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Lou Dobbs Thinks You're a Fool

Mises Daily: Thursday, December 14, 2006 by

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Lou Dobbs has made himself a crusader for the middle class on his CNN show. He's just written a book, War on the Middle Class, in which he describes government, corporate, and special interest groups which have unofficially declared war on the middle class and told working people where to go.

I, for one, am totally stunned at his book and his claims. In it, Dobbs manages to say that he supports American individualism, individual rights, capitalism, free markets, and a good work ethic, but that these must be upheld by policies of price and wage controls, corporate taxes, subsidies, government control of education, protectionist tariffs and trade agreements, and mass democracy.

Huh?

It's hard to know where to begin in the mess of contradictions that begins right on the book jacket itself, which says, "The war is nothing less than an all-out assault on the middle class, waged by a government that has become the instrument of corporate and special interests, by a business culture that is driven by the profit motive above all other considerations…." Dobbs analyzes every aspect of the decline of the middle class and traces each of them back to a dysfunctional government working hand in hand with unfettered capitalism." (Emphasis added.)

This Marxist delusion — that the state is the great enabler of capitalism — is the dominant theme on his show and in his book. It makes a review like this so difficult because I have to agree with him nominally on many points, disagree with the diagnosis of what causal forces are at work and his antiquated, mercantilist solutions, and then properly explain what forces and institutions should be removed to bring about true capitalism and prosperity.

So I'm bewildered as to where to start with Dobbs. He goes back and forth throughout the book, confusing capitalism with mercantilism, blaming mercantilism for bad policies that he calls capitalism, and blaming free trade for the consequences of protectionist policies … and then there's his actual understanding of politics itself. I hesitate to say what his understanding of economics is because there isn't any economics in War on the Middle Class. There's a lot of talk about how this nation was founded on a principle of economic opportunity, but that's as close as Dobbs comes.

Dobbs begins:

America has become a society owned by corporations and a political system dominated by corporate and special interests, and directed by elites who are hostile — or at best indifferent — to the interests of working men and women of the middle class and their families.

Corporate America holds dominion over the Republican and Democratic parties through campaign contributions (who else will?), armies of lobbyists that have swamped Washington, and control of political and economic think tanks and media.

I think many of the Mises Institute's readers, including myself, would largely agree. The way Dobbs states some of this makes him sound like he's reversing causation of who is truly to blame for bad government policy, but what he says here is very much worth noting, and Austrians and libertarians condemn such interplay of business and government, whether to the detriment or favor of business.

But Dobbs is for the government having all the power he doesn't want them to abuse. And by abuse, Dobbs means that the government should enact only policies that he supports. Well, the problem is that the political entrepreneurs, those enabled to get to the top, believe the very same thing.

Dobbs complains in his chapter, Class Warfare, about how entrepreneurs and CEOs make way too much. He never explains why these profits are too much, except as a disparity between CEO income and what people like me  make.

In saying that they make too much, he also says that mobility up the economic ladder has declined, while at the same time, CEOs are becoming richer by running their businesses better. But, that this is done at our expense. Somehow. He never explains how they do that. He merely gives statistics on corporate wages, profits, and job cuts, and expects us to join him in his economically repudiated theories of exploitation of the workers.

Little does Dobbs know that the savings and profits of entrepreneurs  are what enable the very existence of wage earners because entrepreneurs give current goods (wages) in the expectations of future goods (profits).

Along the same lines, Dobbs complains that labor unions are ineffective and are threatened with dissolution. Those unions, however, are vested interests who depend on government grants of privilege to be able to extort employers out of hiring non-union workers.

Dobbs does recognize part of this problem (even if he won't properly diagnose it at the fundamental level) when, in chapter nine, he complains that teacher's unions insist that teachers be paid based on length of employment and not on merit.

Only one system alone pays based on merit, or more precisely, marginal productivity, and that's unfettered capitalism, where all property is privately owned, and the  government's role does not extend beyond the protection of private property.  No government grants of privilege, no subsidies, no price or wage controls, and no tariffs. Employers compete for employees by bidding up wages and other work-related benefits, and employees compete for employers by acquiring skills, educating themselves, and offering  competitive prices for their labor.

This means an inexorable tendency towards paying employees the rate of their marginal revenue product — the returns they provide  their employer for each additional unit of labor provided.

Unions  systematically disrupt this system by demanding privilege with the backing of  police power. They demand from the government the power to forbid employers from hiring non-union workers to do the same work they may refuse to do at a lower rate — or at all if they're on strike.

Union organizing doesn't raise wages. All it does is ban from working those marginal workers whose marginal productivity is less than that of the legal minimum. In the case of union regulations, it is banned from those fields in which they work, and those marginal prospective employees now go into other, lesser paying jobs, increasing the supply of labor in those fields they enter, further depressing wages and escalating the demand on government to do something and, in Dobbs's view, stop ignoring the problem.

Again, when unions abuse this power, in Dobbs's view, that's bad. So why give them this monopoly-backed police power to force their will over the objections of anyone they like?

Dobbs also has a further problem with credit card companies and other financial institutions  trying to hold debtors to their claims. For instance, he blames the Bankruptcy and Abuse Prevention and Consumer Protection Act of 2005 for forcing people to pay their debts without protection of bankruptcy laws. This is particularly egregious because "the leading cause of personal bankruptcy is the medical and health care costs incurred by catastrophic illness."

This is all true, and I don't know the substance of the law he talks about. But bankruptcy laws themselves are yet another disordering of capitalism in which debtors are granted government protection against having to pay their debts. It nullifies valid contracts, and all the sympathetic circumstances in the world couldn't change the fact that it's just a way of enabling theft from creditors.

But even by Dobbs's own measure, if unfortunate circumstances make it necessary for the law to discharge contracts and make it artificially more profitable to go into debt, isn't it important to look at the causal forces at work that determine why health care is so expensive in the first place?  Dobbs does not make a single mention of how the government has induced the cost of medical care to be so high and for the quality to become increasingly more poor.

Take the example of health insurance. In chapter ten, Dobbs complains, "The United States is one of the only industrialized nations that doesn't provide health care to all its citizens, yet we still spend more on it than any other country. Right now, forty-six million people in this country do not have health insurance…."

I'll leave it to the readers to figure out how, exactly, it is that we can't afford health care now, yet once it becomes universal it will be free and affordable.

The problem is that the government makes it perfectly sensible for these forty-six million to not get health insurance. If they do purchase a health insurance policy, the government will force them to subsidize people in unlike classes of risk. And, the government forces us to insure things that are inherently uninsurable because we are either in direct or partial control over them — such as whether we are employed or not. And much of our health is partially or entirely under our control, making a regular check-up uninsurable.

The insurance system has become a system of wealth redistribution. To use Hans-Hermann Hoppe's illustration of this point, if a firm offered insurance against accidents that cause bodily injury to a professor, and the same policy to NFL football players, would he agree to such a service?

The biggest work-related risk faced by  a writer and desk jockey is his chair collapsing underneath him. If this happened and he needed medical care, his insurance provider, using the premiums pooled from him and other clients, will give compensation to him for his medical costs.

But an NFL player obviously is in a much higher class of risk, and is much more likely to be injured and receive compensation. University professors would likely be paying higher premiums so that compensation could keep being awarded to NFL players, while the professors continue working in a relatively safe profession.

In a free market, NFL players would tend to pool risk as clients of insurance firms with other NFL players, desk jockeys with other desk jockeys, etc. Yet this kind of policy is exactly what the government disallows.

Then there are the costs of paying for doctors and drugs, which are much higher than they would be on a free market, despite whatever conception Dobbs has of such a state of affairs. Some of the special interests that Dobbs never criticizes  are doctors, medical schools, drug companies, and the FDA, which are insulated from any competitor that the government does not approve of and license.

In creating a cartel in health care and drugs, the government artificially restricts the supply, insulating the higher wages of people in these industries from outside competition and innovation, reducing the amount of health care we can get, and the quality of it.

Dobbs doesn't devote a word of criticism to any of these programs and monopolies. Instead, he uses the problems they create as the pretense for criticizing businesses for cutting medical benefits to employees, when the government makes it more profitable to engage in such a cost-cutting procedure.

Now we turn to a central theme in the Dobbs oeuvre: his claims that the cost of free trade is too high, and that middle-class jobs are being outsourced by greedy companies to other countries while lower and lower paying jobs are being created. In particular, he focuses on jobs in the manufacturing industry, which presumably needs more influence in Washington to lobby on behalf of its special interests.

Hence the futility of Lou Dobbs's criticisms of our political system for bending to the will of corporations, but at the same time having to ceaselessly regulate and determine whose interests are most sympathetic, and which classes of people deserve special protection.

In a way, Dobbs's criticisms here are so dull and antiquated that not much needs to be said to refute his protectionist fallacies. In the chapter titled "Exporting America," he claims  that job outsourcing to other countries is bad, and our manufacturing class of workers are being especially hurt. He cites statistics  we all know are true about the number of jobs outsourced, and hopes that we're all nationalist enough to want to protect the interests of that class at the expense of everyone else.

Manufacturers, then, are yet another special interest that Dobbs wants the government to bow to, but, by virtue of being selected as instrumental to this country's well-being, they're a good special interest. See the pattern?

If jobs can be provided more cheaply in another country, it is in part because the consumers and clients of the firms practicing outsourcing decide that they do not want to foot the bill to see their fellow countrymen have jobs at higher rates than what could be paid in another country. This will never be fixed by a government decree, which can only hinder the desires of the heartless consumers, who only seek their own interest above all else.

Moreover, the loss of jobs from one area or industry to another is, in a free market, symptomatic of the fact that conditions ceaselessly change, and that our desires are unlimited as consumers. We will always want something better and cheaper that can be consumed more directly for our satisfaction. If the manufacturing industry isn't doing that in a manner in which the consumers approve, this simply means that the labor that manufacturing employees lose will be freed up to enter other, more highly valued and productive markets.

The horse and buggy industry suffered terribly from competition with the automobile industry. Was their interest in making a living not more important than our desire to drive cars? There is nothing unique about the position which horse and buggy employees suffered due to cars, just as there is nothing unique about the loss of manufacturing jobs. These people's livelihoods are temporarily disrupted (again, assuming a free market where there are not the current prohibitions, regulations, licenses, subsidies, etc., which hinder people from freely entering other professions or working for themselves), but this is always the case for any economy in which the consumers have freedom to decide who serves their desires best.

It was just as true of fabric makers hundreds of years ago who made petitions to stop new looms from making their work more productive, serving the consumers of fabric better, and eliminating from their work force those workers whose marginal productivity did not justify their employment in their current jobs.

It may be objected that the benefits of job protectionism outweigh the costs. But while the supposed benefits of protectionism are clearly seen, the bad consequences are pernicious but unseen. The loss of jobs on a market are plainly visible and painful, but the complex economic phenomena at work are not.

Consequently, protectionist policies give  benefits that are seen but impair the satisfaction of the desires of consumers by depriving them of the goods that could be produced if the newly unemployed were put to work in other industries. It also externalizes the cost of protection onto consumers by forcing them to pay higher prices for a lower supply of goods from the protected industry,  goods that are not necessarily of the same quality as those from foreign competitors. These effects are all unseen.

What Lou Dobbs should read: $14

Lou Dobbs is not a fresh voice of opposition to the government. He does not offer us anything more than  antiquated notions of mercantilist policies of protection, which plunder the many consumers in order to protect his favorite class of people. He supports the very policies of destructionism, economic nationalism, and protectionism that create more and more economic crises, for which the tax payers need to be shaken down again and again to foot the bill and subsidize the pet industries of guys like him.

Dobbs says he is a straight shooter, and while I have no reason to doubt the sincerity of his intentions, the policies he desires are not the sum of  good intentions, but of their own consequences. He does not understand the forces at work in creating the unsatisfactory conditions he often quite correctly notes. He just lists seemingly random, disconnected data, and once he's done laying out the data in chapter after chapter, the blame typically lands on business, capitalism, and free trade while playing on notions of class warfare and how the well-being of entrepreneurs is opposed to the consumers they have to serve if they want their patronage.

One can imagine such a thing as free-market populism. But populism in the hands of Dobbs has yielded a case for all-around economic regimentation and growing impoverishment, which will not stop the war on the middle class but rather decide it in favor of the state.