Free Markets Are in the National Interest

E arlier this month, I wrote about ISI’s American Economic Forum, summing up what I heard there as “central planning with conservative characteristics,” an inclination that appears to be popular among some on the right these days. In pushback to my piece, my friend and colleague Nate Hochman wrote about the need for economic policy to consider the national interest.

Hochman doesn’t see the conflict as one between central planning and free markets but rather “between those who believe that free markets should exist within the context of a nation-state, and those who counter that first principles compel conservatives to accept them as a transnational, globalized force.” In his view, conservatives should recognize that “markets can only exist within a national context, and that the constraints of that national context limit the choices of individual consumers.”

To support his claim, Hochman points to a few sources of evidence. One is Adam Smith. Hochman argues that Smith believed the principle of the invisible hand was contingent on domestic investment and unfit for global adoption.

This argument is similar to one Oren Cass of American Compass made in March of this year. Smith was brilliant, and it is understandable that everyone wants to claim him, but nat-con Smithians are badly misreading the great Scot. In April, Dan Klein, an economics professor who heads George Mason University’s Adam Smith Program (of which I am an alumnus), dismembered this argument piece by piece in an article for Law & Liberty, where the reader can find a plethora of quotations about Smith’s enthusiasm for global trade and awareness of foreign investment.

Hochman also points to a Firing Line episode where William F. Buckley Jr. objects to Leo Cherne’s idea of an “open society.” That episode, from 1966 (predating the Bach intro music), is excellent. Hochman and I share an affinity for watching Firing Line on YouTube, but the problem for his argument is that this episode was not about economics at all.

Buckley was arguing that some questions should not be up for debate. I happen to agree with that, and one such question ought to be whether Chinese communism or market capitalism is the superior system for lifting people out of poverty. After the American Economic Forum keynote speaker Phillip Blond gave a speech against classical liberalism, a questioner asked about positive aspects of liberalism, such as the unprecedented poverty alleviation that has come with economic liberalization. Blond objected to the premise of the question, saying, “The social system that has lifted more people out of poverty than any other is Chinese communism.”

Hochman and I agree that Blond’s claim is bonkers. But according to Heritage Foundation president Kevin Roberts and ISI president Johnny Burtka, the American Economic Forum simply “represented a broad spectrum of views” and was host to “urgent and honest debate.” It’s worth wondering whether it was a good idea for a conservative conference to treat such a fundamental question as unsettled.

It’s a quotation from Roger Scruton that Hochman offers as evidence on which I would like to focus most: “Although I’m very much in favor of the free market, I’m very suspicious of the globalized form of it.” Hochman says Scruton and I would disagree — he is correct about that —and also draws a distinction between principle and practice. Let’s apply that distinction as a tool to evaluate Scruton’s position.

Let’s grant, for sake of argument, that markets are good in one country but not across international borders. To put that principle into practice, governments would, at least on the margin, adopt policies that are more protectionist. (That’s certainly the intention of Robert Lighthizer, another of the forum’s keynote speakers, who argued at great length for across-the-board tariffs and industrial policy.)

As Don Boudreaux, a fellow Scruton fan, pointed out on his blog, this idea is not original to Scruton. It has been put into practice many times before by countless policy-makers from across the political spectrum. As such, we can look to example, the school of mankind.

The U.S. baby-formula market has long been insulated from foreign competition, through tariffs and regulatory policies, so much so that 98 percent of all baby formula consumed in the United States was produced in the United States. The reduced competition led to higher prices, just as economic theory would predict, which then led to calls to subsidize baby formula. The government created the WIC program to do that, initially for people in poverty, but it has since expanded to cover over half of all baby-formula consumption in the country. Now the industry is so brittle that it can be destabilized by a thunderstorm in Michigan.

Or consider the domestic water-transportation industry, which is subject to one of our most protectionist laws, the Jones Act. Foreign competition is effectively forbidden under the law, which was passed on national-security grounds, to protect our merchant marine. Not only has it caused American domestic shipping to be largely cost-prohibitive (leaving New England in the awkward position of being able to buy cheaper natural gas from Russia than from Texas); it hasn’t even secured its defense objectives, leaving the U.S. with a small and aging fleet.

Truck chassis are the trailers that trucks use to haul shipping containers. The top manufacturer of chassis is Chinese. At the behest of domestic chassis manufacturers, the federal government imposed a combined tax of about 250 percent on Chinese chassis, effectively banning them. One of the key problems during America’s recent supply-chain woes has been a chassis shortage, with numerous industry groups complaining to the Department of Transportation about their inability to purchase them.

The government has countless “Buy American” provisions in laws about the procurement of goods for public-works projects. These provisions are designed to harness the domestic market for domestic projects by prohibiting foreign purchases of certain materials. A 2017 Heritage Foundation report found that not only do Buy American provisions increase costs for supplies, but they also waste money through compliance costs and do not lead to job growth domestically. In fact, the report found that repealing every Buy American provision would add 300,000 jobs nationwide because money currently wasted on compliance could be used productively instead, which would involve hiring more workers.

It would seem that in each of these cases, the government adopted policies based on reasoning that at least resembles Scruton’s. Policy-makers were skeptical of the globalized form of markets and sought to create an all-domestic version. For a country that went all-out on this policy stance nationwide for decades, look to India, which is now finding it difficult to capitalize on companies’ seeking to move manufacturing out of China because the Indian economy isn’t competitive enough. At some point, the failure in practice should call the principle into question.

Of course, the benefits of global trade are not equally distributed (no benefits of any policy ever are). Some communities have seen jobs disappear. But others have seen jobs created, and not just on the coasts. Memphis (FedEx’s largest hub) and Louisville (UPS’s largest hub) are two of the busiest cargo airports in the world, with thousands of good-paying jobs at all skill and education levels. The removal of the crude-oil export ban in 2015, combined with the fracking revolution, has led to the creation of thousands of high-paying jobs for non-college workers in rural areas.

A more protectionist United States that tries to recreate the employment patterns of yesteryear would put countless existing jobs at risk. One of the things that makes America great is that much of the rest of the world desperately wants to do business with us. We’d be foolish to squander that position in world markets with self-inflicted wounds.

Hochman is right that economic policy should consider the national interest. Edmund Burke agreed, which is why he supported freer markets and freer trade. Burke was no utopian globalist, and he was no doctrinaire libertarian, but through careful study of how policies actually worked, he settled on economic liberalism as a worthy principle for Britain’s prosperity and prudently advocated liberal reforms in Parliament. Conservatives in the U.S. today ought to follow his lead by advocating the reduction of government intervention in the economy, not merely calling for a different style of it.