Shockingly Bad

Cato adjunct scholar Tyler Cowen takes on Naomi Klein’s book Shock Capitalism in the New York Sun:

Rarely are the simplest facts, many of which complicate Ms. Klein’s presentation, given their proper due. First, the reach of government has been growing in virtually every developed nation in the world, including in America, and it hardly seems that a far-reaching free market conspiracy controls much of anything in the wealthy nations. Second, Friedman and most other free market economists have consistently called for limits on state power, including the power to torture. Third, the reach of government has been shrinking in India and China, to the indisputable benefit of billions. Fourth, it is the New Deal — the greatest restriction on capitalism in 20th century America and presumably beloved by Ms. Klein — that was imposed in a time of crisis. Fifth, many of the crises of the 20th century resulted from anti-capitalistic policies, rather than from capitalism: China was falling apart because of the murderous and tyrannical policies of Chairman Mao, which then led to bottom-up demands for capitalistic reforms; New Zealand and Chile abandoned socialistic policies for freer markets because the former weren’t working well and induced economic crises.

My old friend Steve Horwitz asks Klein a couple of pointed questions:

1. You say that crises are opportunities for free market ideologues to force their preferred policies through in violation of democratic processes. However, in the gravest crisis of the 20th century, the Great Depression, it was government that grew enormously, and the free market was restricted, in ways never before seen in the US….How do you reconcile the main thesis of your book with the historical evidence that government has grown and markets have been made less free in almost every crisis of the 20th century? …

2. In the aftermath of the biggest crisis in the US of the 21st century (9/11), government spending has grown enormously, government regulations have expanded, and civil liberties are threatened. Each of these are results that people like Milton Friedman and many other classical liberal free market economists not only oppose, but oppose precisely because they are antithetical to the very free market reforms they would like to make. … What gives? It certainly seems like crises produce a lot more government and a lot less free market reform.

Horwitz is making the same point Justin Logan made recently; as Bruce Porter and Robert Higgs have shown, much of the growth of government throughout American history (and elsewhere) has been a result of crises like wars and depressions. Sometimes, it’s true, an economic crisis may precipitate economic reforms, as in New Zealand in the mid-1980s. But the historical record shows that states usually seek more power, not less, when confronted by a crisis.

Pinochet’s economic reforms in Chile, of course, are a centerpiece of Klein’s argument. Pinochet was a military dictator, the argument goes, and he implemented the policies of Milton Friedman. QED. But there are lots of military dictatorships – Wikipedia counts 34 in Latin America – and Pinochet’s junta seems to have been the only one to pursue free-market policies. It’s an exception, not a rule. Which is hardly surprising: military men tend to be attuned to hierarchy and control, not to the undirected diversity of a market economy.