The Economic System That Time Forgot

by | Mar 4, 2013 | Business

Rubio perpetuates exactly what’s wrong. He assumes, like Obama, that what we have is a mostly free enterprise system. But we don’t.

U.S. Senator Marco Rubio, the heir apparent to the leadership of the badly floundering Republican Party, made the following point after Obama’s State of the Union address.

“Here’s the bottom line: Presidents in both parties have understood that what made America’s middle class possible was the vibrant free enterprise system. The president thinks the free enterprise system is the cause of our problems. He thinks that we need to have a bigger government that’s more involved, and that’s why you saw last night that on issue after issue, every time he identified a problem in America, his solution was some sort of spending program or some new law.”

“That’s an old idea. That’s been tried over and over again throughout the world and it has never achieved the kind of middle-class prosperity that Americans want.”

In some respects, Rubio is right. Obama believes that there’s nothing wrong with the free enterprise system that cannot be resolved by undercutting, hampering or even eliminating the free enterprise system.

Economic growth not yet strong? Not a problem, says Obama. Raise taxes on business.

A horrific national debt—a debt Obama rightly condemned when George W. Bush was in office? Now that the debt is way higher than when Bush was in office, the debt is to be resolved by—you guessed it, more government borrowing, spending and taxation.

The impossibility of defeating Obama, given his self-defeating solutions that make no sense even on their own terms, suggests that something is deeply wrong with the Republican Party’s argument.

Rubio perpetuates exactly what’s wrong. He assumes, like Obama, that what we have is a mostly free enterprise system. But we don’t.

Under Bush, Obama claims, we had a mostly free enterprise system—and that was the problem, he claims. There needs to be, according to Obama, more “investment” (meaning: taxation and redistribution of wealth) and more “regulation” (meaning: government choosing of winners and losers in a system of pull/profit run by government officials, also known as economic fascism.)

The problem is: We already had the key elements of Obama’s ideal under Bush, and (in various degrees) under essentially all presidents going back nearly a century.

Rubio is right to defend the system of free enterprise, but he shouldn’t be calling the administrations of Bush II, Clinton, Bush I and even Reagan systems of free enterprise.

For all of our lifetimes, America has been a complex mixture of government controls, high taxation (by the standards of capitalism), and for-profit enterprise.

If you look at the hi-tech industry, we’ve had something closer to free enterprise than government management. The results have been momentous, with the development of the Internet, computers as we know them right up to the iPad, DVRs, the iPod, the smart phone, the Kindle and so much more. It was similar with medical technology, which benefited tremendously from semi-free enterprise permitted in the tech sector, and pharmaceuticals, which at least prior to Obamacare were permitted to operate with an element of profit.

Profit is hated by a majority nowadays, but most forget or ignore that profit leads to motivation—and motivation leads to innovation. Destroy profit, capitalism and free markets, and you get the opposite of innovation.

Consider the areas where government has subsidized, regulated and largely monopolized the practice of what might have actually been free enterprise. Think public education, health care and the mortgage industry. Fannie Mae? That’s not free enterprise. Medicare and Medicaid? Not free enterprise. The federal Department of Education? Not free enterprise. Government has been regulating, subsidizing and controlling these industries for many a decade. The downturns and crises occurred in the banking, mortgage and medical care fields, the most government regulated arenas of all. Public education is a continuing calamity, but most have simply accepted it for what it is and essentially given up—spending billions more on it, every year, in the process.

Obama points to government intervention and control in those areas and says, “See? Capitalism doesn’t work.” But what we have in those areas isn’t capitalism, and hasn’t been capitalism since the nineteenth century (when, by the way, America’s economy grew at a record never equaled anywhere, including in America, since.)

How does Obama get away with spreading this fallacy? It’s thanks to the Republicans, up through and including the latest and greatest Republican hope for the future, Marco Rubio.

I wish Marco Rubio well and like many things he’s saying. But Republicans must stop making the same error that keeps causing them to lose elections—and losing the agenda even in the rare cases they manage to win elections.

America, especially in the areas that most concern us—education, health care, banking—is not a free enterprise system, and has not been for some time. Under Obama, we’re becoming even less of a free enterprise system than ever and have arguably passed the “tipping point” into socialism or economic fascism.

Classical liberal economists—advocates of free markets such as Ludwig von Mises and Henry Hazlitt—argued many decades ago that government control of the currency—as opposed to a nonpoliticized gold standard—would lead to lethal debt and out-of-control government spending. These policies, they warned, have the potential to bring the entire currency, and therefore the whole economy, down through hyperinflation, for example.

Thinkers such as von Mises and Hazlitt were largely ignored then, as they still are (although less so) now. Most people throw up their hands and say, “We have no answers.” But we do. The answers are not to be found in the Republican or Democratic parties, not as we know them.

The answers are to be found in the only system that ever made sense and that ever worked out in practice: Free market, hands off capitalism.

Dr. Michael Hurd is a psychotherapist, columnist and author of "Bad Therapy, Good Therapy (And How to Tell the Difference)" and "Grow Up America!" Visit his website at:

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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