the true force that brought on the recession … not the the normal workings of the free-enterprise, capitalistic system.
The time for Rhode Island to be Unleashed is NOW!
Redistributive income programs by government are not the means to prosperity and should not be the sole safety net for those who are truly in need. During America’s early days, there was another way.
“Those in need,” historian Walter Trattner writes, “. . . looked first to family, kin, and neighbors for aid, including the landlord, who sometimes deferred the rent; the local butcher or grocer, who frequently carried them for a while by allowing bills to go unpaid; and the local saloonkeeper, who often came to their aid by providing loans and outright gifts, including free meals and, on occasion, temporary jobs. Next, the needy sought assistance from various agencies in the community – those of their own devising, such as churches or religious groups, social and fraternal associations, mutual aid societies, local ethnic groups, and trade unions.”
This is the capitalistic formula for caring for citizens who require assistance. It does not harm the economy or the individual, it is consistent with our Constitution, and it fosters self-reliance, innovation and production.
Our Founding Fathers doubled-down on the concept of capitalism and competition by establishing a nation strong states, with a relatively weak federal government.
We believe in the concept of a Competitive Federalism – where power is returned to the states and away from Washington, DC – as the means to promote the positive effects derived from competition among states as well as from competition between state level policy and the confrontational policies of the federal government.
In returning to this more natural constitutional order, power will be rebalanced between the federal government and the states. Competitive federalism also serves as a barrier to a centralized, national approach to public policy.
Confrontation divides us; competition energizes us.
What is needed in Rhode Island is a “free-market revolution” of sorts. Consider the current despondent and lackluster nature of our state’s individual, educational, and economic outlook. Of the 53 categories in our 2012 competitiveness report card, Rhode Island graded out at an F in 27, whive score Ds in 13 others … over 75% of our state’s grades at a D or F. This is not a recipe for economic success.
Instead, compare this to the positive and frenetic energy that could be unleashed by hundreds of thousands of Rhode Islanders freely pursuing their own versions of the American Dream. Public policy should aid, not hinder, the “invisible hand” that shepherds this energy once again into the most productive economic system the world has ever known.
Yet, the future will not wait for us. Competing states are hard at work to steal our youth, our citizens, and our businesses away.
To preserve our individual, economic, and educational freedom and to restore prosperity to Rhode Islanders a new vision is required, along with the will to “break free” from the current culture of dependency on government.
Prosperity Agenda for the Ocean State
Rhode Island’s persistently high unemployment rate is among the nation’s worst, and is completely out of whack with the rest of New England. Public policy in Ocean State has obviously FAILED and is not serving its citizens … however, there is virtually no leadership in our state that offers a big picture plan to restore prosperity.
History is clear. In the 1920s, 1960s, and 1980s tax reductions resulted in rapid growth, higher incomes, and job creation throughout America. The same policies can lead to similar results in Rhode Island.