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May 24, 2010

Arthur C. Brooks, president of the American Enterprise Institute and author of "The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America's Future," discussed his Outlook article titled, The new culture war."

This is Arthur Brooks, President of the American Enterprise Institute. Welcome to the morning chat!

How do you reconcile the Tea-party movement support for Medicare and Social Security with their calls for smaller government and free markets?

Great question, thanks. These entitlements may or may not be well-executed policy, but they are a long-standing agreement between citizens and the government. In particular, social security is understood as essentially a form of forced savings, not welfare. that's why citizens see these programs as different from bailouts.

Isn't there a risk that casting the struggle for free markets as a "cultural" or "moral" issue will taint the issue for many by accidentally aligning it with social conservatism? It seems to me that the current sides are drawn up based on the wrong issues, social vs. economic - if you're not careful in defining the debate, you run the risk of continuing the stalemate because people will think the "moral issue" at hand is just an extension of the previous battle...

One of the problems of the 1990's culture wars is that it defined american culture exclusivley in terms of social issues. The point I'm making is the central element of American culture is free enterprise.

You state in your article, "the purpose of free enterprise is human flourishing, not materialism." What exactly do you mean by this distinction? By reducing income redistribution you give more money to wealthy people to consume. Isn't that a form of materialism? If you're against materialism, why is income distrubution such a bad thing?

I develop this whole theme a lot more in the book. Basically, happiness comes from earned success, not from money directly. In the free enterprise system, earned success tends to generate money. People observe this and incorrectly infer causality between income and happiness. But this is not correct. This is why redistribution does not bring happiness but rather simply spreads around material rewards. Furthermore, redistribution lowers the incentives to entrepreneurship and thus lowers earned success. The data on this subject are very clear.

History demonstrates that if free-enterprise is left un-checked by governmental agencies, then the ones working for those corporations will be exploited. What is the role of government unless they're there to keep free-enterprising agencies from exploitation?

The role of government is to rectify market failures. Exactly how to do this is a big debate between reasonable people. There has indeed been plenty of exploitation and the government has acted beneficially to stem many of the worst abuses. Unfortunately what the government is doing primarily at present is not correcting market failures but creating them by picking winners and losers for reasons of social engineering.

Mr. Brooks I totally agree Big Government will not work. Big Business does not work either. We must find a way to keep business units small enough that they do not take over the country with their financial influence over governmental institutions. The people I know are equally disgusted with Big Business and Big Government. How do you suggest we protect our individual freedoms from both by Big Business and Big Government?

A good place to start is by the government not protecting businesses that are "too big to fail".

How does Mr. Brooks respond to studies that show that most people who start a business will fail? Doesn't the state have an essential, unavoidable economic role to play in a free society?

Both failure and success are key to the entrepreneurial system. The natural tendancy is to want to privatize success but socialize failure through government bailouts. The truth is either both are privatized or both are socialized. Nobody likes to see a business fail. But we have to allow failure if we want to enjoy success.

Don't have a question at this time. Just finished your WP article 2 mins ago. Wow!! I hope everyone in America reads this!


How can we make sure future elections are conducted fairly and tactics like signing up absentee voters repeatedly are not used to skew the outcome?

I recommend the work of my colleague, John Fortier. He deals with this question in detail in his research.

Canada has higher taxes, a stronger social safety net and more regulation than the U.S. Yet they are still a rich nation, didn't suffer as much during the recession and are supposedly happier according to some studies. What do you think of their system and could it ever work in America?

Please see the work of my colleague, Alex Pollock, on this issue. It is true that the Canadian banking system has some elements that we could borrow. But don't jump to conlusions that the Canadian system would be superior for Americans. Every country needs to find the system that matches the temperament and ethics of its own people.

You state that: "Earned success involves the ability to create value honestly -- not by inheriting a fortune, not by picking up a welfare check." You seem to be arguing for a rather large if not confiscatory inheritance tax? Is this correct? If not, why not?

Just because unearned income does not bring happiness does not mean the government should take away that income. To do so violates the liberty of the people that created the wealth (and want to leave it to their children).

Mr. Brooks: Are you being too alarmist? Few people want totally laissez-faire capitalism or total statism. Supporters of the president seem to agree with Harold Meyerson, who suggests that what the administration is after is "a more regulated, viable capitalism." What's wrong with that?

I think the data tell us that Americans believe that we have gone too far in the direction of statism and redistribution. So while I agree that its not pure capitalism or pure socialism that we face, I believe we've moved too far in the socialist direction and need to correct.

My questions to you, Mr. Brooks, is just who do you think owns America? Is it the citizens who are ostensibly, but often not realistically, the source of power in this country, or is it the titans of free enterprise? Each and every economic reversal in the history of this nation has been caused by some private enterprise excess, which had to be purged from the system, usually at great cost to those with the least power and fewest assets. Should the government not regulate the tendency to excess in private enterprise? Is private industry an appropriate advocate for citizens and can they be expected to act on their behalf? Should the one entity created by the citizens for their own welfare (that is what our government is) not act as a counterbalance to an entity who, properly exists only to maximize returns?

Lots of material to take on in this question. Thanks. The general answer to your question is that virtually nobody believes that there shouldn't be any regulation. I'm certainly not arguing that. But a dangerous mistake is to assume that the government if it simpy regulates enough will be able to prevent all problems in the free enterprise system. Our search should be for smarter regulation, not just more regulation. A good deal of our work at AEI is designed to describe what the smarter regulation should be. I recommend especially the research of my colleague, Peter Wallison.

What forces do you attribute to the growing lack of understanding that moving toward collectivism, redistribution and entitlements will limit an individual's ability to "pursue happiness?"

Statism and redistribution don't take over all at once. Generally, free enterprise culture is weakened one policy at a time. That's what we have to keep our eye on and explains a good deal of where we are today.

I find your theme on acheiving happiness over materalism interesting. It reminds me of the grumpy Yale Economics Professor who used to scoff "what good is money, all it can do is buy you happiness?" Yet, what should be the role of government, in your view, in alleviate the unhappiness that people in lower economic classes face? Is it bad if government helps direct employment, housing, health care, etc. opportunities to neighborhoods that lack jobs, good homes, health care, etc.?

I believe it is our duty as a society to focus on the earned success of all people. This is the secret to happiness whether we are rich or poor. An opportunity society devotes time and resources to the poor not in equalizing their incomes but in finding more ways for them to earn their success. That's why public education has been such a spectacularly successful policy. This is the type of policy we should focus on.

Mr. Brooks, I have now had a respectable job for 8 years, but was self employed for 26 years before that. The lesson I remember is that government at all levels is an insatiable parasite and unrelenting obstacle for the small business. What specifically do you suggest would help small business? I think abolition of the IRS and instatement of a national VAT would have the most profound effect. Would you comment please, Sir.

In my book, I look at ways to help small businesses and entrepreneurs. The key is not giving them things but rather taking away barriers to their success. A good place to start is by reassessing our corporate income tax which is the second highes in the developed world.

Are you defending the unfettered ability to gamble on the labor of others (futures, derivatives) as a legitimate avenue to create wealth? Nothing of lasting value is created. Shouldn't government guide entrepreneurs to use their talents to build lasting value - such as the transcontinental railroad of the mid-19th century or high-speed passenger rail corridors now?

I've gotten a bunch of questions like this. It is important to remember that just because nothing physically is created does not mean that the service is of no value. Well organized financial markets can create tremendous value by spreading risk. For more on this see the work of my colleague, Vincent Reinhart.

(Posting early). Mr. Brooks, I find it fascinating that your only stated complaint (pun intended) with TARP, etc., is that misguided liberal "statists" are unfairly using the episode to gain more control over the economy. Seems to me the very fact that a GOP administration initiated the bailout ought to be a pretty big clue that there are fundamental flaws in the so-called free enterprise system. But even that's not true, then you should be even more against using taxpayer money to prop up firms. That is what a free market dictates, right?

You are correct that the problems began in the last administration. But this is not evidence of a problem with the free enterprise system, per se, but rather with the politcal system.  This is exactly what ordinary americans are so angry about according to the data.

Do you believe that higher education should also be available to all?

A much better answer to this question than I can give you is my colleague, Charles Murray's, book Real Education.

Hi Mr. Brooks, You say, "unearned money -- while it may help alleviate suffering -- carries with it no personal satisfaction". I guess my question is: Is alleviating suffering, in and of itself, reason enough for the government to engage in some form of re-distribution? It would seem so. I do agree that personal happiness and satisfaction cannot be achieved if it's not earned but neither can they be reached if the individual is suffering? it would seem that basic needs must be fulfilled before we can even think about personal satisfaction. Thanks!

I agree with you completely. The alleviation of suffering is an important task of any civilized society, and the government is well positioned in many cases to do this. At the same time I talk in my book about the optimal kind of relief which is, when possible,  prosperity stimulation, as opposed to just poverty alleviation.

Mr Brooks, I agree that individuals are happy because they feel they are making a difference in the world. This happiness drives the entrepreneur, whether financial success follows or not. However, corporations are not people. The goal of a corporation is to make money, or else it goes out of business. What other goals does it have? When profit is the driving force, then great harm can come--child labor, slave labor in developing countries, toxic pollution, dangerous workplace environments, etc. Does not history teach that a moderate amount of regulation is necessary for business and its workers to flourish?

I think you are correct. Our goal should not be no regulation but smart regulation that rewards entrepreneurship and innovation.

Mr. Brooks I feel that you are shining a great light on the concerns and solutions to some of our country's problems. My question to you is what role unions(private and public) have and should have as we push for limiting government growth?

We have to make a distinction between private and public sector unions. Private sector unions can be accomodated in the free enterprise system. Public sector unions on the other hand will create increasing fiscal problems for generations to come.

Assuming what you say is true, how can ordinary citizens have any impact on this front. At times it feels like a lost cause.

The fact that you are concerned enough to write is evidence that the battle is not lost.

You are so right, equality of opportunity and not equality should be society's goal. How to give equal opportunity to children of a minimum wage earner?

I understand your concern and share it. The last chapter of my book digs in detail into solutions to create equal opportunity for those with the fewest advantages.

How about the moral argument for redistribtuion of govt. That there is a diminshing return for wealth - and that the wealthy can reduce great suffering by helping the poor.

When I was an academic earlier in my career I did a lot of  work on philanthropy. This is the kind of redistributed support that best follows our system. That said, there are of course cases in which the government needs to alleviate suffering.

What about BP and the clean-up in the Gulf? Now Gov. Jindal, a good Republican who would gladly starve the federal beast, is calling for a faster, more robust federal response. How does a basically unfettered free enterprise system take into account the earned success, now nearly impossible, of fishermen, tourist entrepreneurs, and others who have virtually no free market way to deal with the effects of the disaster?

Once again, the free enterprise culture is not against all government or all regulation. Beyond learning from this accident and trying to prevent future accidents the government has a legal system designed to compensate victims, with whom we all have great sympathy.

I strongly agree with the statement you made earlier that items of value need not be physical products. We greatly overestimate the value of manufacturing and agriculture in our society. Its not that they don't matter, but too many people act like they are the only things that matter. Having said that, you earlier said people in the tea party movement view Social Security and Medicare as sacred contracts. If so, isn't government bound to grow anyway, given demographics?

You are right that the tendency of government is to grow with open-ended entitlements. We need reform and we need it now. I believe the time is right for citizens to understand and embrace this. For details on the right plans see the work of my colleague, Andrew Biggs.

To me, your piece sounded like it could have been written by Alan Greenspan, circa 1991, in attempting to deregulate the financial system. But then it made me think, perhaps you are right, and the financial titans should have been allowed to fail, and perhaps they would not have toppled the global economic system and we would not be living in a post-apocalyptic world. Those that made wretched mistakes would be gone, and those that made good sound choices would thrive. But come on, what politician is going to let that happen?

It is a tremendous compliment to be compared to Alan Greenspan in any year.

Thank you for your time Mr. Brooks. Some feel that by making education more a part of the free enterprise system would help create more competition, and thus increase success. How do you feel about this?

I agree that choice and competition in education are a great idea. The devil is in the details which is why we do so much work on this issue. See Rick Hess's research.

Sorry if I didn't get to your question. It was a pleasure for me to do this session today. Whether you agree or disagree with me, I'm honored that you took the time to read and write in. If you are interested in learning more, please follow AEI's work at www. You can also follow me on facebook and twitter. Thanks again.

In This Chat
Arthur Brooks
Arthur C. Brooks is president of the American Enterprise Institute and author of "The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America's Future."
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