America has forgotten that small is beautiful

Last week we have heard two speeches from two presidential elections candidates – Hillary Clinton and Donald Trump. They were talking about the economic policies they found suitable for the country. Both speeches were performed in Michigan, and both didn’t inspire people at all.

Mr Trump’s hard-to-understand speech was about a policy that would protect product producers and punish their clients, which is literally a way to recession. Mrs Clinton offered a policy that would support exports and decrease imports, which will lead to major financial troubles and new regulations.

Americans were shocked by both suggestions, as they never have been put between two policies that would kill the economic growth of the country and bring zero profit. This sounds even more terrifying if we remember that the US once was at the peak of economic libertarianism. The days when both Republicans and Democrats were striving to provide freedom in the trade market are gone. Now, instead of arguing only about the way cultural wars and Cold War have to be handled, they give the Americans poor economic suggestions.

It’s true that back in the days of Barry Goldwater or Ronald Reagan, the purer forms of economic libertarianism came awkwardly packaged with social and military authoritarianism. And the likes of Richard Nixon, Jimmy Carter and Bill Clinton were only lukewarm in their support of free markets, while being more socially libertarian. But at least liberty was on the menu.

This may be why Gary Johnson, the former two-term governor of New Mexico, and his running mate William Weld, former governor of Massachusetts, are riding high on the Libertarian Party ticket. They are close to the 15 per cent threshold in the opinion polls in several states that would force the presidential television debates to include them. Johnson wants the government out of both the bedroom (he’s pro-choice, anti-war and for drug decriminalisation) and the boardroom: he wants small government and low taxes. He climbed Everest, so there is no doubting his toughness, but there is no plausible scenario in which he could win the presidency.

It is the same around the world. Economic liberty is out of fashion. There is almost no country trying the sort of free-market reforms — tax cuts, deregulation, privatisation — that so many countries achieved in the 1980s and 1990s. China and Russia, liberalised briefly in the late 20th century, seem to be heading back to Big Brother. Brazil’s market reforms have congealed into crony-corporatism. India and Japan are hardly paragons of small-government economic liberalism. Even here in Britain, I doubt Theresa May took Hayek’s The Road to Serfdom to Switzerland as holiday reading.

Is Adam Smith’s influence fading? This is what the sage of Kirkcaldy said: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.”

“Laissez faire, laissez passer” is the most tolerant of all creeds. As Smith insisted, it’s the very opposite of “pro-business” or pro-inequality; the market loves to disrupt complacent cartels. Yet to listen to most of the intelligentsia, you would think that freedom to exchange goods and services — which they prefer to call by the Marxist word “capitalism” — has done terrible harm in the world and needs taming by virtuous government. Further, that small-government philosophy has been terminally discredited, not least by the financial crisis of 2008.

Government is a more dangerous toy than markets ever could be

But the financial markets were heavily regulated cartels in the run-up to the crisis. AIG, the insurance giant whose credit default swaps went belly up, had been, in the words of the economic commentator George Gilder, “supervised and pettifogged by federal, state, local, and global beadles galore, in 50 states and more than 100 countries”. The explosion in sub-prime lending, far from being the product of deregulation, was the direct result of mandates passed by Congress to increase mortgage lending to low-income and minority people. These mandates were imposed on government–sponsored enterprises (Fannie Mae and Freddie Mac), enforced by law and encouraged by two presidents. George W Bush added regulations to the US economy at the rate of up to 78,000 pages a year.

Show me a country suffering from too much economic freedom. Somalia? No: it has too much government — competing forms of it called warlords. Haiti? No: its red tape is the despair of investors. Chile? It has a socialist president. The experiment of too much economic liberty has not been tried.

There is a long list of countries that were transformed by free-market reforms: post-war Germany under Ludwig Erhard; China under Deng Xiaoping; New Zealand under Roger Douglas; America under Ronald Reagan; Britain under Margaret Thatcher; Estonia under Mart Laar; India under Manmohan Singh. South Korea, Taiwan, Vietnam, Peru . . . Or Peel and Gladstone’s Britain, 17th-century Holland; the city states of Renaissance Italy; Tyre and Sidon under the Phoenicians. In every case, trade did that.

Hong Kong is probably the most successful economy of the past half century, going from abject poverty to opulence without a natural resource of any kind. It did so largely because one man, Sir John Cowperthwaite, the financial secretary of the colony in the 1960s, insisted on minimal government interference in commerce, on low taxes and little regulation, infuriating his LSE-educated superiors in London with his refusal to follow their socialist plans. Yet when I was in Hong Kong recently and met the free-market Lion Rock think tank, I was struck by how pessimistic it felt about winning the argument for small government, even there.

By contrast, I can point you to a list as long as your arm of countries ruined by too much government. Venezuela, North Korea, Belarus and Zimbabwe are top of the list today, but Hitler, Mao, Stalin and Pol Pot are egregious reminders that government is a more dangerous toy than markets ever could be.

Why is economic libertarianism out of favour? Unlike welfare-socialism and crony-capitalism, it fails to create vested interests dependent on its subsidies. The whole point of running for president is to be able to hand other people’s money to your favourite causes and generate grateful patronage. Laissez faire robs you of that treat.