Reflections on the nature of free markets, different ways of being pro-business, liberty and the attributes of a healthy democracy

2+ minutes of pithy comments by Milton Friedman on greed, enlightened self-interest, and how societies and free markets work.

A succinct summary on the two meanings of being pro-business from Don Boudreaux, who writes for the Café Hayek blog and is a professor of economics at George Mason University:

There are two ways for a government to be ‘pro-business.’ The first way is to avoid interfering in capitalist acts among consenting adults – that is, to keep taxes low, regulations few, and subsidies non-existent. This ‘pro-business’ stance promotes widespread prosperity because in reality it isn’t so much pro-business as it is pro-consumer. When this way is pursued, businesses are rewarded for pleasing consumers, and only for pleasing consumers.

The second, and very different, way for government to be pro-business is to bestow favors and privileges on politically connected firms. These favors and privileges, such as tariffs and export subsidies, invariably oblige consumers to pay more – either directly in the form of higher prices, or indirectly in the form of higher taxes – for goods and services. This way of being pro-business reduces the nation’s prosperity by relieving businesses of the need to satisfy consumers. When this second way is pursued, businesses are rewarded for pleasing politicians. Competition for consumers’ dollars is replaced by competition for political favors.

There is much talk today about the polarization in America and how different factions should compromise by acting in a bipartisan fashion. But such talk is absurd because it ignores several critical and unavoidable issues:

First, policy differences are often based on competing world views. Those differences cannot be wished away by superficial talk about bipartisanship. For example, if you believe in the first definition of being pro-business, i.e., that only the private sector can actually create jobs and the government’s proper role is to promote economic liberty by incenting the private sector to do so, then no size of any stimulus bill will be acceptable. Nor is there any middle ground if you believe that Obamacare represents the socialization of medicine and you don’t believe in socialism. These positions are not about being the "party of no." Instead, they are a clarion call for an alternative public debate about statism, about whether we aspire to become like a European welfare state. Then, instead of ramming down a statist solution to the healthcare issue onto America, we could agree that the status quo for the delivery of medical care isn’t good enough and use that as an alternative starting point from which to conduct a legitimate public debate about different solutions. Polarization will only genuinely dissipate after there is sufficiently open and reasoned public debate about such principles and the desired endpoints of policies that derive from them so that a consensus can begin to form across America.

Second, both political parties have inhibited such a debate. Public choice theory teaches us that we should not be surprised that the parties are focused primarily on promoting their own self-preservation, by sustaining power for the sake of power instead of promoting reasoned debates about how a belief in the ordered liberty of our American Founding should impact our public policies. Such is the added price we pay for having given up on limited government. But, if we believe in liberty, then the people in America have to stand up and insist on the debates. Which is why the Tea Party is perceived to be such a threat to both parties' establishment figures. That debate will take time and will appear messy along the way. But only an arrogant, self-absorbed narcissist will underestimate (more here and here) the American people's ability to instinctively figure things out. Just like the American people rejected the Republicans in 2006 and 2008, the 2010 election was a repudiation of the arrogance of a Democratic party that refused to listen to the American people in recent times. Political gridlock is nothing more than the American people telling the government to stop in its tracks until the the debates can be held.

If the debates are inhibited by the political class, then there will be more repudiations in the coming elections:

...This isn't a wave, it's a tidal shift—and we've seen it coming for a long time. Remarkably, there have been plenty of warning signs over the past two years, but Democratic leaders ignored them. At least the captain of the Titanic tried to miss the iceberg. Congressional Democrats aimed right for it...

But none of this means that Republicans are winning. The reality is that voters in 2010 are doing the same thing they did in 2006 and 2008: They are voting against the party in power.

This is the continuation of a trend that began nearly 20 years ago. In 1992, Bill Clinton was elected president and his party had control of Congress. Before he left office, his party lost control. Then, in 2000, George W. Bush came to power, and his party controlled Congress. But like Mr. Clinton before him, Mr. Bush saw his party lose control.

That's never happened before in back-to-back administrations. The Obama administration appears poised to make it three in a row. This reflects a fundamental rejection of both political parties.

More precisely, it is a rejection of a bipartisan political elite that's lost touch with the people they are supposed to serve. Based on our polling, 51% now see Democrats as the party of big government and nearly as many see Republicans as the party of big business. That leaves no party left to represent the American people.

Voters today want hope and change every bit as much as in 2008. But most have come to recognize that if we have to rely on politicians for the change, there is no hope. At the same time, Americans instinctively understand that if we can unleash the collective wisdom and entrepreneurial spirit of the American people, there are no limits to what we can accomplish...

Elected politicians also should leave their ideological baggage behind because voters don't want to be governed from the left, the right, or even the center. They want someone in Washington who understands that the American people want to govern themselves.

William Voegli offered this sage advice several years ago: “A healthy democracy does not require blurring political differences. But it must find a way to express those differences forcefully without anathematizing people who hold different views.”

The sections titled Issues #1, 2 and 4 in this lengthy May 2010 blog post highlight some of the underlying core beliefs that animate a world view which believes in free markets and liberty. These are the meaty topics worthy of public discussion.

A more intense level of public debate has begun across America in recent months. Here's to it continuing in a vigorous manner until a meaningful new consensus can form in the country.

ADDENDUM #1:

Glenn Reynolds writes:

With the election over, Republicans are arguing about whether they should address Democrats via compromise, or confrontation. Both have their places, but I have a different suggestion.

Clarity.

With the deficit and the debt ballooning, with the economy remaining in the tank, and with tough choices on the horizon, what Americans need more than anything is clarity about what those choices involve, about who is making them, and about who is avoiding them.

Sometimes clarity will mean confrontation...

...Often when Washington insiders talk "compromise," they really mean engineering a situation where nobody really has to take a position, or responsibility. In those circumstances, clarity is better served by forcing positions into the open, even if doing so involves confrontation.

Sometimes, of course, compromises can bring clarity -- when it's clear what's being given up, and what's gained in exchange. Generally speaking, though, the Washington approach is to pretend that there's a free lunch, rather than to acknowledge the trade-offs.

This must change. Voters deserve to know the truth, and a compromise that won't work if voters know the truth isn't really a compromise at all, but a con.

A move for clarity will meet much resistance...

One way to [ensure transparency and make sure the facts come out] is to stay on message, of course. Another is to follow House Minority Leader (and, soon, Speaker) John Boehner's advice, and "listen." During the Obamacare debacle, Democratic representatives and senators ran away from constituent meetings and town halls. The last thing they wanted to do was listen to their constituents.

By way of contrast, Republicans should engage constituents early and often, and -- publicly -- encourage Democrats to do the same...

By listening to voters at town hall meetings, Republicans can not only show that they care, they can accomplish something else. They can actually learn something.

By not listening to voters, and not being straight with them, Democrats committed political suicide. Republicans should take a lesson, and promote clarity. In these times, voters will reward that.

The open and reasoned public debate I write about above is all about bringing clarity. Kudos to Reynolds for saying it so well.