Power & Market

Robert Reich’s Second Myth

Robert Reich’s Second Myth

Robert Reich’s second myth is “Government Obstructs the Free Market.” (See my response to his first myth here.) He says that what we call the “free market” can only exist with a government enforcing rules about property, monopoly, contracts, and bankruptcy. Reich makes the case that big corporations and the super-wealthy have steered the government’s rules and their enforcement for their own benefit.

He’s right, except for the bit about government as a necessary condition for markets.

The problem with Reich’s subsequent analysis is its superficiality. He focuses on political action committee (PAC) donations, lobbyist spending, and the way political parties have turned into “giant, Washington-based fundraising machines.” The big question Reich never addresses is Why? Why is there so much money in acquiring the favor of a politician? Why do lobbyists lobby? Why would businesses want to cozy up with government?

The answer is State power. The only reason why big businesses donate money to candidates is because they expect that they will have the ability to use the might of government for their own benefit. They want to point subsidies and big government contracts in their direction and to point taxes and regulations in the direction of their competitors. Sometimes big businesses lobby for regulations on their entire industry because they know they can handle the increased costs while their smaller competitors can’t.

As Lew Rockwell said, “Just one clause in the Federal Register can mean billions for a favored firm or industry, and disaster for its competitors, which is why lobbyists cluster around the Capitol like flies around a garbage can.”

So the solution is not more labor union membership, as Reich suggests, but curtailing the power of government. If the government couldn’t regulate health care, then insurance companies, hospital associations, and big pharmaceutical associations wouldn’t spend tens of millions of dollars on lobbying. If Google and Facebook didn’t expect favors from the Democratic Party, their founders and CEOs wouldn’t have donated hundreds of millions of dollars to the Future Forward PAC. If the U.S. government didn’t pretend to be the policeman of the world, then there would be no money spigot for defense contractors to point in their direction.

Reich wants influential “centers of countervailing power,” which allow “America’s middle and lower-middle class to exert their own influence.” But this only perpetuates what Bastiat called the “great fiction, through which everybody endeavors to live at the expense of everybody else.” The free market, which Reich dismisses as a myth, is the only alternative.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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