Markets Will Prevail

Richard B. McKenzie & Dwight Lee from the February 1993 issue

Understandably, Bill Clinton's election to the presidency leaves much for the country to worry about. If he holds true to his economic platform and if he gets his way with what appears to be a compliant Congress, many of the market freedoms Americans hold dear will be in jeopardy. Fortunately, those are two very big ifs. The first and most important auxiliary check on the powers of the new president to hold to his platform and to inaugurate his "new beginning" will be the very market forces he seeks to manipulate and suppress.

Those who see the policy changes of the 1980s mainly as a product of Ronald Reagan's election have much to fear. For them, the guard on the public treasury has indeed been changed.

On the other hand, those who see the changes of the '80s mainly as a response to global competitive forces among governments, rather than to Reagan or Thatcher per se, can take heart. Those same forces of global competition among governments for the world's capital base that were so evident in the '70s and '80s remain at work in the real world that Clinton must now face. Clinton will soon recognize that the main change since Reagan is that competition among governments is even more constraining, since capital has become ever more slippery and the number of government competitors has grown with the liberation of Eastern Europe and the break-up of the Soviet Union.

Granted, Bill Clinton has embraced every labor-market mandate that Congress has considered, and he threatens to raise taxes on the rich, which, if passed, would penalize competitiveness and success still further. And he pledges to redistribute wealth–especially health-care wealth–from the rich and middle class to the poor who cannot afford health insurance, plus all others who could purchase it but have chosen not to do so. In effect, he has fostered the delusion that workers can get something for nothing if only government tells employers they must foot the bill.

Moreover, Clinton proposes increased public spending and an array of "industrial policies" (although the expression is never used) that would mire Washington even more deeply in allocating (and misallocating) the country's resources. He doesn't seem to realize the extent to which Washington politics can twist even well-intentioned "infrastructure" expenditures into boondoggles for the home states of the politically powerful. Given that Robert Byrd will continue to lead the Democrats in the Senate, more infrastructure "investment" will likely mean, as some have suggested, paving over a larger portion of West Virginia.

That, in brief, is the economic agenda that less than a majority of the American public swallowed. The pessimists have reason to fret anew.

There are, however, reasonable grounds for being, if not

optimistic, then not terribly pessimistic. The Clinton presidency probably cannot do as much damage as the pessimists are now forecasting. The results of the Clinton presidency might even be no worse than a continuation of the Bush presidency. In the end, the Clinton presidency might reinvigorate pro-market politicians and analysts. They can now regroup around more articulate, intelligent, and effective leaders such as Jack Kemp and Phil Gramm.

A continued Bush presidency would likely have fortified the mythology that the White House was still occupied by a dedicated heir-apparent to Reagan's political philosophy of expanded market incentives and constrained government, leaving market proponents open to the charge that the country's economic failures result from a failed philosophy. In Clinton, the country will get a president who appears (at the outset, at least) to be open and honest concerning his plans to expand the scope of government, which means that Americans will know to guard their wallets now that they have read his lips. Under Bush, they carelessly left their wallets unguarded, much to their chagrin. They might have been duped again by his 1992 no-new-taxes pledge.

Admittedly, these are not strong reasons for optimism, but there are several other justifications that political pundits appear to have missed. First, Clinton may not be as liberal as many think. After all, he is from a place called Hope in a generally conservative Southern state. Clinton, with his democratic aura of ties to the downtrodden, might–just might–be able to open cutbacks in "entitlements" for thoughtful public discussion and reform in the same way that Richard Nixon, cloaked with his anticommunist past, was able to open up China's admission to the United Nations for public discussion.

Clinton has indeed talked a good and long line about the importance of personal responsibility and about making people look to government for a "second chance" rather than making government aid a "way of life," and few in the press and policy circles have raised concerns about his hardheartedness, a level of consideration rarely accorded Ronald Reagan and George Bush. Clinton has also endorsed the Bush version of the North American Free Trade Agreement and will likely have an easier time of getting it through Congress than Bush would have.

Second, Clinton will be checked by normal politics. Less than half of the public voted for him, and many who did vote for him held their noses as they did so. They voted against George Bush, whose mean-spirited campaign, organized around largely irrelevant issues (Hillary, the draft, Moscow, and the chicken pluckers of Arkansas) was about as inept as the economic program that he was never able to articulate and hence defend effectively. With closer scrutiny, Clinton's mandate is far shakier than one might think from looking merely at the count of electoral votes. His plurality was smaller than Michael Dukakis's tally in 1988. Many of the non-Clinton majority voters can be expected to impede his more left-leaning political moves.

Third, Clinton and his advisers soon will learn that paying

for his programs off the backs of the rich alone will be far more

problematic than his pre-election numbers suggest. In the heat

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