The Road to Freedom (6 page)

For instance, during the current mortgage crisis, politicians justified bailing out mortgage holders by blaming banks for selling mortgages to people who couldn't afford them. In some cases, this was undoubtedly true. But according to researchers at the National Bureau of Economic Research, about a quarter of the people who defaulted on their mortgages during the economic crisis did so “strategically”—that is, they could afford to pay but chose not to.
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Yet by law, they could walk away from their mortgages without
losing any of their other personal property. Thousands were bailed out with tax money.

The National Flood Insurance Program is another glaring example of how the federal government protects citizens from the consequences of the risks they take. For less than $600 per year—far below what any private insurance company would charge in this market—the program insures homeowners who choose to build houses in flood plains, some of the riskiest real estate in America.
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The program is currently $19 billion in debt as a result of taking on risks that the homeowners themselves should assume if they want to live in disaster-prone areas.

The most obvious example of the federal government protecting citizens from the consequences of their actions is the massive bailouts of banks, failed corporations, and government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac in 2008 and 2009. The federal government made an open-ended commitment to Fannie and Freddie, the failed Washington, D.C., giants that sparked the housing crisis and recession. As of July 2011, this has cost taxpayers $317 billion, according to the Congressional Budget Office.
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Similarly, when the private market deemed Chrysler and General Motors too uncompetitive to succeed, the government handed these companies $80 billion in taxpayer money.
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Thus, Americans, who boast to the world about independence and resourcefulness, become infantilized. We see more and more preposterous examples of the attitudes this creates. During the 2011 Occupy Wall Street protests in New York, a reporter interviewed a young man holding a sign that read, “Throw me a bone, pay my tuition.” When asked why he thought the government should pay his college tuition, his answer was, “Because it's what I want.”
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During the 2008 presidential campaign, a Florida woman was asked in an interview why she was supporting Barack Obama for
president. If he is elected, she told the interviewer, “I won't have to worry about putting gas in my car. I won't have to worry about paying my mortgage. . . . If I help him, he's going to help me.”
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People who avail themselves of welfare and bailouts are not bad or stupid. They are just human. No one is eager to sacrifice all that much. I bet that many entrepreneurs who say they now cherish their sacrifices would (at the time) have welcomed faster, easier success. But if people are given a way out of every crisis and challenge, they are both less likely to succeed in the long term and less likely to enjoy any success that they acquire because it's unearned. Bailouts that do more than provide a minimum standard of living—whether mortgage relief or a billion-dollar bank bailout—teach the wrong lessons and lead people to learned helplessness.

INSTEAD OF
offering more data, studies, and experiments that show how redistributive ways are making the pursuit of happiness harder by penalizing earned success and enabling learned helplessness, here is a poem I like entitled, “Tame Duck,” published in 1929 in a newsletter from the Milwaukee Co-operative Milk Producers.
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For me it describes, in an amusing way, the lives we face if we turn our backs on American free enterprise.

There are two tame ducks in our backyard,

Dabbling in mud and trying hard

To get their share, and maybe more

of the overflowing barnyard store.

They're fairly content with the task they're at

Of eating and sleeping and getting fat.

But whenever the free wild ducks go by

In a long line streaming down the sky,

They cock a quizzical, puzzled eye

And flap their wings and try to fly.

I think my soul is a tame old duck

Dabbling around in barnyard muck,

Fat and lazy, with useless wings,

But at times, when the north wind sings

And the wild ones hurtle overhead

It remembers something lost and dead,

And cocks a wary, bewildered eye

And makes a feeble attempt to fly.

It's fairly content with the state it's in

But it isn't the duck that it might have been!

EARNED SUCCESS
, not materialism and government redistribution, is the way to understand the Founders' moral promise of the pursuit of happiness in America today. The free enterprise system allows the most people to earn their success, going far beyond the benefits of mere money. Free enterprise is therefore not an economic imperative; it is a moral imperative.

Free enterprise requires the existence of a level playing field, though. Some may say that the concept of earned success rings hollow because America is not a
fair society
. Capitalism, we hear, simply rewards a privileged few.

We need to deal with these claims about fairness. So that is the next subject.

I
magine a typical family—a mom, a dad, and three young children. The kids have been asking mom and dad to adopt a dog, but the parents are resistant. Dad, in particular, objects. Dogs are dirty, he argues. They mess up the house. And you have to walk them all the time.

But the kids are persistent and pretty soon they win over mom. Dad quickly caves in front of this new coalition. They adopt a puppy from the pound and name her Muffin.

Dad is proved wrong. Muffin turns out to be a
great
dog: friendly, intelligent, and wonderful with the kids. Everyone loves her, especially dad. They all laugh at how he didn't want to get her in the first place.

A couple of years pass. One day, the family's youngest child accidentally leaves the front door open. Muffin sees a squirrel in the neighbor's yard and takes off in hot pursuit. She darts into
the street and is hit by a speeding car. She dies on the spot in front of the whole family.

Everyone is understandably heartbroken. The kids are crying, mom is crying, and even dad tears up. Lovingly, they pick up Muffin's lifeless body and bring her in the house. After a short family discussion, they come to a decision about what to do next.

They decide to cook and eat Muffin.

IF YOU ARE LIKE ME
—and everyone else I know—you're either laughing or shaking your head in disgust. That ending is just wrong. (Try the story at your next dinner party and see!) Is eating the dog—bizarre to be sure—morally okay? Just about everyone will say, “Of course not.” But why not? Nobody is physically harmed by the act, least of all the dead dog. It's legal, and people eat animals all the time. Still, people say, it's just
wrong
.

This story is liberally adapted from the work of Jonathan Haidt, a social psychologist at the University of Virginia and the world's leading expert on the science of morality. Haidt and his co-authors have conducted a string of experiments in which they present human subjects with situations about which they have an immediate and overwhelming moral reaction, but one that they cannot justify rationally for minutes, hours, or sometimes ever.
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(The dog story is one of the tamer tales.) Haidt explains that when people are confronted with an emotionally evocative situation like the one in the story about the dog, their intuitive minds kick into gear and send their reasoning minds out on a mission: find a rational justification for my moral judgment! Generally what people eventually come up with (for example, “In our society, it is not alright to eat your pets”) simply justifies their initial moral predilections. You are unlikely to persuade
people based on logic and reason that their initial moral judgment was wrong.

Public policy debates are similar: People have very quick moral reactions and respond strongly to moral appeals. Once they are leaning morally in one direction, it's extremely difficult to push them the other way using logic and evidence. Imagine you are debating someone about the virtues of free enterprise. You can be ready with all the PowerPoint charts in the world about the economic efficiency of the capitalist economy, but the moment your interlocutor says, “Capitalism is unfair to the poor!” you've lost the debate. You might as well try to convince somebody to eat his dog.

Right now, that's the situation in which free enterprise advocates find themselves. From the Occupy Wall Street Movement to more moderate liberal politicians, income inequality has become the bogeyman on the basis of nothing more than the moral claim that the free enterprise system is unfair because it rewards some people so much more than others. They ask how a few enjoy billions of dollars when so many others have less. They say it's morally repugnant.

It does not matter very much if this kind of fairness claim is logically dubious. A materialistic rejoinder about economic growth and balanced budgets will not persuade the American public to turn away from big government policies. Only a moral rejoinder about the
fairness
of rewarding merit through free enterprise will carry the day.

ALTHOUGH CURMUDGEONS
will argue that America has become a land of moral relativism, Americans do, in fact, share a common set of beliefs about what is right and wrong.

Through extensive surveys, Haidt (of the dog-eating experiment) has established what these beliefs are. He has asked people indirect moral questions such as, “How much money would it take to get you to accept a plasma screen television that a friend of yours wants to give you? You know that your friend got the television a year ago when the company that made it sent it to him by mistake and at no cost to him.” Using sophisticated statistical techniques, Haidt distilled the answers to his questions and found that in America and around the world, fairness is a universally shared moral value.

Except for sociopaths, people crave fairness and naturally try to act fairly. This trait appears to be wired in from the youngest ages. Psychologists have studied this in a number of creative ways. For example, two Swedish researchers showed several dozen four-and-a-half year-olds a puppet show in which one puppet was struggling to complete a task. The puppet was helped by another but violently hindered by a third. Afterward, the researchers asked the kids to distribute an odd number of toys between the helper and the hinderer. They almost always favored the helping puppet and justified this decision in terms of fairness.
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In another study, social psychologists at the University of Toronto asked students to predict how much they would cheat on a simple math test in order to get a small prize. The average student said he would cheat on almost one-third of the questions. When confronted with the actual ability to do so though—with no repercussions—the participants actually had a physically negative reaction: the researchers found that the participants' hearts pounded, their palms sweated, and they became short of breath. The students' bodies reacted adversely to the immorality of taking the test unfairly, and they cheated far less than anticipated.
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A commitment to the idea of fairness seems to be bred to the bone. The problem is that the definition of “fairness” is ambiguous. We see this ambiguity around us constantly. For example, I have three kids, and they fight a lot. If there's one cookie left, they will inevitably make multiple claims on it. The conflict goes something like this:

“I want the last cookie!”

“No, I should get it!”

“But that's not fair—you already had two, and I had only one!”

“Yes, but I helped Mom make them!”

At this point, I generally intervene and eat the cookie. (Being a dad has its privileges.) But the point is that the kids are arguing over the definition of fairness, not just a cookie. One thinks “fair” means “equal.” The other thinks “fair” means “earned.”

This is just like many policy arguments. Some people argue that the income structure and tax code aren't fair, because they leave the rich with so much more money than the poor, while social programs are, as administration officials commonly say, “desperately underfunded.”
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Others disagree, arguing that taking resources away from people who earned them honestly, just to equalize outcomes, is unfair.

Here, in short, are the two definitions of fairness in American economic life today.
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Definition one:
Redistributive fairness.
It is fair to equalize rewards. Inequality is inherently unfair.

Definition two:
Meritocratic fairness.
Fairness means matching reward to merit. Forced equality is inherently unfair.

Many progressive politicians publicly subscribe to the first definition. For example, former House Speaker Nancy Pelosi has
complained publicly that the United States is becoming a nation in which “wealthy people continue to get wealthier” at the expense of the less fortunate. Why is this a problem? “It's all about fairness in our country,” she says.
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The president of the United States has proposed tax increases on families earning more than $250,000 a year as part of his attempts to get “more fairness” in the tax code.
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