Capitalist Referendum

by Stuart Hayashi

In the minds of various commentators, the 2012 presidential election has become a referendum on the regulatory entitlement state — as a climactic showdown between private enterprise and statism.

Ever since the New Deal, people have taken for granted that the welfare state in the USA could go on forever.  But now people are finally beginning to see that it is bankrupting itself and is, by its very nature, unsustainable.

Back in 1953, this is something that the Republican Party never would have admitted.  This was the age of what was known as the Postwar Consensus.  In it the leaders of both major political parties not only took for granted that having a welfare state was necessary and proper, but that it was not even legitimately debatable.  Months ago I borrowed from the library a book that quoted Dwight D. Eisenhower gloating that the day of anti-New-Deal Republicans was long past, and that it was irrefutably settled that every institution from the New Deal must remain in place.  As New York University professor Kim Phillips-Fein writes, Eisenhower “described himself as a ‘modern Republican,’ by which he meant a Republican who would not seek to undo the New Deal.  The Eisenhower administration did not simply tolerate the New Deal.  It actively embraced the idea that government could play a positive role in society by transcending the narrow self-interest of economic classes and mediating conflicts between groups” (Invisible Hands:  The Making of the Conservative Movement from the New Deal to Reagan (New York, NY: W. W. Norton & Company, 2009, p. 56).

Eisenhower wrote to his brother Edgar, “Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history” (ibid).  In his final assessment, the State must “prevent or correct abuses springing from the unregulated practice of a private economy” (ibid., p. 57).  To Eisenhower, one could not be any more of a laissez-faire extremist than Sen. Robert Taft of Ohio.  The Republican Party’s ranks were filled with the likes of Nelson Rockefeller, who prided themselves on being almost completely indistinguishable from Democrats in their governing ideology.

Republican Association With Free-Market Ideology: A Relatively Recent Phenomenon
The political scene began to change with Barry Goldwater’s presidential campaign in 1964.  Although he was not as consistent an advocate of the night watchman state as his leftwing critics proclaim, he did say explicitly that the night-watchman-state approach is generally preferable to that of expanding government power.  This idea was actually at odds with the Republican establishment; limited-government rhetoric had been verboten among the party for almost two decades.  And, thankfully, Goldwater’s rhetoric was more radical than that of Robert Taft and Wendell Willkie; the last prominent Republican officeholder to go as far as Goldwater was probably Calvin Coolidge, and Coolidge hardly spoke for Republicans in general.

When Goldwater snatched the party’s presidential nomination away from Nelson Rockefeller, a strong adherent to the Postwar Consensus, longtime party members reacted with horror.   Richard Hofstadter, the leftwing historian who notoriously popularized the stigma that all free-marketers are “social Darwinists,” lamented that Goldwater winning the nomination had marked the self-destruction of what was once one of America’s greatest political institutions.

“When in our history,” Hofstadter fumed, “has anyone with ideas so bizarre, so archaic, so self-confounding, so remote from the basic American consensus, ever got so far” in an election?  He found it horrifying that Goldwater was “within a hair’s breadth of ruining one of our great and long-standing institutions,” the Republican Party (Rick Perlstein, Before the Storm:  Barry Goldwater and the Unmaking of the American Consensus, New York, NY:  Hill and Wang, 2001, p. 452, quoting Richard Hofstadter, “A Long View:  Goldwater in History,” New York Review of Books, October 8, 1964).

To most people of my generation, Hofstadter’s reaction is almost incomprehensible.  He was shocked and horrified that the Republican Party could possibly nominate a presidential candidate who argued for deregulation and the rollback of the welfare state.  For Hofstadter, nothing could have been stranger.  But to someone younger than 40, there is nothing unusual about a Republican presidential candidate who gives speeches that are critical of high taxes and welfare spending.

Lots of people from Generations X and Y assume that that is how the Republican Party always has been.  They are largely unaware that from 1865 to 1909, the Republican Party marketed itself as a party in favor of protectionism and the expansion of regulation and government spending.  Nor do they know that in this same duration, a number of industrial “robber barons,” including James Jerome Hill and August Belmont, sided with the Democratic Party on account of the Democrats having a reputation for opposing tariffs and maintaining the gold standard.  That is, Hill, Belmont, and other industrialists thought of the Democratic Party as the party for global capitalism.  These capitalists were known as “Bourbon Democrats.”  The Democratic Party only gained a reputation for anti-capitalist rhetoric in the early 1900s with the ascension of William Jennings Bryan and Woodrow Wilson, who wrestled control of the party away from the Bourbons.

As is typical, Bryan and Wilson correctly identified their anti-capitalist rhetoric as being consistent with the ethics of altruism, and Bourbon Democrats had no answer to that.  Hence Bryan and Wilson, thought to have the moral high ground, grabbed the most influence.  Even here, Bryan and Wilson largely echoed the anti-capitalist rhetoric that had been popularized by prominent Republican officeholders like Theodore Roosevelt and Robert La Follette.  Republicans first adopted a sympathetic view of capitalism in the early 1920s merely to contrast themselves first against Woodrow Wilson and later against FDR, and the postwar consensus killed this brief association between the Republican Party and limited-government rhetoric.  This is why Goldwater’s return to such rhetoric was a big deal.

To Hofstadter, this was so startling that he referred to Goldwater and his Republican supporters as “pseudo-conservatives.”  Why pseudo?  The people whom Hofstadter considered real conservatives were people like Eisenhower — centrist milquetoasts who were comfortable with the present welfare state but also reluctant to expand it too much.  Hofstadter disagreed with their perfunctory reluctance to expand the government to totalitarian proportions, but he still considered their position an understandable and relatable one.  But for someone like Goldwater to come along and even suggest the elimination of existing programs, was beyond the pale.  For Hofstadter and the mainstream, conservative was too noble a term for someone who agreed with John Locke that the State should generally avoid being anything other than a night watchman state.  Anyone who thought that was not a conservative but a “paranoid” pseudo-conservative.

Goldwater lost the election, much to the relief of Hofstadter and the American establishment.  But, consistent with Hofstadter’s fears, Goldwater made a long-term impact on the Republican Party.  The GOP thereafter felt more and more emboldened in advocating the reduction of the welfare state.  Certainly we object to how the Republican Party uses classical-liberal rhetoric while actually voting for more expansive government.  But I still think this is progress.  Between 1945 and 1964, Republican candidates were too scared to even use classical-liberal rhetoric.

Progress Since 1964
Lots of people will attribute this major shift in Republican rhetorical style to the influence of William F. Buckley, Jr., and National Review.  I certainly don’t want to sweep that under the rug.  Though I find Buckley personally distasteful, I do give his periodical some credit in injecting some classical-liberal rhetoric back into the Republican Party, particularly at a time when the party had almost completely abandoned it.  Leonard E. Read’s explicitly libertarian Freeman and his Foundation for Economic Education (FEE) were much more ideologically consistent in their laissez-faireism than was National Review.  In fact, despite Ronald Reagan’s effusive praise for National Review, he stated very clearly that he first learned of free-market ideas from FEE.  It was only later that he became acquainted with Buckley’s publication.

Anyhow, while those periodicals did influence Goldwater (The Conscience of a Conservative was ghost-authored by William F. Buckley’s brother-in-law), I consider Goldwater’s presidential campaign to be the major watershed — the major turning point — that changed the ideological makeup of the Republican Party itself.  Goldwater’s campaign paved the way for Ronald Reagan’s political career.

In many ways, it appeared that the 1980 presidential campaign was the major referendum on the welfare state.  By that time, the USA faced economic devastation comparable to what we are facing now; in some ways, the economic stagnation from 1969 to 1980 was worse, its gasoline shortages and inflation being more extreme.  Jimmy Carter was the end product of all the Keynesianism and welfare statism that had been imposed by Lyndon B. Johnson and Richard Nixon (note that Nixon, being a more traditional Republican, avoided classical liberalism not merely in practice but even in his rhetoric).   Then Ronald Reagan came along and challenged Carter.   Despite Reagan’s many flaws and inconsistencies, the public largely saw the contrast between Reagan and Carter as the respective contrast between free enterprise and the welfare state.  In terms of moving the public’s attitude about free markets and statism, I see Reagan’s two terms as indications of progress.

This raises the obvious questions, “If Reagan’s electoral victories were so great, and did so much to convince the public of free enterprise’s superiority, then how the hell did we end up where we are today? If Reagan marked the triumph of capitalism, then why did the Republican-controlled Congress only make net increases in federal spending over the past 20 years?  Why did we end up with Obama and a cataclysmically frightening federal deficit?  Why is it that even the Reagan years ended with net increases in the federal debt?”

Distinction Between Absolute Victory and Progress; Progress Is Good Enough
Here I think it is important to note the distinction between absolute victory and progress.  Absolute victory means that we get everything we want.  Not only do we not have that, but it will probably be 100 years (at the shortest) before we get it.  Progress merely means that, on a net balance, we are in a better position in the present than we were at some previous point in time.  Yes, the situation is very far from how I want it to be.  But consider the conditions of public debate today versus how it was in the Postwar Consensus years.

Today there are lots of very prominent people, reaching large audiences, who cite Ayn Rand and explain the need for the night watchman state.  Consider all of the media exposure that Rand and rational self-interest are getting.  Even utilitarian Chicago-school economist types who (unwisely) ignore Rand, such as Cato Institute policy analysts, at least do a competent job of explaining the practical benefits of capitalism in mainstream venues.  Between 1945 and 1957, how many people were out there defending the free market?  It was much fewer.  There was only Rand and FEE (at the time, the Austrian-school free-marketers were all a subset of FEE).  And maybe you might count a few Chicago-school economists who published really esoteric papers.   That was it.  Then around the 1950s, National Review started, and, in many ways, its religious-rightism (as exemplified by Russell Kirk) actually worked against the laisssez-faire movement.  Aside from this tiny minority, everyone else was too scared to address these issues.  In terms of the public debate — when you look at what people can get away with discussing — we are in a better position today than Americans were between 1945 and 1964.

That is progress, and progress does not happen in a linear fashion.  Rather, it’s like we take three steps forward, then two steps backward, and then three steps forward again.  Barry Goldwater’s 1964 presidential campaign, say, might be 5 steps forward.  The Nixon presidency moved us 4 steps backward.  Reagan’s presidential terms moved us 10 steps forward.  Clinton and the Bushes moved us 3 steps backward.  Maybe the Obama years have moved us 6 steps back.  If you want me to plot our progress on a two-dimensional chart, I would draw a line graph that spikes up and down, much like a line graph that charts some business corporation’s highly volatile share price.  It is still progress if, on a net balance, we are in a better position today than we were when we started.  For me to feel confident about the future, I don’t need absolute victory; I only need progress.  Progress is not absolute victory, but it brings us closer to absolute victory.

Why Didn’t Reagan Bring Us Absolute Victory?
Now that I have made that distinction, there is the question of Reagan’s victory.  Reagan’s humiliation of Carter initially appeared to be the free-enterprise ideology’s then-most-public triumph over the welfare-state ideology.  Why, then, didn’t Reagan’s presidency quickly lead to absolute victory?  Why, in fact, did the deficit grow under Reagan, with Reagan actually tripling the budget of the federal Department of Education?  My answer is the one you would expect from an Objectivist — it’s the altruist ethics.  Not only did Reagan refuse to challenge the altruist ethics in the 1980s, but there were no major intellectual movement to challenge it.  Certainly the libertarian movement did not challenge it, and Objectivists were much less prominent back then.

Hence, despite the Reagan victory, the free-market side was not able to sustain its favorable image in the public imagination.  When the Left accused the free-market side of contradicting altruist ethics, the most influential conservatives and Republicans had no credible reply.  A particularly prominent conservative free-marketer, George Gilder, argued that becoming a billionaire proves that you’re a highly self-sacrificial (and therefore virtuous) altruist, because when you forgo short-term gratification in favor of making risky long-term investments, that is a form of self-sacrifice(?!!!!!!!).  Nobody bought that.  Hence the welfare-statist Left was able to regain ground in the public debate.

The Advantage Our Era Has That Reagan’s Era Didn’t
Now we can compare the present presidential election with the one from 1980.  Let us note the similarities.  Both have a Democratic incumbent.  Both Democrat incumbents took over a national economy that his two predecessors had harmed through their intrusive controls.  Both Democratic incumbents proposed to repair the damage by overall expanding government power.  By doing so, they made the economy worse, bringing about stagnation, troubling inflation, and an unemployment rate above 7 percent.  When a crisis in the Middle East threatened American lives, both of these Democratic incumbents dodged their responsibilities.  Both of these Democratic incumbents faced a Republican challenger who previously served as a state governor.  These Republican governors have been made into symbols of the night watchman state — of unadulterated laissez-faire extremism.  Sadly for our side, these Republican governors both refuse to question the altruist ethics.

Yes, Mitt Romney is ideologically inferior to Ronald Reagan, and made for a much worse governor.  But our present age has more than made up for that.  In our times, we have an advantage that was not present in 1980:  Ayn Rand and her ideas are being widely discussed throughout mainstream culture.  These discussions come close to being — dare I say it? — ubiquitous.  Consider our present situation, versus what Rand dealt with.

One can say, “The Republicans will never give up on their altruism; just look at what Mitt Romney says!  The Republicans of today will fail to prevent the growth of the welfare state, and it will be for the same reasons that George Gilder failed.”   It is true that conservatives and libertarians continue to be very protective of their altruist preconceptions.  But here is the strongly hopeful difference between 1980 and today:  over the past four years, mainstream conservative TV show hosts have considered the veracity of altruist ethics to be subject to debate (also note that until the late 1990s there weren’t even any mainstream conservative TV show hosts aside from televangelists).

When Rand was alive, only two TV show hosts would invite her to publicly debate about the merits of altruist morality — Mike Wallace and Phil Donahue.  To everyone else, the ethics of altruism was not even debatable. Today a plethora of program hosts on TV and radio — from illiberal welfare-statist Thom Hartmann to quasi-conservative Glenn Beck — willingly invite Ayn Rand Institute experts to openly debate them about the merits or demerits of altruism.  Again, this is not absolute victory, but it is significant progress.

Now consider the most popular attacks on Romney.  The Left falsely accuses him of being a laissez-faire capitalist.  It is unfortunate that the accusations are untrue; Romney would be a much better man if they were.  Even here, though, I see progress.  Back in the postwar consensus days, you could destroy a man’s chances for winning public office simply by accusing him of sympathy toward the night watchman state.  Such a charge would only work against him.  That partially explains why, from 1945 to 1963, all Republican officeholders aspired to have the bland, non-ideological reputation that Eisenhower had.  When Obama’s circle alleges that Romney is a laissez-faire extremist, it does so under the assumption that that tactic will work just as effectively today as it did in the Postwar Consensus era.  But it doesn’t.  Increasingly, people who are fooled into believing that Romney is a laissez-faire extremist still don’t see that as all bad.  They can think what was unthinkable in the Eisenhower era — “Romney being a laissez-faire extremist sounds intimidating, but maybe that is preferable to Obama’s agenda after all…”

Showdown Between Free Enterprise and the Welfare State?
The Obama campaign has tried to make Romney the symbol of laissez-faire capitalism, doing so on the assumption that stigmatizing Romney as such would only make the public think negatively of him.  When Romney truthfully denies that he is a laissez-faireist, the Left irrationally assumes that he’s lying.  But the Obama campaign did not anticipate how actually succeeding in their stigmatization of Romney could actually backfire.  By making Romney the symbol of laissez-faire capitalism, the Obama camaign only further reinforced the perception that Obama symbolizes its opposite:  the welfare state.  I suspect that on some level, President Obama realizes that the public now psychologically associates him with the welfare-state ideology that he holds so dear.

The problem for Obama is this:  if the public considered Obama just one among many advocates of welfare-statism, as opposed to being the great symbol of welfare-statism in general, then much less would be at stake for him in this election.  If Obama lost his office, that would mean that the public simply rejects Obama as an individual, but does not reject welfare statism as such.  It would mean that the public doesn’t like Obama-the-man but is still open to the idea of having someone equally fervent in welfare-statist ideology being installed as President in 2016.  However, with Obama as the welfare state’s symbol, Obama losing the election will be seen as the public’s rejection of the welfare state per se.   For Obama, it’s bad enough to lose office.  However, I think he is very emotionally invested in getting the public to accept his collectivist ideology.  Therefore, I think he will find it much more devastating that the voters reject not just him, but his precious collectivist ideology as a whole.

Extreme Progress Doesn’t Require Absolute Victory
Certainly the ouster of Obama from the White House will not end the welfare state.  In fact, Mitt Romney will maintain it.  One of the few leftists who notices this is, of all people, Jimmy Carter. Being observant for once in his life, Carter cites Romney’s actual gubernatorial policies as evidence that Romney will govern like a stereotypical Democrat.  Thus, while Carter strongly prefers Obama over Romney, he won’t be too broken up if Romney wins.

Most hardcore leftists disagree, because they look at it from a different angle.  Sure, some radicals like Ralph Nader blabber that Obama is too much of a sellout to capitalism and corporations.  But most staunch leftists and Keynesian economists (like Paul Krugman and Austan Goolsbee) know that Obama has come to symbolize Keynesianism and the regulatory-entitlement state.  Thus, they realize that an Obama defeat indicates not only public rejection of Obama, but also that the public has lost confidence in them and their precious religion of statism.

As Paul Krumgan writes, “Voters are, in effect, being asked to deliver a verdict on the legacy of the New Deal and the Great Society, on Social Security, Medicare and, yes, Obamacare, which represents an extension of that legacy. Will they vote for politicians…who denounce Social Security as ‘collectivist’ (as Paul Ryan once did), who dismiss those who turn to social insurance programs as people unwilling to take responsibility for their lives? . . . This election is…shaping up as a referendum on our social insurance system…” (hat tip to Robert W. Tracinski for bringing this to my attention).

The Wall Street Journal agrees:  “The presidential campaign has become a virtual referendum on capitalism and business.”

An ideology does not have to be completely eradicated for it to face a devastating blow in the public mind.  Contemplate what happened from 1989 to 1991, when the Berlin Wall fell and the Soviet Union collapsed.  That actually did not eradicate all of communism.  Communism still exists in North Korea, Cuba, and, well, lots of ivy-league universities.  A Communist Party still controls China and Vietnam, even though these parties have, for the past three decades, sold out to gradual economic liberalization.  But despite the fact that communism has not been completely eliminated, the fall of the Soviet Union has dealt a devastating blow to communism’s credibility, from which it has never been able to recover.

Eugenicist ideas are not completely dead either.  They are still occasionally smuggled into the public discourse, such as in the 1970s when Garrett Hardin tried to sell them as a solution to “overpopulation.”  However, the end of World War II did deal a humiliating defeat to the eugenics movement.  Prior to World War II, eugenics was mainstream, and most prominent biologists in the early 1900s (Julian Huxley, Havelock Ellis, J. B. S. Haldane) at least held nominal membership in eugenicist groups.  The end of the World War II ruined the credibility of eugenics to the point where its advocates stopped using that word. What was once the consensus view in academia became utterly disreputable, and then revisionists like John Kenneth Galbraith had to rewrite history and say that eugenics was only a right-wing idea; not something popular among the left.  When Lewis Terman, Arthur Jensen, Richard Herrnstein, and Charles Murray tried to revive some eugenicist ideas, they had to cloak it under different labels, and they did not get very far.

Note that rationality did not achieve absolute victory over Communism or even over eugenics.  However, the extreme extent to which they have been publicly discredited is great progress.  If even on a much smaller scale, I think that something comparable can happen in November.  An Obama defeat would not end the welfare state, but it could be interpreted as the public humiliation of the welfare state and the legacy of the New Deal — so humiliating that it will never again be looked upon with as much credulity as it has been over the past six decades.

In that sense, this election is much bigger than Obama and Romney; it’s about more than which of them gets that coveted job position; it’s even bigger than all of the political power than this one man will have over everyone in the country.  It’s about which governing ideology will be seen as more credible in the decades to come, and that will affect more people than even the USA’s 300 million current inhabitants.  The regulatory-entitlement statists have a lot riding on this.  If Obama wins re-election, they will have a reprieve, and feel even bolder in imposing their agenda.  But if Obama — and, by implication, their ideology — are rejected, that will be extremely demoralizing for them.  It will be hard for them to recover, just as it has been hard for communism to regain the sort of public intellectual respectability that it had in the USA in the 1930s.  However wrongly, Romney’s triumph over Obama will be seen as capitalism’s great defeat over the welfare state.

Even if Obama’s defeat is seen as the public repudiation of the New Deal and welfare statism, is it not inevitable that the public will soon regain confidence in this sort of collectivism?  After all, many people will be voting for Romney on the explicit condition that Romney promises to preserve Medicare and these other entitlements.  That is true.  But in the battle for freedom, we will have an advantage our predecessors did not have:  Ayn Rand is taken more seriously today than ever before.

Krugman knows this quite well.  He sees how the debate has changed between Reagan’s heyday and today.  We are moving away from the days when the welfare state’s detractors at least “accepted the [moral] legitimacy of the welfare state… …that was then.”  In large part because of Ayn Rand’s influence, statism’s critics perceive statism as not merely impractical, but immoral besides (hat tip to Onkar Ghate).  It is therefore no wonder that Krugman has become increasingly peevish against Rand’s admirers and conspicuously defensive against their points.

Pretty much for the same reason that Krugman has grown so desperate, we can find great hope for truly constructive change — the best sort of hope:  hope backed up by hard evidence.  

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