'The End of Loser Liberalism' and the myth of the free market

(This is the extended, Director's Cut edition of my review published by Inter Press Service)

The top 1 percent of earners in the United States now control more than 40 percent of the nation's wealth, their income steadily rising at the same time most of the country now takes home less pay than a decade ago, with an all-time high of 46 million Americans now living below the official poverty line.

To many on the right, this trend is the natural consequence of market forces, of freedom and free enterprise rewarding the more productive members of society. Many on the left also hold free markets responsible for the expanding gap between rich and poor and the global economic meltdown that accelerated it, arguing for a more interventionist role by the state to promote stability and arrest the growth in inequality.

But as economist Dean Baker observes in his latest book, The End of Loser Liberalism: Making Markets Progressive, the truth is that those on both sides of the political spectrum who assert that the U.S. economy is based on free markets are fundamentally mistaken. Markets in the U.S. have never been free of state intervention. Rather, that which we call the “free market” has in fact been fixed, consciously designed to redistribute wealth from the working class to the idle rich, from patents that allow pharmaceutical giants to reap monopoly profits to restrictions on labor that neuter the ability of Americans to organize and demand better compensation.

If critics of the corporatist status quo want to quit losing policy debates, argues Baker, it's time they started accurately describing the system they're up against and quit debating on its apologists' terms.

“In reality,” writes Baker, co-director of the progressive Center for Economic and Policy Research in Washington, DC, “the vast majority of the right does not give a damn about free markets; it just wants to redistribute income upward.” Though cloaking their language in the rhetoric of liberty, conservative politicians – both Democrat and Republican, from Bill Clinton to George W. Bush – have in fact crafted an economic system based on coercion and dependent on state-granted corporate privilege.

Of course, they can't just say that, so they couch their rhetoric in terms of the American Dream, of hard work and ingenuity being rightly rewarded with prosperity. But politicians in Washington professing their allegiance to free markets should be no more believed than when they profess their devotion to peace.

Unfortunately, critics of a system crafted by and for the rich have accepted the “free market” framing of its defenders, which is why Baker posits the left has been losing the policy debate in recent decades. All too often, liberals have accepted the increased concentration of wealth as the natural result of free enterprise; if their opponents have any fault, then, it's that they have too much faith in people being left to conduct their own affairs free of intervention by the state. That, Baker maintains, is far too easy on politicians whose only allegiance is not to the principles of the free market, but the principal of the rich.

And blaming free markets for inequality and economic catastrophe in America is not only factually flawed, writes Baker, “it makes for horrible politics.” Accepting the right's framing of the debate allows conservatives to cast themselves as defenders of “productive” Americans who live in bigger houses than the rest of us because they worked harder, enabling the left to be “portrayed as wanting to tax the winners in society in order to reward the losers.”

Instead of devoting so much time to taxing the rich, Baker maintains the left would be better off striking at the root and attacking the state privileges that enrich them in the first place. Instead of allowing the right to masquerade as defenders of limited government, the left ought to reveal conservatives as the true proponents of massive state intervention in the economy.

Consider the debate over deregulation. A common liberal critique is that the repeal of the Great Depression-era Glass-Steagall Act, enabling commercial banks to jump into investment banking, was an example of laissez faire ideology run amok, a move that led directly to the financial crisis of 2008. The truth, though, is that the repeal of the act didn't actually minimize state intervention in the economy at all. On the contrary, it only increased the state's role in shaping market outcomes, extending the deposit insurance the federal government provides commercial banks to the investment firms that could now operate under the same roof, providing a taxpayer-funded subsidy to risky investments and exotic financial instruments.

Proponents of “deregulation” in the 1990s were in truth the real advocates of Big Government. So why isn't the left saying that?

Baker also details how, under the watch of alleged free marketeer Alan Greenspan, the Federal Reserve – the very existence of which is at odds with a free market – pumped the economy full of cheap credit, fueling reduced lending standards and the creation of exotic financial instruments by banks confident that, should times turn sour, their allies at the Fed would refuse to let them fail.

Indeed, the Fed itself was from its founding in 1913 “deliberately designed to insulate it from democratic control and leave it instead to be a tool of the financial industry.” The problem was never a lack of regulation or state involvement in the economy, observes Baker, it was for whom those regulations and interventions served.

If Baker's assessment of the U.S. economy sounds radical to the liberal ear, his statement that, in general, “Progressives should want a free market,” probably seems heretical. But in most cases, he maintains, government intervention not only does not provide a check on the concentration of wealth and the rise of monopolies, but in fact is the underlying cause for the increasing gap between rich and poor. Be it overly restrictive licensing schemes that limit competition in the medical and legal professions, resulting in much higher salaries than would be possible in a free market, to labor laws that hinder organizing and prohibit unions from engaging in sympathy boycotts and other effective negotiating tactics, the overwhelming effect of government intervention is to make the wealthy elite wealthier.

Indeed, the very corporations held up as the pinnacles of success in a free society “do not exist in the natural world or in the free market,” Baker notes, their very existence owed to an act of government that, thanks to the doctrine of corporate personhood, enables executives to evade legal and financial responsibility for poisoned rivers and fraudulent mortgages – and to avoid answering to shareholders who are ostensibly their bosses.

The rise in health care costs in America is also largely due, not to market forces, but state interventions, notes Baker. For example, Baker writes that Americans currently spend around $300 billion a year – or 2 percent of the U.S. gross domestic product (GDP) – on prescription drugs. In a competitive market free from monopoly-granting patents, that figure would be closer to $30 billion.

“This difference of $270 billion a year is more than five times as large as the annual cost of President Bush's tax cuts for the wealthiest 2 percent of the population,” Baker writes, the same inflated costs applying to patented medical equipment. Yet, despite even the Organization for Economic Cooperation and Development (OECD) noting that “intellectual property” is the single greatest factor when it comes to redistributing wealth from the lower to upper classes, it receives nowhere near the attention that tax policy does from the left.

The End of Loser Liberalism demonstrates that what the left and right have come to call the “free market” is in fact an economy fixed by the wealthy and their allies in government to redistribute wealth from the bottom to the top of the economic pyramid. Contrary to conventional wisdom, Baker shows time and again a true free market would actually lead to more progressive outcomes and that there's nothing corporate America fears more than unbridled competition – and no institution it's more dependent on than the U.S. government.

Many liberals and progressives have been conditioned to view the state as the public's last best defense against corporate power; what Baker shows is that it is more often than not its chief enabler. But while his assessment is radical, his solutions are reformist – perhaps overly so. And if Baker's to be faulted, it's for thinking too much like an economist than a progressive visionary.

That is to say, while Baker ably demonstrates the many ways state interventions in the economy are designed to enrich the wealthy, he never fully articulates his vision of a what a more progressive economy would look like, so when he advocates a major government stimulus to reboot the American economy, the reader is left to wonder: absent radical reform, what's really the point? Sure people need money, and perhaps direct payments from the state would be more “loser liberalism” and syndicalism too radical for the time being, but if stimulus money is only going to help reboot the same crony capitalist economy as before, with its fixed wages and debt-based consumerism, will short-term reductions in unemployment come at the expense of more fundamental – and necessary – reform?

Some of Baker's other ideas also aren't likely to help liberals beat the “big government” rap and shift the terms of the debate, either. Providing every American a $100 voucher to give to an artist of their choosing could conceivably undercut the power of copyright-dependent media conglomerates, for instance, but's it's hard to imagine a GOP Congress approving of tax dollars going to any artist more radical than Norman Rockwell, much less Anarcho-Vegans Against War. In effect, the proposal could very well encourage bland, politically advantageous conformity in the art world at the cost of unpopular dissent. Taking on excessive and draconian intellectual property laws head-on would seem to be both politically more attractive, bringing on board both leftists and libertarians, and less likely to subject the art world to greater political manipulation.

Providing businesses incentives to hire more workers at shorter hours, meanwhile, might reduce unemployment. And Baker's likely right that a shorter work week would be closer to what would occur on a true free market, where tax codes tying health care to employment and labor laws undercutting worker bargaining positions would no longer conspire to force Americans to work longer hours with less time off than their counterparts in Europe. But even so, mandating a shorter work week is bound to be attacked by conservatives as liberal social engineering, a left-wing war against “hard work.” If the goal is to paint conservatives as advocates of state power in the service of the wealthy, why not focus instead on changing the manipulative tax codes and big government restrictions on labor?

If the American left is to capture the public's imagination, it will ultimately need to put forward a broader, more holistic and compelling vision of society than that offered by their opponents on the right, one based more on consensus and cooperation than corporations and coercion. That vision, while hinted it, isn't detailed in The End of Loser Liberalism.

But that's a rather minor quibble. Before it can achieve radical social change, the left needs to radically change its rhetoric and quit debating on the right's terms. And if leftists wants to quit losing to conservatives, they would do well to start listening to Dean Baker.

“The End of Loser Liberalism: Making Markets Progressive” is available as a free download on the website of the Center for Economic and Policy Research.