Government and Grit

Does focusing on failures in the "system" undermine the psychological basis for economic recovery?

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  • Yes, but we're susceptible to idea of the free lunch... Tony Blankley

    Experts across the nation are furiously debating the possible effects of our government's macroeconomic responses to the current financial contraction. But we should be concerned about, perhaps even more than about those material consequences, the spiritual effects on our national character such massive government intrusions into the marketplace may cause.

    Picking winners and losers, bailing out private companies, rewarding those who were improvident (with the tax revenues of those who acted responsibly) are more than mere acts of unfairness. Over time they may derange the moral calculus that each of us makes every day as we live our lives.

    There is a reason why people who live south of Canada and north of Mexico happen to live in a unique expression of freedom. American freedom didn't flow merely from the bountiful land or from our Declaration of Independence. It was, and is, the product of the unique American character. What is that character?

    When I considered a title for my latest book, I wanted it to capture the singular nature of our American character. I chose the word grit, thus the title: American Grit. The dictionary definition is "firmness of mind or spirit: unyielding courage in the face of hardship or danger." A list of synonyms includes: courage, spirit, resolution, determination, nerve, guts, pluck, backbone, fortitude, toughness, tenacity, perseverance, mettle, doggedness, hardihood. Many people when they hear my book title tell me they think of the great John Wayne movie True Grit. So did I before choosing the title.

    But the instinct to maintain those American virtues is undercut by the economic paternalism in which Washington is attempting to shroud the country. As I argue in my book, America has always benefited in a spiritual - as well as material - way from free markets. The material benefits are obvious, but the American work ethic, the willingness to take risks, and the sturdy sense of self-reliance are moral benefits that have shaped our character.

    It is precisely the absence of individual self-reliance amongst our European cousins (in my case, as an immigrant from England many years ago, my literal cousins) that has shaped an excessive dependence on the state, and thus somewhat curtailed individual freedom on the old continent. Unfortunately, from time to time, events offer up a centralizing temptation to the American people. We face such a moment now.

    I came of political age in the early 1960s and was part of the then modern conservative movement of William F. Buckley Jr., Barry Goldwater, Ronald Reagan, and Maggie Thatcher. Having then seen the collapse of the Soviet Union and the discrediting of the socialist experiment, I thought we had ended once and for all the arguments of the statists, redistributors, and collectivists.

    Well, time passes and people forget. So every generation, apparently, is susceptible to the tempting argument that there is such a thing as a free lunch, that the stern ethics, hard work, and self-reliance required of citizens of a free country can be slackened without consequence. Finally, fearful people believe the politicians who tell them they can sell out their economic freedoms and still maintain the individual dignity that they had once been told comes only with being free and independent men and women.

    But just as General Douglas MacArthur once said that in a war between nations "there is no substitute for victory," so in the struggle to save the soul of the American people there is no substitute for freedom.

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    Columnist Tony Blankley is an executive vice president with Edelman, a public relations firm in Washington, D.C., and a regular on The McLaughlin Group. His most recent book is American Grit: What It Will Take to Survive and Win in the 21st Century (Regnery).

     

     

     

  • No, there's no free market solution to current problems... Jeff Faux

    Does focusing on failures in the "system" weaken the traditional, deeply American virtue of grit? No.

    Getting through hard times may well require extra grit and pluck. But expecting the economy to recover by simply relying on individuals to fend for themselves - with the implicit assumption that market forces alone would regenerate growth - would be reckless folly.

    Today, millions of hardworking, resourceful Americans are unemployed. With more than four job seekers for every available job, all the grit in the world will leave three of them without work. Millions of small businesses are closing; grit alone will not bring in the customers they desperately need. Nor will individual grit unlock an insolvent banking system clogged up with billions of dollars in worthless assets.

    We are facing the "paradox of thrift." An individual's sensible and gritty response to a depression is to hunker down, reduce spending, and tighten the belt. But in a market economy, if no one spends, no one works. Today, with consumers and businesses not spending and foreigners not buying our exports, only the federal government can provide the needed stimulus.

    The current crisis reminds us that the enemy of honest work and fortitude is not government efforts to maintain prosperity, but the casino values fostered by the removal of government regulation over markets and the celebration of individual greed as the highest social value.

    Greed, of course, has always been with us, and always will be. Indeed, it is the principal psychological engine of economic growth. But like every engine, it needs to be constrained with brakes, gears, and steering devices. Otherwise, it runs out of control. This was the lesson of the Great Depression and the reason we subsequently established market regulations and social safety nets.

    Over the last several decades, America's governing class (Democrats as well as Republicans) has systematically removed the needed constraints and protections. We were assured that the market's rewards for winners' grit and ruthless punishment of losers' lack thereof made the system self-regulating. This shift was widely celebrated as a return to the pre-New Deal spirit of entrepreneurship and risk-taking. Market values were extended to virtually every nook and cranny of social life.

    One inevitable result of this "free market fundamentalism" was an upward redistribution of income. But the richest Americans served as role models not for the values of grit and self-discipline but for conspicuous consumption.

    Average real wages (from which most people in America get their income) stagnated. Thus the only way a majority of working Americans could keep up with the constantly rising definitions of the good life was to borrow. In 1980 consumer debt was 70 percent of income; in 2008 it was 140 percent. Contrary to the claims, the economy was not fueled by a burst of entrepreneurship and self-reliance; it was fueled by easy credit in a deregulated financial system transformed into a casino.

    The regulated financial sector primarily provided credit to enterprises that produced goods and services and created jobs over years. With deregulation, its principal function was to provide capital to itself for the production of debt. In 1981 the finance industry's debt was 22 percent of our GDP. By 2007 it was 122 percent.

    The country's business culture turned away from values associated with grit - hard work, long-term horizons, integrity of product - toward the values of the speculator: unearned income derived from the fast returns of short-term arbitrage and maximum leverage. The finance and real estate industries became beehives of lies, deceptions, and Ponzi schemes.

    The moral claims for this "free market" also proved fraudulent. The governing class reduced the economic safety net for the average American, citing a "moral hazard." Yet at the same time it strengthened the safety net for those "too big to fail," i.e., the rich and well connected. Time and time again, both Republican and Democratic governments bailed out Wall Street: the rescue of the savings and loan industry in the 1980s, the U.S. holders of Mexican bonds in 1995, the speculators who drove the Internet stock market to mindless heights in 2001. Each time the rescue was declared a distasteful necessity, after which these self-styled Masters of the Universe were set loose once again to create another crisis.

    There is no free market solution to the problem we now face. The modern American economy has become too interconnected and complex to allow the unrestrained speculators to create colossal credit bubbles, as well as to let them crash with such massive damage. It is as if a reckless neighbor sets his house on fire by smoking in bed. We can punish him by letting it burn only by also endangering our own house.

    No doubt the average American's grit was strengthened in the Great Depression. A return to the pages of The Grapes of Wrath reminds us of the fortitude many needed just to survive. But it was not enough. In the end, even Franklin Roosevelt's New Deal proved too timid. We solved the Depression with the biggest big-government spending program of them all: World War II. The full employment economy that followed released the energies of gritty, plucky Americans to produce the most prosperous, innovative economy the world ever saw.

    Forgetting that bit of history got us into this mess. Ignoring it will not get us out.

    .....

    Jeff Faux founded the Economic Policy Institute in 1986, quickly turning it into one of the nation's top think tanks on political and economic issues for working Americans. Stepping down as president in 2003, Faux is now a Distinguished Fellow. He has worked as an economist in the Departments of State, Labor, and Commerce; as a manager in the finance industry; as a blueberry farmer; and as a member of a municipal planning board in the state of Maine.