The Corner

Free Market — What Free Market?

One of the biggest myths of this financial crisis is not that the government is the solution to all of our problems, or that deregulation or free-markets caused the financial crisis. It’s that there is still such a thing as the free market. 

For instance, I have mentioned the huge amount of spending on regulatory agencies (the direct cost on our economy of producing and enforcing regulations). In particular, I have mentioned the dramatic increase in regulatory spending on the financial and banking industry in the last 20 years. And we know that the housing and financial industries are two of the most regulated industries in our country.

But here is more evidence of the fact that government has taken over large parts of our economy. According to Yahoo Finance:

Economist Gary Shilling has calculated that 58 percent of the population is dependent on the government for “major parts of their income,” including teachers, soldiers, bureaucrats, and other government employees; welfare and Social Security recipients; government pensioners; public housing beneficiaries; and people who work for government contractors. By 2018, Shilling estimates, an astounding 67 percent of Americans could be dependent on the government for their livelihood.

That’s a big jump from the 1950s, when 29 percent of the population depended on government for a majority of their income. The obvious problem with this level of dependence is that these people have a strong incentive to see the government grow or at the very least stay the same. And they have a majority of the votes.

There is one piece of good news, though. During the 1970s, this number peaked at 61 percent. What’s more, as the need for a huge military decreased at the end of the Cold War, as states cut their budget (ever so modestly) and some welfare reforms were adopted, this number decreased to 54 percent. That is not enough, obviously, but it shows that it can be done.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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