On Freedom

Speculation, fraud, and exploitation. Vampire squid conglomerates. Free market fetishism. All of it leading to a spectacular financial collapse that started in the United States and spread around the world, driving inequality and economic precarity.

That could describe America and the Great Depression. But it could also describe America and the Great Recession. In between, we had the New Deal, which mostly tamed the destructive boom/bust cycles baked into unfettered capitalism. Unleashing the animal spirits, as it turns out, also unleashes the herd mentality, leading to bubbles that eventually burst. The wake of destruction breeds political instability and threatens democracy itself. The New Deal solution was a rich program of Keynesian economics and shared prosperity. The post-2008 solution was, shall we say, shallow by comparison, even after the party of FDR took office in 2009.

Why? In some ways, the New Deal was the victim of its own success. We took that stability for granted, forgetting that it was the product of bruising political fights that required vision and courage to win.

For every successful movement, there’s a backlash, and so it was with the New Deal. Friedrich Hayek and Milton Friedman cleverly framed their anti-new Dealism in terms of “freedom.” Freedom from an oppressive government dragging us along, as Hayek put it, the Road to Serfdom. Mind you, in an era in which communism and fascism were on the rise, FDR had saved capitalism from itself. For that, he was roundly condemned by those who preferred to see it implode so that it could be replaced with the very thing Hayek didn’t want.

What is freedom, though? Is it merely freedom from government? Are social security, unemployment insurance, health care, and constraints on speculation the slippery slope to Trotsky (Larry Summers’ preferred bugbear)? Hayek wasn’t that extreme – but his disciples have been, and are.

Lea Upi’s memoir, Free: Coming of Age at the End of History, challenges the Friedmanesque “freedom” that was delivered to Eastern Europe (and advocated by Democrats!) through the economic shock therapy of the 1990s. The life she describes under Communist Albania isn’t one of economic freedom. But neither is the one she describes after its fall.

“It turns out the Road to Serfdom runs through Hayekville.”

What did we do about Europe and Japan after World War II? Shock therapy? Hell no. FDR’s conception of freedom was fourfold: freedom of speech; freedom of worship; freedom from want; and freedom from fear.

Freedom from want.

Consistent with Keynesian principles, the United States committed to helping war-torn countries rebuild. We understood that economic deprivation paves the way for authoritarianism, whether fascist or communist. We wanted fertile ground for democratic governance and market economies to thrive, because we thought one depended on the other.

How did that work out? Well, five-sevenths of the G7 – the club of rich countries – are European and Japanese. Three G7 members had been Axis Powers! That seems like a pretty good result! There was a G8 for awhile, but who was kicked out? The country subject to shock therapy that has – perhaps not coincidentally -- regressed to warmongering imperialism.

Historian Gary Gerstle points out that the end of the Cold War paved the way for the extremist version of economic freedom to go mainstream, both at home and abroad. That is, without the threat of communist infiltration hanging over us, liberals and conservatives alike could more easily dispense with core elements of the New Deal bargain, like support for organized labor. Journalist David Leonhardt points out that as the middle class burgeoned, so did elitism, and solidarity with the American working class fractured. The coalition fell apart.

The New Deal generated what has been dubbed the Great Compression, the narrowing of inequality and the democratizing of opportunity. That said, it was not racially equitable, something LBJ, as President, sought to fix. But the military adventurism of the Vietnam War and 1970s stagflation put the final nails in the Great Society coffin.

One upshot of the mainstreaming of the libertarian/anarchist/teenage framing of freedom is the return of those disastrous boom/bust cycles – along with the corresponding threat to political order and democracy. The 2008 crash was the first of that magnitude since 1929, though the savings and loan crisis of the 1980s could have (should have) served as a warning. Now, less than two decades after the financial crisis, we seem to be falling all over ourselves to repeat with crypto the mistakes we made with derivatives. Meanwhile, the Great Compression is uncompressing, and the present governing mood is to uncompress it even more. Hence the legislation moving through the system, where the poor will compensate the rich and prematurely die along the way. Feudalism, anyone?

It turns out the Road to Serfdom runs through Hayekville.

Whatever Hayek and Friedman may say about freedom, the Founding Fathers had their own views. They were not merely interested in freedom from King George III, or aristocrats, but also from wanna-be aristocrats in the form of oligarchs. Freedom — independence, if you will — was not freedom from government but freedom from economic domination more generally. This kind of freedom goes right back to Adam Smith: his criticism of government was that it was owned by monopolists. He loathed monopolists, not government.

On the 249th birthday of the United States (also 249 years since the publication of Wealth of Nations), that understanding of freedom is as important as it was in 1776.

For every successful movement, there is a backlash. The backlash against Friedmanism is afoot — not least in his hometown of New York City.