Government Failure Is Not Working Is It?

Veronique de Rugy joins host Samuel Gregg to discuss the state of classical liberal economic ideas in Amerca.

Brian A. Smith:

Welcome to Liberty Law Talk. This podcast is a production of the online journal, Law & Liberty, and hosted by our staff. Please visit us at lawliberty.org. And thank you for listening.

Samuel Gregg:

Welcome to Liberty Law Talk. My name is Sam Gregg, and I’m distinguished fellow in political economy at the American Institute for Economic Research, and I’m also contributing editor at Law and Liberty, part of the Liberty Fund Network. Thanks for joining us today. Classical liberalism and classical liberal ideas have long played an outsized role in modern American politics, especially on the right. Today, however, we seem to be living through a period of retrenchment, whereby, classical liberal ideas are under siege from the left, but also increasingly from the right. Economic nationalism seems to be in the ascendancy on the left and the right, and much of the American business world has lurched in the direction of what’s often called stakeholder capitalism. We even find parts of the American right seemingly willing to even embrace and use something that most conservatives have at least theoretically opposed, that being the administrative state. Some national conservatives insist that classical liberals have been in the driver’s seat of the American conservative movement for too long, and that it’s time for them to step back. So what’s happened to classical liberalism in America? Did classical liberals make mistakes in pursuing their limited government agenda? Is there a chance that the band, otherwise known as fusionism, might get back together? Are classical liberals now condemned to being friendless for a generation? What does it mean to be a classical liberal in America as the second quarter of the 21st century looms. Joining me to discuss these and related questions today is one of America’s leading classical liberal economists, Dr. Veronique De Rugy. Dr. De Rugy is the George Gibbs Chair in political economy and senior research fellow at the Mercatus Center at George Mason University. Her primary research interests include the US economy, the federal budget, taxation, tax competition, and cronyism. Her popular weekly columns address economic issues ranging from lessons on creating a sustainable economic growth, to the implications of government tax and fiscal policies. She’s testified numerous times in front of congress on the effects of fiscal stimulus, debt, and deficits, and regulation on the economy. She’s the author of a weekly opinion column for the Creators Syndicate, writes regular columns for Reason magazine, and blogs about economics at National Review Online‘s The Corner. Her charts, articles, and commentaries have been featured in a wide range of media outlets, including Bloomberg Television, The New York Times, The Washington Post, The Wall Street Journal, CNN International, C-SPAN’s Washington Journal, and Fox News. And I think it’s fair to say that she is the scourge of that most crony-est of outfits, the Export-Import Bank. Vero, welcome to Liberty Law Talk.

Veronique De Rugy:

Thank you for having me, Sam.

Samuel Gregg:

Vero, you’ve been involved in the world of classical liberal ideas in America, but also in Europe, particularly France, for a long time. And in the 1980s and 1990s, classical liberal ideas, especially about economics, I think, seemed to be in the ascendancy, right? At least at a rhetorical level. But now they are plainly on the back foot. So what, in your view, is the single biggest event, or the single biggest development that’s responsible for this change?

Veronique De Rugy: That’s a very good question. If I wanted to be utterly self centered, I would say that it seems that everywhere I go, classical liberalism loses, because obviously when I lived in France, it was not a classical liberal country, there’s still a communist party, there’s still a socialist party. I mean, command and control seems to be really the way people think about the economy, and the role of government, that most solution comes from the government. And I moved to the US hoping to leave all of this behind, not that I have any illusion that the US was perfect, but certainly, it looked so much better. And ever since, it’s been in decline. But that, I assume, is more correlation than causation. So to answer your question more seriously, I think, obviously, the most obvious answer is we have either not done our job properly, or we’ve been ineffective at making our case, or, and there is something easy and appealing to the case that the government can solve all of your problems. And we have failed, utterly failed, to present our ideas in a way that actually contradict this claim in spite of the evidence. I mean, we live in a world that is abundant compared to where… It should be obvious that a market economy is the way to go. But also, I think we have probably failed to emphasize and talk to people about their real concern. So maybe we haven’t talked to people at their level of concern, and we’ve stayed in this fear of, look, this is great, all is great, the economy is growing, we’re wealthier than we are. And we’ve not addressed people every day concern.

Samuel Gregg:

Well, let’s step back then and take a type of self reflective position, which I think is what you’re doing now. Do you think that classical liberals simply assumed that they had won the economic argument, and they weren’t paying attention to some major cultural shifts that have lent energy to those on the right and on the left, who perhaps were always skeptical about markets, and who never really gave up their faith in things like Keynesian economics, or the different interventionist options associated with things like industrial policy. So do you think that’s part of the issue that the assumption was, we’ve won the economic argument, therefore our major job of persuasion is over?

Veronique De Rugy:

Yes and no. I think this is true for areas like free trade and immigration for a while. But I think in the world that I’ve evolved in, Keynesian economics has always been much more potent and influential, for instance, than the more, I hate to say this, but more free market alternative. So I think it is true for some areas where we took things for granted, because there was a consensus.

Samuel Gregg:

You mean something like trade for example?

Veronique De Rugy:

Like trade. Yeah. And immigration to some extent. There were some things we took for granted, which we assumed we had made the case, and it was done. The thing, in my opinion, that is more puzzling about the last, let’s say 20 years, and what has happened, is that we see people, at least in my case, I see people who have been battling with me in the trenches against the left on central planning issues, on government intervention into their lives, on all sorts of things, who have now flipped their position, and are talking about how the free market is not the answer, or is it worth overriding the allocation of the market in order to achieve a common good? And they are sounding a lot like the people they used to criticize. That, to me, is the most baffling thing. It’s not that we had won, and we took everything for granted. There’s some of that, that’s part of the story. What I don’t quite understand is how you can have such a reversal in beliefs. Not everyone, but in a lot of people. I mean, it’s easy to say it’s opportunistic, that Trump opened the door for a political opportunity that a lot of people were actually were ever that principled, but were more in the business of winning elections, and trying to be in power, saw and jumped into. But I think there’s something more. I’m just not that cynical to think that that is all that is at play.

Samuel Gregg:

So are you suggesting that maybe the case for markets was not as widely accepted as perhaps we assume? That in fact, things like a more or less neo Keynesian outlook on the economy never really went away?

Veronique De Rugy:

Well, I think it… It’s obvious. Listen, even when I say that the case for free market, like free trade for instance was established, right? There were always some people who were skeptical of free trade.

Samuel Gregg:

Right. Pat Buchanan for example.

Veronique De Rugy:

Yeah, yeah. No, I mean, there were always people. Or I mean, if you remember the whole debate about NAFTA, right? I mean, they really opposed two sides very violently. Two sides that I think overstated their position. The outcome of, for instance, I do think… And you talk about this in your book. And I, really, where I said a lot of the free traders at the time probably overstated the impact of NAFTA. It’s not that it’s not a net positive, but it’s not this panacea that is going to make everything fine. And on the other hand, obviously the anti NAFTA people were completely wrong about how horrible it was going to be, and all this, and all that. So it’s not as if everyone wants a free trade, or it’s also not as if, I think, the way people understood the benefit of trade was ever the correct one. I think there was an understanding that was actually profoundly Mercantilist, or profoundly misguided, I’ll say, I don’t want to put a label on it, about it. Where we’ve always said, “You know what? Free trade is great, because it allows us to export more.” And we failed to actually… Because we were getting what we wanted this way, we were getting free trade agreement based on this premise, right? I think we didn’t do, maybe… I mean, I don’t want to blame people. But we have really, it seems, failed to actually make the case that actually the real value of trade is what we import. And in fact, from an economic perspective, from a domestic perspective, export as a cost, or even just making the case that if you want to export more, you need to import much more, right? And so-

Samuel Gregg:

We never really got away from, let’s call them neo Mercantilist arguments.

Veronique De Rugy:

I think the logic of the arguments as we were making them, as a matter of, listen, we’re getting what we want, which are free trade agreements, even though they’re not perfect, even though the logic is misguided, but we’re getting what we want, probably meant that we took things for granted that we shouldn’t have done because people did not fundamentally understand. Did not fundamentally understand what the value of trade truly is. So that’s an example to minimize how far we’ve fallen. I think we were doing great, but maybe not for the best reasons.

Samuel Gregg:

Let’s shift discussion now to an angle which I think you’re particularly competent to talk about with this, a discussion of what’s happened to classical liberalism and classical liberal ideas. You have been relentless, and I mean relentless, in your critique of corporate welfare and the cronyism that’s so widespread in the business sector of the United States. So is part of the challenge for classical liberalism today the fact that many business leaders don’t actually like markets, they don’t like competition? Because if that’s true, if it’s true that large numbers of business leaders are not really onboard with the case for dynamic markets both domestically, but also internationally, that means that an incredibly influential segment of America is not in fact onboard with market and classical liberal ideas. So do you think that this describes part of the challenge for classical liberalism today?

Veronique De Rugy:

It is. But I think our biggest challenge, right, is ultimately, we live in a world that is… Where politics plays a big role, and where the role of government is oversized, and the existence of government, and its ability to actually grant favors, unless we win, and we get some sort of, I don’t know, constitutional amendment that says that no government granted privilege for the private sector no matter what under any circumstances. I mean, it’s always going to be there. And I think if you marry this with the same issue as with trade, which is that people saw the benefit of, at least business leaders, right? They see the benefit of free market. But they actually don’t think about what actually makes it work. And that basically, when they’re given an opportunity to actually get a government granted privilege, meaning a subsidy, a monopoly grant, a tax break that the competitors are not getting, they take it. And they take it because they just… It’s beneficial to them, it’s available to them, they answer to their shareholders, and they maybe not at a fundamental level understand how this behavior in and of itself feeds a dislike for capitalism, for lack of a better word, a free market, for the lack of a better word.

Samuel Gregg:

Whereas, what really is operating here is a type of Mercantilist outlook.

Veronique De Rugy:

Yeah, I mean, it is. In fact, one of the most detrimental and problematic aspect, I think, of cronyism, corporate welfare, government granted privilege, however you want to call it, is precisely that because the government tends to benefit and grant privilege to larger more connected political companies, companies that may actually, in most cases, not actually need it at all but like it, because who wouldn’t want to have better terms for your loans? It feeds this idea, right, that the wealthy and the corporations are the enemy. I mean, if you think, if you go back to the Occupy movement during the Great Recession, I mean, these guys were way… They were right about sensing that there is a real problem of a government that is effectively letting everyone being crushed, but saving a bunch of big banks, having sheltered big banks for a while, and now they’re being saved, the airlines are being bailed out. And it gives this perception, right, that there’s this corruption going on. Of course, the things people mostly don’t see is that you don’t cure this kind of behavior with more government. Or more importantly, in my opinion, that these behaviors only exist because of the government ability to grant this privilege.

Samuel Gregg:

Right. Which is essentially Adam Smith’s point in The Wealth of Nations, in his critique of Mercantilism. So, Vero, we’ve been talking about the economic side of what’s happened with classical liberalism. And we’ve touched on some of the politics. Here’s a question for you which is a little different. And that is, do you think that there are things on the cultural side, cultural developments in America that classical liberals have neglected when they’re making their arguments about limited government, and markets, and all these sorts of things, is that, are there things on the cultural side that they’ve largely neglected to their cost now?

Veronique De Rugy:

Well, I mean, not just on the cultural side, even on the economic side. Actually, your book was, strangely enough, an eye opener for me. There’s this one sentence that I just actually wrote a column about, just this one sentence in your book, which is to actually remind people that economists really make a terrible case for the free market, for what the free market does. And we make it in terms that are as if the price system is the beginning and the end of absolutely everything. When in fact, what is actually beautiful about the free market is that is all the institutions that exist to support it underneath that are necessary, that are conducive too actually create cooperation between strangers, and good behavior really, between strangers. So that, I think, is an issue. Is we economists talk about the market, and the price system in ways that sometimes are counterproductive. Instead of talking about competition as this cut throat thing, what we should actually highlight, at the very least occasionally, is an incredibly cooperation that is enabled by the market economy. I think on the cultural side, I think we have… And I wonder whether it is because a lot of the free market movement is actually made of economists. And so the cultural aspect of this defense for a market economy just totally ignore the cultural side. And I think for instance, you and I have talked about this in the past, I think that we have utterly placed so much emphasis on the market that we have actually forgotten that as important are notion of communities usually underpinned by civil society, which is, civil society is the way that we help one another, basically, outside of the market, right? There is the market ways to do this, but there are also just… There are communities, and there are ways that people actually do good for one another, support one another, feed one another. I mean, the market helps, because it provides wealth to support these activities, but it goes way beyond. I mean, civil society is such an important thing that we should constantly be cherishing. And instead, I think we’ve overlooked it at great cost in my opinion.

Samuel Gregg:

So you think classical liberals should be saying more about the civil society side of things. So all these associations, communities, that are not state, but they’re also not economic associations either.

Veronique De Rugy:

And think about it this way, right? So again, I think that the fact that so much of our community are community of possible liberals are made of economist, I think basically puts forward this individualistic side of a market economy, right? It sure leads to cooperation, and even though no one plans it. At least let me talk for myself. I have neglected, for about two decades, the importance of communities and the role they play in people’s flourishing. And it’s not for lack of haven’t read… I’ve read David Beito, I don’t know how you pronounce his name, book on all these welfare institution that existed outside of the government. I mean, I should know better. I mean, I find stories like this incredibly inspiring. But I think in my own thinking, I haven’t focused enough on the importance of communities.

Samuel Gregg:

So we’ve talked about the past, and we’ve talked a little bit about the present. I’d like to now shift our conversation towards the future, and what might lay ahead for classical liberals, and classical liberal’s ideas. So this isn’t the first time in history, right, that classical liberal ideas have been somewhat marginal. I mean, imagine living in the 1920s, or 1930s as a classical liberal. I suspect it was a very, very lonely time. So what do you think might be the opportunities for classical liberals to advance some of their ideas in the current conditions? Are classical liberals, in a sense, are they basically condemned to wait for a crisis to come along and then seize the opportunity? Or are classical liberals looking for a more piecemeal approach? In other words, skirmishes, winning skirmishes here and there rather than waiting for a massive catastrophe to happen, to which they will then step in with solutions?

Veronique De Rugy:

So I don’t think that catastrophes are the way to go for us, because when people are scared, when people feel poor, they turn to the government. I’m not super optimistic that our moment is going to come about because of a crisis.

Samuel Gregg:

But that’s what happened in the financial crisis, right? Remember, everyone turned to the state, across the world.

Veronique De Rugy:

Yeah. No, I mean, it’s what’s happened during COVID. This happens a fair amount, and the government grows during emergencies. And the attempt to stay grow is, I mean, at least in the last 20 years I’d say, that’s definitely the case. I do think that our only way of doing this, first we need to regroup. I think we need to talk to one another more. The battle of ideas ultimately is going to be the solution to our problem. Besides, I don’t know what else we can do. And I think we’re going to have to take stock of what has worked and what hasn’t worked. And I was actually thinking about this, and I’m writing something about this right now, is I think we’ve overlooked the importance of economic growth in our lives. And I think we haven’t explained to people enough how ultimately it’s not just… Focusing on economic growth, it’s not just a sound economic case. But it’s actually an incredible case that with economic growth, you don’t just lift everyone out of poverty, especially poor people. But also, you actually promote a lot of the values that we want in society, like a liberal order, tolerance, peace, all of these things. And I feel like we have definitely grown much less, at a much slower pace in the last 20 years. And I don’t think we’ve been alarmed enough about that fact, because that is working absolutely against us. But I think ultimately, we need to make the case… We need to be very careful not to oversell a lot of our solutions. So I mean, I’ve mentioned NAFTA. We did probably oversell the benefit of NAFTA. I mean, I’m still a big supporter of NAFTA. I mean, there’s no question in my mind that it was extremely important and beneficial. I worry that there’s a trend in our movement to oversell the benefits of technology, and supply side reforms. They’re very important, right? I mean, I think they’re extremely important to produce growth. I think we all have to recalibrate and find a way to talk to people about what they really care about.

Samuel Gregg:

Right. Because when we talk about economic growth, we often talk about GDP, we talk about living standards, and things like this. All of which is good. But that’s also a quite materialistic way of approaching it.

Veronique De Rugy:

Yeah, but I mean, I think we need to focus on the moral aspect, the non-economic aspect. You get more safety, you get more clean environment, you get more tolerance, more peace, there are liberal values that do not. These liberal values just do not happen in stagnant economies. They don’t. They don’t. In fact, a stagnant economy, they breed resentment, they breed trying to look for a scapegoat, they breed the, a lot of what we’re seeing right now about the fear of others, blaming others. So I think we need to make a much better case to actually talk about all these things we care about, and put them in the context of things that actually really matter to people. And I think we need to do a better job. For whatever reason, it baffles me over… I mean, it constantly baffles me. Government fails all the time, a lot, at a scale that’s enormous. I mean, I don’t know if you read the story about the high speed rail in California.

Samuel Gregg:

Yes.

Veronique De Rugy:

Typical case of industrial policy, government intervention, hubris. Even the French bureaucrats, the engineers were like, “We’re leaving. We’re going to Africa to build a bullet train, because this is too politically dysfunctional.” This happens all the time. And yet, people fail to hold the government responsible, or actually to remember that maybe it should make us more skeptical about using the government for everything. And this is what baffles me the most about the New Right to use this…

Samuel Gregg:

The sheer degree of government failure we can point to. And yet, many people who describe themselves as New Right, or national conservatives, or whatever this new grouping is called, they don’t seem willing to acknowledge-

Veronique De Rugy:

But it’s…

Samuel Gregg:

That the government fails again and again.

Veronique De Rugy:

A lot of these people were our friends, fighting with us against government intervention, precisely because they understood government fails. So that’s interesting to me. But to their credit, I think they are doing what maybe we failed to do. And that is to actually point out that there are truly things that are not working. I mean, when you look at areas in the US where there’s high unemployment rate, low wage, and people are stuck there. And unlike what we’ve seen in the past, and these type of contexts, people would go, or they would train and get another job, they would leave, they would go somewhere else to find… People aren’t doing this anymore. I mean, there are groups. And we tend to actually talk in aggregate. Well, I’ll admit, everyone is better, I’ll admit, everyone is better. And it is true, I’ll admit, everyone is better, right? Even those people in the [bottom] they all have TVs, and iPhones, and all that stuff. But once you’ve said that, you’ve accomplished nothing, because those goods, and that level of wealth is your new baseline. So we are not talking about these specific problems, we’ve ignored them.

Samuel Gregg:

So you mean we need to move from the aggregate to the regional and local in a sense?

Veronique De Rugy: Yeah. And true, for instance, I look at these areas, and it’s heartbreaking. But I can’t name you 10 things that the government has actually done to get people stuck there, right? But I mean, if I don’t ever talk about these areas, right, then I’ve allowed basically the narrative of the market has failed these people to basically, to take over.

Samuel Gregg: Well, we’re getting close to the end of our conversation. And I’d like to conclude by asking you a somewhat different question. So, classical liberals, they have their pantheon of intellectual heroes. So in more recent times, they would be people like F. A. Hayek, Milton Friedman, James Buchanan, for example. But there are also others who go back a few centuries, and were, of course, primarily English, Scottish, and Western European. So my question for you, which we’re going to conclude is, who is, for you, the classical liberal thinker from the past that classical liberals need to be looking to today for inspiration? Now, I have some ideas. But I’d be interested in hearing, who do you think would be someone who can inspire classical liberals in the somewhat gloomy environment of today?

Veronique De Rugy:

Frédéric Bastiat.

Samuel Gregg:

Bastiat?

Veronique De Rugy:

I mean, there are many. By the way, you know why we’re so attached to people of the past, to scholars of the past, to intellectual of the past? And this is one of our challenges, because there are no new ideas. I’m always annoyed when people say, “Well, can you come up with new ideas?” Well, actually, there are not a lot of new ideas out there. Maybe there are different ways to do things. Right at the margin you can do things differently, you can have a different messenger, have a different message, use a different medium. But when it comes to the arguments for freedom, the argument for classical liberalism, honestly, all the cases have already been made. The one person who I think actually does a remarkable job with a lot of humor is Bastiat. Don’t get me wrong, I love Adam Smith, and I like… But some people can find it unbelievable boring, right? I think Bastiat has it all. And this is not any chauvinistic instinct that actually gets me to say this, because I will say, the first time I read Bastiat, I read it in English, because the French totally ignore Bastiat. But I think that we can take a page of the way he was fighting these battles, and he was… I mean, he was funny, he had always concrete examples, he was challenging people, the way they think, as well at the same time, making some incredibly profound arguments about the law. By the way, I mean, Bastiat, before Hayek, right, talked about the difference between legislation and the law, how these are two separate things. So I guess I want to put a plug for Bastiat.

Samuel Gregg:

Bastiat is, of course, as you know, buried in San Luigi dei Francesi in Rome. You can actually go, and stand there, and look at his grave. And the fact that he’s buried there, I think, is indicative of someone who thought very widely, obviously, about economics, and the movement for liberty, but also some of the deeper traditions, which he clearly believed.

Veronique De Rugy:

Yeah, and if I can add something, one of the things that we’re missing very often when we talk about these intellectuals of the past who are very inspirational, who have actually put out in books truth that are just… That we’re still using to this day, is we admit that I think the baseline for all of them was a standard for morality that may be actually different than the one we have today.

Samuel Gregg:

Right. They sort of believed in moral absolutes.

Veronique De Rugy:

So we pick and choose what we want, but we ignore that overall environment where the arguments were taking place. They were things that were taken for granted that we don’t take for granted anymore. And I think we tend to pick and choose. So I think this is a warning about using writers of the past selectively without acknowledging some of the most profound facts about them.

Samuel Gregg:

Dr. Veronique De Rugy, thank you very much for joining us.

Veronique De Rugy:

Thank you for having me.

Samuel Gregg:

You’ve been listening to Liberty Law Talk, in which we’ve been discussing what happened to classical liberalism with one of America’s leading classical liberal economists, Veronique De Rugy. This podcast is available here, at the Law and Liberty website, and all good podcast sites, like Apple Podcast, Spotify, and Podchaser. If you like what you’re hearing, please give us a five star rating to encourage more people to join us each month. I’m Samuel Gregg for Law Liberty Talk. See you next time.

Brian A. Smith:

Thank you for listening to another episode of Liberty Law Talk. Be sure to follow us on Spotify, Apple, or wherever you get your podcasts. And please visit our journal at lawliberty.org.