Economic historian Deirdre McCloskey, Distinguished Professor of Economics, History, English, and Communication at the University of Illinois at Chicago, is completing work on an epic trilogy called “The Bourgeois Era” – the final installment of which Bourgeois Equality: How ideas, not capital or institutions, enriched the world will be published by University of Chicago Press in April 2016. CapX America editor Abby W. Schachter spoke with her about redefining capitalism and how she remains an optimist.
Question 1. You’ve said, “The economy is like a machine making sausage, and if Greece or Europe want to get more wealth they need to make the machine work better—honoring enterprise, for example, and letting people work when they want to.” Do you worry about how much less free — as in not honoring enterprise, for example — the US economy is becoming?
The worst example in US is environmental regulations. In Europe, the worst is from Brussels, which is unfair to poorer member countries from Eastern Europe. All these countries in Europe complain to Brussels about unpasteurized Italian cheese or they try to declare Cadbury’s not chocolate.
In America, the states don’t complain with the same vigor. Not the same nationalism. But as Washington gets more arrogant it gets more like the EU’s common market.
The US Constitution sets out an enormous free trade area. That opportunity is one that made for competition among states and between states over regulation.
Question 2. You’ve said, “over the next century [I see] a world enrichment both materially and spiritually that will give the wretched of the earth the lives of a present-day, bourgeois Dutch person.” Sounds wonderful. Anything threatening to prevent this rosy outcome?
There are the forces of centralization…but then you have forces of demonstration effect and the advantage of the federal system. Look, China and India are succeeding, South Africa and Brazil are not. Free market rules need to go there. If the ideology of well-disposed left-wing folk triumphs again as it triumphed once, it is a disaster for the poor.
Remember that when the minimum wage was introduced, before WWI, it was meant to drive women, immigrants, blacks and Hispanics out of labor force. Skilled male, white, middle-aged folk were to be promoted by this. But this type of socialist measures screw the poor.
Today it’s ‘We’ll screw black teenagers (by) raising the minimum wage.’ What sort of ethic is that? Damage black teenagers so they never get on the job ladder in exchange for making some people better off. Why do people believe it?
Free trade is a good idea and price controls are a bad idea. In New York, for example, rent control has been a disaster.
Question 3. You’ve said, “The magnitude of improvement to the lot of the poor comes vastly more from economic growth than redistribution…The poor will prosper if we let the spontaneous order of market-tested betterment grind on, and if we let people open chippies – or universities – where they want.” This is not a concept that is easy for politicians – left or right. Why do you think it is so counter-intuitive to trust people’s ability to better their own lives?
Let ordinary people have a go and it turns out the order of magnitude from that is much greater than redistribution or trade unions. Economic growth makes them better off by 3,000 percent. But a lot of simple truths of economics are hard to understand. It is good for me, though since explaining it all is how I earn my living.
I wish people understood free trade. It is a classic 19th century idea: If you leave ordinary people alone they are amazingly creative. There are diminishing returns to regulation. Now, we might agree that there should be some regulation of the food supply. But the ex-head of FDA bragged at the end of her tenure that she regulated 30 percent of the US economy. This thinking presumes that if some percentage of regulation is good then all of it is good. And then [the government] can tell you how to consume. But it was the same during prohibition and what we got was corrupted police forces and deeply impoverished poor.
Question 4. You say, “What made us rich — usually but misleadingly called modern capitalism — should rather be called technological and institutional betterment at a frenetic pace, tested by unforced exchange among all the parties involved.” What’s wrong with capitalism?
The word capitalism persuades people that heart of the matter is accumulation of capital which it isn’t. Investment was profitable, railways were profitable because someone invented the steam engine. Not the piling up of bricks on bricks.
The short form should be called innovism, meaning trade-tested betterment because if it’s just innovation that isn’t enough. President Obama thinks he can tell people that wind power is a good innovation. But innovation is not enough. It has got to be tested, whether it is profitable, to work.
Question 5. How do you manage to be an optimist?
It is true that optimism doesn’t sell newspapers. Reporting how much crime is down, and how police are doing a bang up job is not going to sell. The sky is falling sells. But you can’t change things if you are not an optimist. You have to have the virtue of hope. I’m a hopeful person and the reason for it is the demonstration effect. People will realize that free markets work, and then they will go with them to get rich.
I believe, with certain exceptions, that in the long run people are sensible. Liberty and dignity for ordinary people made us rich, in every meaning of the word.