Opinion from a Libertarian ViewPoint

Are We on the Cusp of a New Progressive Era? | Mises Wire

Posted by M. C. on June 18, 2020

The results of the Progressive Era were not pretty, and this leads to ominous predictions for the 2020s. Corrupt politicians will always use recessions, crises, and changing political landscapes as justifications for special interest policies that provide benefits to their benefactors and constituents at the expense of society overall.

The 2020s started off horrendously. Thanks to an exaggerated coronavirus pandemic, government lockdowns sunk the economy into the most serious recession since the Great Depression. From February to April 2020, industrial production collapsed by 15.2 percent and official unemployment figures skyrocketed from 3.5 percent to 14.7 percent. To put these numbers in perspective, during the Great Recession industrial production fell by a similar amount (17.3 percent) from December 2007 to June 2009 and unemployment “only” peaked at 10 percent in October 2009. In other words, the current recession is breaking all of the wrong records.1

In order to prevent the economy from completely imploding, the US government engaged in massive expansionary monetary and fiscal policy. From February to April the Federal Reserve exploded its assets by $2.5 trillion and pumped up the money supply (M2) by 14.6 percent.2 On the fiscal side, in late March Congress passed a belt-busting $2 trillion stimulus bill,3 and in mid-May the House passed another stimulus bill of $3 trillion. Then in early June Fed chairman Jerome Powell declared that low interest rates were here to stay indefinitely.4

If current political and economic trends continue, the 2020s will usher in a new period of drastically increased government activity and regulation of the economy. Despite justification on the grounds of public interest and cutting-edge modern “science,” these interventions promise to be thoroughly crony: they will enrich favored businesses, politicians, bureaucrats, intellectuals, and labor groups at the expense of the overall public. In short, the 2020 recession will usher in a new “Progressive Era” of the early 1900s, or, more accurately, another “Regressive Era.”

Murray Rothbard brilliantly showed that during the Progressive Era, which mainstream academics and other proponents of intervention laud as the nation’s first step into modernity, big business, big government, big intellectuals, and big labor succeeded in securing cronyism that made it easier for corporations and trade associations to cartelize, for politicians to increase their power, for technocrats to exert influence over planning the economy, and for unions to exclude cheaper immigrant workers. These groups had failed to achieve their goals until the Panic of 1893 allowed William Jennings Bryan’s Populist Democrats to supplant Grover Cleveland’s laissez-faire Democrats, which ushered in political dominance by the moderate corporatist Republican Party. It unfortunately seems far too likely that the federal government will now pass similar legislation in the 2020s, such as corporate and safety regulation, environmental laws, welfare and other entitlements, and more taxation.5

In the name of weakening the trusts, eliminating “unsafe” products, and cleaning up “subpar” working conditions, the Progressives passed a flurry of business regulations that restricted entry, reduced production, and raised prices. Notable examples include the rejuvenation of the 1890 Sherman Antitrust Act, the creation of the Department of Commerce and Labor in 1903 (split into two departments in 1913), the Meat Inspection and Pure Food and Drug Acts of 1906, and establishment of the Federal Trade Commission in 1914. These new crony laws and agencies blocked hostile socialist legislation and also stymied free market pressures by raising compliance costs on newer, usually smaller, businesses and crippling price and product competition.6

The 2020s will most likely see similar business regulations. Even before the crisis, big tech welcomed new federal red tape over the internet in order to consolidate their market positions and stave off hostile antitrust suits from radical socialists and competing businesses. The current recession has already ushered in calls for formal coronavirus safety regulations in the workplace—a new “modern” age of federal, state, and local intrusiveness in the employer-employee relationship and how businesses cater to consumer desires. All of these laws, far from encouraging competition or protecting consumers, will just cartelize industries and raise relative compliance costs on smaller businesses that cannot afford to retool their facilities to meet new technology and safety restrictions.7

The Progressive Era also witnessed the enactment of conservationist laws and agencies. These interventions, such as the Reclamation Act of 1902 and the Public Lands and Inland Waterways Commissions (established in 1903 and 1907, respectively), funneled taxpayer funds into the research and development of certain methods of resource production, particularly irrigation, while restricting the use of various raw materials, such as timber. Although environmentalists advocated for these laws in order to preserve nature and encourage “ecofriendly” production processes, the legislation raised the prices of restricted lumber (benefitting the land speculators and railroads that owned competing reserves) and encouraged the uneconomic development of irrigation in the West.8

Representative Alexandria Ocasio-Cortez has led the modern environmentalist movement for a Green New Deal that would totally overhaul American society and enormously reduce well-being. This economic program—estimated by some to potentially cost a truly earth-shattering $93 trillion over the next decade—would “save the planet” by drastically restricting the usage of fossil fuels (which most of the world relies upon to maintain modern living standards) and encourage the production of ecofriendly energy sources that will supposedly make up the shortfall. After the recent crisis, supporters have argued that the population is already numb to drastic changes in living standards and will correspondingly be more receptive to the Green New Deal. If such a program is enacted, the government will pick winners and losers in the energy market like never before and open up a Pandora’s box of widespread cronyism and special interest subsidies.9

In the early 1900s, the wise stewards of the government did not stop at corporate and conservationist cronyism—they also looked out for the labor interests. In the 1910s the Progressives enacted compulsory workmen’s compensation laws on the state level that forced businesses and taxpayers to cough up funds for worker welfare. The federal government followed this up with the Federal Employees’ Compensation Act of 1916 (also known as the Kern-McGillicuddy Act), which provided workmen’s compensation to federal employees. Taxpayer funds socialized the costs of disability insurance, and the regulations raised compliance costs on businesses. The enactment of workmen’s compensation laws served as the opening wedge to the infamous Social Security Act of 1935.10

Andrew Yang gained notoriety during the presidential Democratic primary by advocating a “universal basic income” (UBI) of $1000 each month. Fortunately for Yang, the crisis has already led to a UBI of sorts through stimulus checks and generous unemployment benefits given to displaced workers. Now advocates are arguing for $2000 a month until the government decides that the coronavirus crisis is over. The results of these policies are already disastrous for the labor market’s recovery: a significant portion of the workforce is dependent on the US government (i.e., the taxpayer) and many smaller businesses cannot rehire workers, because they would actually take a pay cut. A new age of welfare and artificially high labor costs has dawned upon the nation.11

To pay for the cronyism of the Progressive Era—legislation diligently administered by job-seeking bureaucrats, scientists, and technocrats—the Progressives “reformed” government revenue with the Sixteenth Amendment of 1913, which legalized the income tax. The federal government could now extract from taxpayers funds far greater than what was possible with tariffs and excise taxes. Initially, the income tax applied only to the contemporary “1 percent,” but World War I extended the government’s depredations to the rest of the public. This ensured that the cost of government was shifted to up-and-coming entrepreneurs and the middle class.12

A similar situation could appear during the present recession or later in the decade. The cost of the current stimulus programs and projected future legislation simply cannot be financed under the current revenue system. One “solution” is to monetize the deficits, a disastrous option that would lead to runaway inflation. Another option is to embark upon wealth taxes—the siren song for advocates of redistribution—on the wealthiest members of society. Although advocates argue that they will only apply to the most “privileged” strata, the government net will inevitably extend to the rest of the population. This is because big businesses will use their political influence to spread the burden upon the less wealthy (Social Security, after all, is still a regressive tax) and governments will use the newfound source of revenue to spend beyond their initial estimates and will subsequently clamor for more money. The result of widespread wealth taxes will be a harsh disincentive to work, save, and innovate, all to the detriment of society.13

The results of the Progressive Era were not pretty, and this leads to ominous predictions for the 2020s. Corrupt politicians will always use recessions, crises, and changing political landscapes as justifications for special interest policies that provide benefits to their benefactors and constituents at the expense of society overall. The year 2020 has already provided all three excuses, which means we may be headed for another Regressive Era—a disaster for the economic recovery and Americans’ freedoms.

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