What McCain Should Say (Update: Should Have Said)

The guiding principle of sound governmental and economic policy is to maximize freedom. That’s it. Very simple. Government exists to protect freedom, not restrict it.

This is not only right in principle, but it also works better — when people are left free to make their own choices, greater prosperity results (and I don’t mean this simply in economic terms). When people are left free, their initiative and creativity and diligence are free to create and innovate and produce. When people are restricted by government policies and excess taxation, the incredible potential of the people is also restricted.

I’m not saying that the Republicans have done a good job of living up to this in the last eight years, but when it comes to the two candidates before us McCain is much more in line with this thinking than Obama. Yet he has not been able to make an effective case for his economic principles, and has not done a good job of countering the standard charge of “favoring the rich.”

What we need is a candidate — whether McCain now or someone else later — that simply explains these principles clearly. It’s not hard. I think that a candidate that could do this, and stay on this note, would win every time. McCain simply needs to say something like this:

I am not for keeping taxes low because I am looking out for the wealthy. I am for keeping taxes low precisely because I am looking out for the little guy.

When businesses are able to keep more of the money they earn, it gets invested in jobs and other productive endeavors. The result is that there are more jobs and a growing economy–things which benefit the middle class and the poor.

But if we increase taxes on business and higher income brackets, they do not have that money available to create jobs. Instead, it gets shifted to the government, which then uses it to create ineffective government programs to compensate for the fact that the economy is not producing enough jobs.

Politicians are really good at “coming to the rescue” when all they are really doing is solving problems of their own making. Let’s stop creating more problems, and stay out of the way. This country is great because of its people and the principle of liberty upon which it was founded. Let’s trust our people, stop interfering with their liberty, and let them live their lives. This is both the right thing to do and what is best for this nation’s economy. The American people will do far more good with their money than government ever can. Let them keep it.

He could even go on further and overcome some objections:

Sometimes these ideas have wrongly been accused of being “trickle-down economics.” But that is a straw man. As economist Thomas Sowell has argued, no economist in the history of the world has held to a notion of “trickle down” economics (see Sowell’s Basic Economics, pages 388-389 in the second edition). Instead, it is “trickle up,” because the business or entrepreneur investing in the economy and job creation is the last to get paid.

For example, a small business decides to add a position to their company. They incur expense to find the right person, train them, and have them continue the ropes for several weeks or months on the job. During this time, the business is incurring significant expense and not yet experiencing a return. When the position does start to become profitable, it remains the case that the employees are paid first, along with expenses such as rent, utilities, supplies, and production costs. Finally, the business receives as profit whatever is left at the end, after paying all of these things. This is not trickle-down; if anything, it is trickle-up. The business and entrepreneurs get paid last. What the business has done is in fact admirable and, as Michael Novak argues in The Spirit of Democratic Capitalism, in some sense heroic. This is a good thing. We should not penalize the ability to do this through our tax code.

McCain could also go on to point out that this is not about materialism or greed:

Very often, people misrepresent the free market and capitalism as being about “greed” or “materialism.” I join you in saying greed is evil and materialism is empty. No thank you. But capitalism is not driven by greed. Sure, some people are, and capitalism forces their greed to be funneled to the good of society, because in order to make any profit at all, you have to think first about how to serve your customer. So capitalism is actually a very powerful check on greed, forcing it to serve the benefit of the common good.

But most people are not so thoughtlessly driven by greed, and capitalism is not about greed and it does not depend upon greed to work. Capitalism is about freedom, which means enabling people to pursue projects of interest to them; endeavors and initiatives which are of their own choosing. Capitalism is about being able to undertake what you choose, not what the government tells you to do, and to do it for whatever reason you want.

For most people, their aim is not selfish gain, but to serve their families and make their communities better. In capitalism you might choose to earn all the money you can for selfish reasons. But just as many people — in fact, more — are simply seeking to make an honest living, serve their families, and give some of what they earn to do good for the world.

In fact, capitalism doesn’t have to be about making money at all. You can choose to start a non-profit to fight AIDS in Africa, or a soup kitchen to fight hunger in your city, or an innovative new organization like Kiva. The whole point of capitalism is freedom: let people do what they choose. And multiple, numerous, incredibly creative initiatives will result that are good for society on all fronts, both economically and non-economically.

McCain could then tie it all together by closing something like this:

My campaign exists to make this vision of freedom thrive. These are the ideals that have enabled our people to prosper and serve over the last two hundred years and, yes, even grow in virtue. We don’t want to go through four years under a regime whose ideology distrusts your freedom and thinks that it is centrally planned government policies that make our nation great rather than the people themselves. Economic freedom and political freedom go hand in hand. If you are not economically free, you are not politically free. Vote for someone that will keep you free.

  • Eric

    Excellent post. I don’t understand why a clear explanation of these economic principles is so difficult for politicians to articulate. Or why McCain doesn’t pummel the straw horse arguments that distract from the real effect of Obama’s policies. Hopefully McCain’s team reads this on a Google Alert and can hammer home this point in the next 7 days.

  • Tara

    Have you ever heard of Ron Paul?

  • Matt

    Yeah, good to raise Ron Paul. Last winter he came and spoke at the company I worked at. Some good things to say on economic policy, but I thought he lacked in the ability to make them as compelling as they should be. At least in that speech. I’ve heard of many with an interest in him.

  • Mike Tosoni

    Ron Paul might be the greatest legislator in U.S. history.

    Mr. Perman, I see you recommend Henry Hazlitt’s Economics in One Lesson. Did you know that Hazlitt wrote a foreword to Ron Paul’s Gold, Peace, and Prosperity?

    A free-market man like you ought to consider the virtues of free-market money. Right now the Federal Reserve enjoys a government-sanctioned monopoly on money, and it’s eating us all alive.

  • Matt

    Mike: I will have to check out that book. I hear what you say about the Fed. However, I don’t think the solution is a new gold standard, which Ron Paul appears to advocate in that book (at least based on the Amazon summary).

    Recent research into the Great Depression has found that holding on to the gold standard prolonged and worsened the depression in every country that did so.

    Probably Paul advocates some differences to the way the gold standard was implemented in the past. So I shouldn’t speak to Paul’s thinking here without knowing more details.

    But I would have my initial doubts that the problems could be overcome. My thinking on monetary policy is very much in line with Milton Friedman.

  • scott

    freedom sounds great, but how does this fit with recent events? banks apparently can’t be trusted to always be doing what is best for their community. wouldn’t you agree that there is a place for govt. regulation, particularly for those areas of the economy where the govt. (taxpayer money) will be required to pay for the necessary bailout/cleanup?

  • http://n/a Bill Burns

    The primary reason why McCain could never have articulated these excellent points, is because he himself doesn’t really seem to believe in them at his core. Sarah Palin could _read_ them from cue cards, and even be convincing, but neither of them would be speaking from their heads, let alone hearts. McCain’s 30+ year history in government evidences a somewhat muddled, coopted thinking on all sorts of things, economics included. God bless him for his service to our country, and for his courage in that service, but it’s a shame we never seem to get candidates who actually imbibe this stuff and let it really guide their campaigns and governance.

  • Matt

    Scott: That’s a really good question to ask about how this fits with recent events.

    A whole lot could be said. In a nutshell, I don’t think it was lack of regulation that caused this crisis. I think it was actually government involvement that played the crucial role in bringing it about. There was the Community Reinvestment Act which started the ball rolling. And for the last two years Fannie and Freddie had been feeling pressure from Congress to do even more sub-prime loans (thus making loans available to more people in need). Now the government comes riding in to solve a problem that it largely caused. Additional regulation is not the answer, in my opinion.

    However, I do agree that there is a role for regulation. This is not inconsistent with capitalism. The proper role of government is to prevent fraud, enforce contracts, etc. Capitalism needs this.

    The problem is over-regulation, and seeing regulation as the answer to every problem. In general, the market self-regulates much better than the government could do so. But again, yes there is a place for regulation.

  • Matt

    Bill: Great points. Why is it that we have so few candidates that actually get these things at the core level?

  • http://owenstrachan.com Owen

    Exceptional post. Really fine critical thinking and very clear articulation of your thoughts. I look forward to seeing what the Lord does with these gifts in the future, Matt. We desperately young, thoughtful conservatives who can think and articulate political ideas.

    I would concur with Bill. McCain is an incredibly honorable and courageous man. He tried hard. But he did not possess the ability to articulate stances like yours. It was very frustrating to watch. If the conservative message is said well, it is incredibly attractive. If it’s muddled, though, and if the more liberal vision is articulated well, with all that it promises (which of course it cannot possibly deliver), conservatives lose every time. Again, it was a frustrating campaign to watch.

    Keep up the good work–love the blog.

  • Mike Tosoni

    Matt: What research? Mind pointing me to it?

    You adopt Friedman’s monetary position. Do what seems best to you. But know, at least, it is not the free-market position you’re adopting. To side with Friedman on this is to side with the notion that a man shouldn’t be free to choose his medium of exchange.

    The G20 Summit is meeting this weekend to address global financial matters. In case you’re interested, here is Ron Paul offering five minutes of his thoughts and concerns about it. He is a unique politician. He cares about liberty.

  • Matt

    Mike: Sure.

    Ben Bernanke summarizes it well in his _Essays on the Great Depression_. See the preface and chapter 1, “The Macroeconomics of the Great Depression: A Comparative Approach.”

    Bernanke points out that in the last 15 years, much new light has been shed on the causes of the Great Depression because economists broadened their focus from the traditional focus on events in the US to a comparative approach “that examines the experience of many countries simultaneously.”

    By seeing how twenty, thirty, and more different nations experienced the depression, and what policies each of them had, we can see patterns that improve our ability to identify which actions had which effects.

    One of the things that has come to light through all of this is a basic confirmation of Friedman’s conclusions that monetary factors played an important causal role.

    And the gold standard played a key role within this. Bernanke writes: “I argue in section 1 that the factors that depressed aggregate demand around the world in the 1930s are now well understood, at least in broad terms. In particular, the evidence that monetary shocks played a major role in the Great Depression, and that these shocks were transmitted around the world primarily through the working of the gold standard, is quite compelling.”

    Bernanke then details the specific evidence. One key piece is that “countries that left the gold standard recovered from the Depression more quickly than countries that remained on gold. Indeed, no country exhibited significant economic reco very while remaining on the gold standard” (page 8).

  • Mike Tosoni

    Matt: Thank you, sir. I’ll try to read that essay sometime and get back to you. But it could be a while. Like a few months or longer.

    A couple preliminary questions.

    (1) Does Dr. Bernanke define “the gold standard”?

    (2) Does he explain the supposed function of a gold standard (or of “the gold standard”)?

  • Matt

    Mike: It would be great to hear your feedback on the essay. No problem on whether it takes months or longer, or even if you never are able to fit it in.

    There is a lot of analysis of the gold standard in history, but I cannot recall a detailed statement of how they are defining the gold standard.

    In regard to the supposed function of the gold standard, the aim was stability and tranquility in the money supply. For example, he discusses how the gold standard was suspended in some countries at the beginning of WWI, and then reconstructed after the war. The aim was to restore the monetary and financial conditions (which were turbulent in the 20s) to the “relative tranquility that characterized the classical (1870-1913) gold-standard period.”