Paste your essay in here…Tra Nguyen
Ted Fertik
GLBL 206 – Lessons From the Great Depression
17 October 2017
FREE COLLECTIVISM – THE GOOD, THE BAD, THE IMPOSSIBLE
In The Method of Freedom (1934) we see the conflict inside the author Walter Lippmann’s mind as he strives to balance between his commitment to democracy and his dissatisfaction with the then current economic system of laissez-faire. Struggling to grasp with the devastating reality of the Great Depression, Lippmann vehemently rejects laissez-faire and proposes a new system, the so-called compensated economy, in which a balance between individualism and collectivism, between capitalism and socialism, and between invisible hand and government intervention is achieved. This Lippmann dubs “the method of free collectivism.” This essay aims to deconstruct Lippmann’s conceptualization of “free collectivism” and investigate the most sophisticated argument for government intervention and defense of compensated economy Lippmann so eloquently puts forth in his book. In so doing, the essay hopes to prove that Lippmann’s idea, though well-intentioned, may have unintended consequences of democracy erosion and economic inefficiency, which necessitates further consideration.
The book divides itself into three parts. The first part is titled “ Revolution of the Great Society,” in which Lippmann insists upon the fragility of laissez-faire and the pre-destined death of it. Lipmann argues that a system of transactions no one deliberately contrives, a social order which survives merely upon people’s satisfaction, not by moral virtues or devout ideologies, is “inherently unstable and unreliable,” and thus unable to persist after a dramatic upheaval such as war or economic crisis (15). What Lippmann perceives to be of utmost importance to an individual is economic security, and laissez-faire has failed to grant it during the crisis of war and the Depression. He remarks that laissez-faire in its purest sense has been nothing but illusory, because people have time and again voted for government intervention such as unionism or tariffs and immigration restriction. In this sense, Lippmann sees no need for laissez-faire due to our own lack of commitment, implying that people would welcome a non-laissez-faire economy as long as it benefits their economic interests.
It is puzzling to see Lippmann vehemently critique unrestricted laissez-faire and how it has wrecked the economy while admitting at the same time that this system has actually been nothing but an apparatus of itself. What exactly is laissez-faire as defined by Lippmann? To Lippmann it makes little difference whether it is unrestricted laissez-faire with no government or a free market capitalist system where the government acts as a police and umpire. Thus, Lippmann is not precisely attacking “unrestricted laissez-faire” as he so frequently repeats, but rather the then current free market system where government is playing too trivial of a role in his opinion. To Lippmann, capitalism has become too complex for a rational individual to handle and thus collective action must be introduced. He then announces an alternative must be constructed. This alternative may not have to be central planning, or absolute collectivism, like so many thought, but a mixed economy, one called “free collectivism.” In this hybrid economy, the state must “equalize the bargaining power of the consumer and of the employee: regulation of public utilities, factory laws, and minimum wage. […] break up monopolies, discourage harmful enterprises, prevent nuisances, restrict speculation” (47).
Nevertheless, it seems as if Lippmann has blurred the line between collective action, which is the basis of every nation’s state and government, and collectivism. The world that he imagines is not so much a collectivist state but still a very much free market economy albeit with stronger collective action on the government’s part. Whether or not this economy does not find difficulties of its own will be debated later. Free collectivism is an oxymoron, for collectivism simply cannot be free. Collectivism cannot exist in a world of freedom unless individuals are innately gifted with altruism that allows them to place others’ interests above their own. This is precisely the reason why collectivism could only be realized under central planning, where the government is free to use force upon any citizens. Perhaps Lippmann himself soon realized the self-contradiction inherent in his envisioned economy as well, for in The Good Society (1937), Lippmann ceases to distinguish between “free collectivism” and “absolute collectivism”; instead, he groups them together as one indiscriminately, and all forms of collectivism are assailed with passion. Lippmann is, however, in many ways correct. Indeed laissez-faire has its own weaknesses, if the booms and busts in the economy are anything to go by. There can be no doubt that a loosely-regulated market contributed to the economic recession of 1929 and that overproduction forms a recurrent problem in a free market economy. No one, not even strong free market proponents such as Milton Friedman, can deny the necessity of the state in stabilizing the economy. Lippmann is right in thinking that we must find a cure, or at least, a treatment or remedy to these problems.
Although Lippmann considers planning an abomination, free collectivism may still work, so long as it is not branded “planning” and Lippmann considers it within his framework of freedom. The essential principle is a compensated economy, a Keynesian-esque system in which the state does the exact opposite of what the mass public is doing. If the mass public is spending too much, the government must practice austerity. If the public is saving too much, it falls upon the government to consume. At the end of The Method of Freedom, Lippmann goes even further than Keynes to state that the government must also safeguard the general welfare by establishing “the right to work.” Lippmann insists that free collectivism through compensatory method is radically different from absolute collectivism, which has manifested itself in central planning economies such as fascism or communism.
But alas, it’s not so simple. First, Lippmann is too optimistic and simplistic in the ability of the government to fix the economy. Compensated economy almost presumes the omniscience of the government: that the government knows when and where exactly the mass public is doing wrong. The reality is obviously not that straightforward. Government intervention has proven time and time again to be misdirected and even catastrophic. For instance, Friedman and Swartz (1963) argue persuasively in A Monetary History of the United States 1867-1960 that the Federal Reserve’s monetary contraction was one of the major culprits behind the Great Depression. Another obstacle to fiscal effectiveness is response lag. When the government recognizes that the economy is in a slump and starts taking action, the economy may have already been on its way to recovery. The government’s stimulus will only make the matter worse by boosting the economy past its equilibrium point, creating a boom that paves the way for another bust.
Even if the government does somehow recognize that the economy needs “fixing” early, the idea of “doing the opposite of whatever the mass is doing” remains dubiously simplistic. Lessons from the recent past abound, and warn us to consider Lippmann’s recommendation with care. In 2009, Obama’s $800 billion fiscal stimulus package, designed to salvage the economy from the crisis, produced minimal effect on the economy. Meanwhile, in the 1990s, Japan spent around $2 trillion on building new infrastructure in an attempt to stimulate the economy and halt the deflationary slump that has been rampaging in the country for years. The result? No end to deflation in sight, with a stagnant economic growth and a sweet addition of trillions in deficit. Of course, ex-post rationalizers may say: not enough stimuli. But how much is enough? Under what condition does fiscal policy work? Contrary to Lippmann’s optimistic prediction that the government will soon be seasoned enough to get the hang of fiscal tools, the government still proves to be a fumbling novice as ever when it comes to handling the economy.
Lippmann’s vague description of what the government can and cannot do also paves the way for a slippery slope to power abuse. That the government’s responsibility is to compensate the economy and to fix the ills of capitalism creates the perception that centralization of power is allowable so long as it “protects the welfare of the citizens.” During times of peace and recovery, would the government be willing to relinquish its hold on the economy once it has tasted the enjoyment of taxing and spending? What mechanism is there to prevent this slope? Later in The Good Society Lippmann also realizes his omission and becomes a strong opponent of Roosevelt’s New Deal, admitting that perhaps compensatory economy may not be as politically wise as he thought.
Believing proletariat insecurity is the source of political instability and that tyranny comes when men lack property, Lippmann then suggests that the government should provide social insurance of various kinds, such as minimum wage and right to work. Except we all know that in Germany, a relatively advanced system of social welfare and aids that had been in place as early as in the 1840s including Youth Welfare Act (1922), unemployment relief and war victims’ benefits, did not prevent the rise of Hitler and fascism. Nevertheless, it is true poverty can lead to political instability and has its own moral problems, but this is yet another example of Lippmann’s futile method to achieve his agenda of poverty elimination. Lippmann presents a strongly humanitarian argument for minimum wage law, claiming that we must protect the basic subsistence of citizens should we want them to have economic security. His compassion is admirable, but terribly misplaced. The vast majority of minimum wage earners are young students fresh out of college or high school. These people are not going to be stuck flipping burgers at Wendy’s forever because despite what pessimists say, it is not difficult to join the middle class in America so long as one has children before marriage and has a full-time job according to a report by Brookings Institution in 2003. Sadly, minimum wage law does the opposite of the rule: it reduces employment. One does not have to look far for an example: a 2017 NBER report by Jardim et al. shows Seattle’s recent hike in wage led to a drop of $1500 in income for low-wage earners. Thus, hundreds of people who could have received some wage end up receiving no wages at all as a result of legislation forcing employers to pay what employees are not worth. Meanwhile, rendering opportunity to work a right implies the state holds a gun to an employer’s head and forces him to hire employees despite limited financial ability. When a person’s right is the deprivation of someone else’s rights, it is merely impossible to perceive this act as compatible with any form of democracy.
Aware of this tension between free collectivism and democracy, Lippmann in the last part of the book titled “ Government in a regime of liberty,” concludes that democracy must be reconstructed, or “democracy itself with be overthrown” (Lippmann 79). To this end, Lippmann suggests a return of power to the executive, not monopolized by the legislation. He explains that “democracy” in the hands of legislation leads to tyranny of majority and expresses a profound distrust of legislative-pressure group government, accusing it of abusing its power and manipulating the popular mass’ opinion. While it is true that what precisely constitutes democracy is still up to debate, it is unclear how a return of power to the executive is any less of an abuse than a monopoly of legislation. Why is there danger of the judges and lawmakers becoming autocratic and assuming the rights of sovereignty but none of the president? Furthermore, even with Lippmann’s reconstructed democracy, his proposed “right to work” is very much undemocratic still. It seems as if in desperately trying to defend free collectivism, Lippmann ends up in a maze of faulty reasoning that ultimately leads to the self-collapse of his own philosophy.
It is for these reasons that Method to Freedom is perhaps a confused and confusing book, mostly due to Lippmann’s lack of a concrete idea for how free collectivism and compensated economy should actually form and operate. Government intervention may indeed be benevolent, but Lippmann’s naïve vision of how it should be executed does not make a good case for it. That said, the book is overall an interesting take on the economy and showcases Lippmann’s profound knowledge in not only philosophy but also politics and economics. The overarching idea of the book, the conception of mixed economy where the government and the private sector conjoin to stabilize the economy, will remain influential and important for years to come.
Works Cited
Lippmann, Walter, and John Morton Blum. The method of freedom. Transaction publ, 1992.
Lippmann, Walter. The good Society. Grosset & Dunlap, 1943.
Friedman, Milton, and Anna Jacobson Schwartz. A monetary history of the United States 1867-1960. Princeton University Press, 1993.
Sawhill, Isabel V., and Ron Haskins. “Work and Marriage: The Way to End Poverty and Welfare.” Brookings, Brookings, 28 July 2016, www.brookings.edu/research/work-and-marriage-the-way-to-end-poverty-and-welfare/.
Jardim, Ekaterina, et al. “Minimum Wage Increases, Wages, and Low-Wage Employment: Evidence from Seattle.” 2017, doi:10.3386/w23532.