Editor’s note: A version of this article first appeared at Forbes.com.
President Obama recently referred to free-market economics as “you’re-on-your-own economics.” It’s a catchy phrase—rhythmic, alliterative, clever. Too bad it’s bunk.
The only genuine “you’re on your own economics”—let’s call it “yo-yo economics,” for short—is known as “Robinson Crusoe economics.” It applies only to those who really are on their own, like sole inhabitants of islands or hermits. Apart from those oddities, human beings don’t live in solitude, but are interdependently connected in a social division of labor.
In a free-market economy, individuals typically prosper to the extent that they contribute economic value to others. Those who earn high incomes are generally producing more of what people value than those earning lower incomes. To President Obama and his ideological kindred, social justice consists of government overseeing a compulsory redistribution of property from the productive to the less productive. Disdaining free markets as “yo-yo economics,” Obama advocates a radically different agenda—what we might call “we’ll always take care of you” economics, or, to use another child’s toy as an acronym, “BB economics” (as in “Big Brother economics”).
We may concede to the president that, in a free market, some people will be in need. These include children, the sick and disabled, and even some healthy, involuntarily unemployed adults. It is a non sequitur, though, to conclude that the federal government must provide economic support to those people. Relatives, friends, neighbors, churches, voluntary community organizations, etc., can address those needs at far less cost and with a much more personal touch than can federal bureaucracies. Even if one believes that government must be involved, local, county, and state governments are closer to the situation than Uncle Sam.
The declaration that federal programs are not essential is anathema to the president’s belief in BB economics. According to him, yo-yo economics “has been tried in history and it hasn’t worked. It didn’t work when we tried it in the decade before the Great Depression. It didn’t work when we tried it in the last decade.” Wrong, wrong, and wrong. Let’s correct those errors with facts.
1) What the president belittles as “yo-yo economics”—that is, a system characterized by voluntary economic transactions—predominated for the first 125 years of our history. The glaring and regrettable exception, of course, was slavery. The salient historical fact here is that during the period of yo-yo economics, the United States developed into the richest country in the world. Contrary to the president’s counterfactual statement, “yo-yo economics” did work.
2) Later in our history, in the 1920s and 1930s, the superiority of the free-market/yo-yo over the government-intervention/BB model was clearly demonstrated. The depression of 1920-21 was as severe and rapid an economic contraction as any in U.S. history. Unlike the contraction in 1929-30 that eventually persisted for 12 years, the severe depression in the early ‘20s ended in 1922. By 1923, the economy was firing on all cylinders. Why?
The policy response of the Harding-Coolidge administration was to cut tax rates and slash government spending—basically to get government out of the way to let free markets make the necessary price adjustments. In the 1920s, yo-yo economics was an indisputable success. Obama’s insistence that “it didn’t work when we tried it in the decade before the Great Depression” is patently untrue.
In stark contrast to the successful policy response in the early ‘20s, Presidents Hoover and Roosevelt opted for BB economics: massive tax increases, government spending, new regulations. The result was the 12 years of made-in-Washington misery that became known as the Great Depression. Ignoring that grim historical lesson, Obama has persisted in pushing 1930s-style, debt-financed, “stimulus” spending and a huge expansion of government power over economic activity.
3) President Obama’s third historical inaccuracy was that “we tried [yo-yo economics] in the last decade” under George W. Bush and “it didn’t work.” Here, the president is half-right. It’s true that the last decade’s overall economic performance was inferior. The problem with the president’s statement is that George W. Bush’s policies were the antithesis of yo-yo economics—everything from the addition of a new federal entitlement (Medicare Part D) to Wall Street bailouts to expanding the annual federal budget from $2 to $3 trillion per year in only eight years.
The president’s aggressive historical revisionism is no mere academic debate. We’re not dealing here with inconsequential trivia like his 2008 gaffe about having visited 57 states. The stakes are much greater. Obama has contrived a historical narrative that justifies the kinds of economic policies that retard rather than promote prosperity.
The truth will make us free—and falsehood will make us less free.