The Decline of American Independence
So this is how the Republic dies? Robert C. Wright on the attack on American small business.
The Founders were clear that the maintenance of the American Republic required a certain kind of citizen. Without property owners who have a stake in good governance, they knew the experiment in liberty wouldn’t last. Robert E. Wright writes with eloquence and humor about two less-than-funny trends, which have collided this year to produce the biggest blow to American Independence in our nation’s history.
Forced closures of “non-essential business” and the deference by local police to the widespread destruction of property have gutted America’s substantial but shrinking proprietor class. In his AIER article So Long Independence? Wright shares some troubling statistics, including this one:
“By the end of July, more than half the companies listed on Yelp were said to be permanently shuttered.” [ 55% of businesses closed on Yelp have shut down for good during the coronavirus pandemic — MarketWatch]
To interpret this as solely economic news is to miss a more important point about the instability of democracy without widespread property ownership. As G.K. Chesterton once quipped, the problem with capitalism is not that there are too many capitalists, but that there are too few.
The consolidation of power in the hands of a smaller number of billionaires means fewer checks on extreme politics of both the right and the left. Wright thinks we’ve been far too quick to cede power to scientific experts and calls the closure of the economy the worst public policy in a century.
He joined me to dig deeper into the long-term political consequences of lockdowns. We will look at California’s uniquely damaging policies — many of which preceded COVID — and their effect on the middle class and small business owners.
TRANSCRIPT
The Decline of American Independence
Bob Zadek: Hello everyone. Welcome to The Bob Zadek Show, the longest running, live libertarian talk radio show — the show of ideas, not one of attitude. This morning, with some trepidation, we may be bidding farewell to independence — the independence promised us in the Declaration of Independence and assured to us all in the Constitution, the second of our three founding documents.
Why do we fear the loss of independence from the intrusion of government in our private, daily lives? Our independence means the freedom to trade with whomever we wish, having total dominion over how we spend our days and use our money, so long as the activities we undertake do not impair the equal rights of others. That is the founding principle. Now why do we fear this loss? Why now?
This morning, we honor the single most important group of Americans who are committed to preserving economic independence and the freedom to trade, which is the freedom to give us what we want at a price we are going to pay. This morning’s show recognizes a painful concern over the loss of the entrepreneurial class in our country with regard to small businesses. Small business is, I am afraid, the proverbial canary in the mineshaft. As small business goes, so goes the rest of us.
The statistic we start our show with, according to Yelp, is that about half of the businesses that Yelp follows and reports upon in America are small businesses, and about half of them have closed and are unlikely to reopen. That is scary stuff. It’s scary stuff for the businesses that failed, and for the rest of us. We will examine in great detail what is happening to small businesses in America. Why did it happen, and most importantly, why do we care?
To help us understand these crucial concepts, I’m delighted to welcome the show Bob Wright. Bob Wright is an economics professor and the author of over a dozen authored, co-authored, edited or co- edited books on an eclectic list of topics, including but not limited to topics of economics. He is a resident research fellow at the Georgia College and State University in Georgia, and is a senior fellow at the American Institute for Economic Research, where I follow his frequent writings every morning. Bob is also a member of the American Philosophical Society.
Bob Wright: Thanks for having me, Bob. It’s a great honor. I had no idea that your show started 13 years ago, right before the financial crisis.
Bob Zadek: It was, but we didn’t call it, so please no cause and effect. I don’t want to take a hit. Now, before we get into the business of the day, a big smile crossed my face when I saw you were a member of the American Philosophical Society.
Bob Wright: I’m not a member. I just have a research fellowship there for a book I’m writing about the American Revolution.
Bob Zadek: Tell us about the American Philosophical Society.
Bob Wright: It’s a very ancient, nonprofit organization that began in colonial times in Philadelphia.
Bob Zadek: Who founded it?
Bob Wright: Benjamin Franklin; he founded just about everything.
Bob Zadek: Besides the post office and lots of other things, he founded the American Philosophical Society, which predated by years the founding of our country. I just had to give you a hat tip for being a research fellow at the American Philosophical Society, and I suspect in their office or offices, you get a sense of the past when you walk in there.
Bob Wright: Absolutely. It is right in that historic district of Philadelphia along with Independence Hall, the National Constitution Center, the Liberty Bell and all of that good stuff.
What is Happening to Small Business and Why it Matters
Bob Zadek: I just hope that Dr. Franklin has found the time to tune in to our show, and hope he agrees with our conclusions. Now, you recently wrote for AIER an article entitled, “So Long Independence,” where, as I said in my opening, you focused on the entrepreneurial class — small businesses — and the widely reported loss of many entrepreneurs because of the pandemic crisis.
Tell us first what is happening to the entrepreneurial class that you focused on in your piece, and equally important, why do we all care about the loss of small business after all? Many of our listeners have suffered economically and in other ways because of the COVID crisis. Why do we care a bit more about the damage to the entrepreneurial class in our country?
Bob Wright: Because they constitute the political moderate — the center of the political spectrum. Many are Republicans; many are Democrats; a full third of them call themselves independent. They don’t adhere to either party line, but regardless of party, they are almost smack dab in the middle of the political spectrum. They’re not way left, like Bernie and AOC, or way to the right like some Republicans. They’re right in the rational center. They are the folks who have the most to lose from extreme policy as witnessed by what’s happened to them over the last few months.
It’s not just Yelp by the way. Even McKinsey and Company, the great business consultancy, has put out a report saying, I’m going to quote just one line here, that among small businesses recovery is likely to take even longer than for larger companies and “may never reopen.” That means that maybe upwards of 30 million of them are not going to be independent political voices in the center anymore because they’re going to have to get jobs, and hence be subject to the influences from other employers. They lost that political independence that the founding fathers thought was so crucially important to the well-functioning of our republic.
Understanding the Entrepreneurial Class: Political Viewpoint, Wants, and Needs
Bob Zadek: Now, it’s not a statistical accident that the entrepreneurial class, or small business men and women in America, are in the middle. They need to have stability and predictability in order to prosper. Help us understand why they are in the middle, and why they are collectively such an important force for stability in our government, which we all benefit from, but we don’t need it as much as small business people do. What is there about the activity of being a small business person that requires they fight so hard for the stability from which we all benefit?
Bob Wright: Well, running a small business is risky, even in the best of times. All sorts of shocks can happen just through normal market processes. Maybe the town where they run a retail store loses a major employer. So, people don’t have as much income anymore and they don’t come into the store anymore. Maybe there’s a shift in consumer preferences away from buying whatever good or service the small businesses are selling and they shift preferences to something else.
So, there’s all kinds of stuff happening all the time in a dynamic market economy like that of the United States. They have to be alert to their business and alert to new possibilities, and the cost of inputs, like labor, health insurance, whatever product that they’re adding value to before they resell it. It’s a very difficult thing to layer in on top of that political risk.
The risk of a change in the regulatory environment or the tax environment, zoning ordinances, employment law, just makes running a small business that much more difficult and riskier. So, folks who run small businesses don’t wait to see large changes and public policies, especially ones that come along quickly from out of the blue. If they can’t predict it or see it coming, then they can’t prepare for it, and can end up getting caught in a tough position that can lead to loss of profits. That could lead to their bankruptcy or them just deciding, well, it’s not really worth it to run the small business anymore. I’m not making enough profit. I could make more as a lackey for some big corporation. They tend to be right there with the senior citizens at all sorts of public meetings to make sure that policy makers from the local zoning board and local school board, all the way up through state and national government, don’t do anything too rash that can hurt their businesses.
Bob Zadek: What I started to realize and would ask myself as I read your piece — what are the specific policy requirements that small businesses as a class want? I started to build it in my head. I said, well, they want economic freedom. They want the right to be open as long as they choose to be open. That means they want the right to serve you for as many hours a day as we would want them to. They want the right to be able to open a business without a lot of cost, and want to provide us consumers with what we want at the price we want to pay. They are fighting only for the privilege of satisfying our needs. Who else in our country is fighting simply for the privilege of giving us what we want at the price we want to pay? They want total economic freedom without licensing and regulations. They also want, of course, low taxes so they can redeploy their money to expand the business of giving us what we want, and not give it to the government who has more complex and in many ways, contradictory goals.
So, if you tick down the policy needs of small businesses, they are the needs on which our country was founded. They literally as a class are the spokespeople for all of us, because everything that small business wants and needs, we want and need. And yet, we as a group have not been active in fighting for it. When and if they fail, we lose our principal spokesperson. Bob, just briefly speaks to the justifiable rage that we feel towards what has been called broadly crony capitalism, where big business gets a seat at the governmental table to form policy and get special favors. None of that ever flows to small businesses because they don’t get to game the system. Compare the relative economic weakness that small businesses have at the seat of government compared to crony capitalists, and why we all should identify with small business.
Bob Wright: That’s a great point. Small businesses tend to function in highly competitive markets. That means they are basically in the business of pleasing us. They produce what we want, when we want it, and how we want it, for a competitive market price, which is the essence of Adam Smithian market economies. That is literally what makes the US economy great, and why these folks also call for the same public policies that Adam Smith called for, for prosperity, not just for small businesses, but for all of us.
Peace, the way Smith framed it, is easy taxes and a tolerable administration of justice. That’s what most small businesses in this United States advocate: peace, both with other countries, and internally, with easy taxes, which are taxes that are low, but also not onerous to figure out. As with tolerable justice, there needs to be enough justice, as in the right to peacefully assemble, which is in the first amendment of course, versus the rights to own property, including business, and not have them violently assaulted and so forth.
So yeah, the interests of the small business class in America are pretty perfectly aligned with those of the rest of the country. Big business, on the other hand, is often in the business of what economists call “rent seeking,” which basically means getting something for nothing. This is usually gotten through government largess, or what is called crony capitalism or corporate welfare.
You do something that imposes costs on your competitors, or that creates market power, meaning moving away from that Adam Smithian small business competitive market, and towards monopoly. Even moving just part of the way towards monopoly increases profits holding all else constant, and small businesses generally don’t have the political pull to do that, except maybe in some corrupt small town. It’s usually big businesses doing that. There used to be this old saying that the US and GM (General Motors) are closely allied, but in fact, the US goes the way of a small business class and not that of large corporate entities that are obviously able to sway parts of the political system for their own benefit.
The Importance of Competition for Small Businesses: South Dakota as a Model State
Bob Zadek: It needs not be expanded, but we all know that the engine for job creation is small business. Small business creates all the new jobs. Every big business in America started as a small business, including Amazon and Walmart. It was this fertile economic environment that allowed them to grow and to prosper. You mentioned above that small businesses are competing, and competition is very useful. Now, strangely enough in our society, putting aside professional sports, competition is usually followed by the phrase “cutthroat,” and competition is looked upon economically as being something bad.
That’s insane. What does competition mean? It means businesses fighting amongst each other for one right, the right to give us what we want at a low price. We have so many businesses fighting only to satisfy us, and that’s a negative. The more cutthroat the better if the result is we get what we want at better quality and lower prices. Now, I am correct in that small businesses count for the lion’s share of job creation, and therefore, when small business fails, the engine of job creation fails. Yes, of course, big businesses employ lots of people, but job creation at the local level springs up with much greater quantity and intensity at the small business level. Is that not a correct statement?
Bob Wright: It is, and one of the books that I’ve written that you so kindly mentioned at the beginning of the show, called “Little Business on the Prairie,” is a study of entrepreneurship in South Dakota over several centuries, concentrating on some of the most recent history. What I discovered is that South Dakota has what I call a “tortoise economy,” going back to that old fable between the tortoise and the hare.
It just plows along with very low levels of unemployment, generally well below 2%, and sailed through the financial crisis with no problem, which is why I moved out there in 2009 and lived out there for a decade. It’s because they have an entrepreneurial climate. If you lose your job out there, you don’t say, “oh, let me go to the government and get money for a while until another job comes around.” No, you make your own employment. You make your own company, and you start to sell goods or services to other businesses or to individuals, and it’s actually taught in the schools out there. My kids all had to come up with business plans and workout detailed budgets, and it was great because it taught them math skills and some stuff about business and got them thinking hey, I can form my own business.
So, South Dakota has, even leaving the ag sector aside, the highest percentage of income that comes from public proprietorship — from owning and promoting your own business. I think that’s one of the reasons why South Dakota didn’t lock down during the COVID-19 panic. That, and the fact that it has a very good Republican governor named Kristi Noem, even though she was also facing a lot of pressure from this. The small business class said, “Don’t you dare lock everything down, we can figure out what we need to do ourselves. We don’t need somebody in Pierre (that’s the capital of South Dakota) telling us what we can and can’t do. How can you possibly know what’s best for our businesses?”
Thankfully, she listened, and the only thing they shut down were gatherings like concerts and movie theaters, but everything else was allowed to stay open and to figure out what they needed to do in order to keep COVID from spreading. The only major problem we had was with a Chinese company called Smithfield that runs a huge and important processing plant in Sioux Falls. But even that was stamped down on pretty quickly, even though there were hundreds of people infected there at one point. It was because they allow the people with the most information and the most incentive, the business owners, to make decisions for themselves.
Bob Zadek: I’m so glad you shared with us your experiences in South Dakota, since the media is so focused on the coasts, one would think that what goes on in the New York City subway system, or in Chicago, LA, and San Francisco, is what goes on in the rest of the country. It is so easy intellectually to forget there is an entire country beyond what goes on in those big, badly run states and cities. There is an entire country that is living and behaving and experiencing life so different than what we see predominantly on the news. Americans ought to be required to tune in to heartland news stations and watch the evening news in Sioux Falls, and in Boise, or Oklahoma City, and just learn, yes, there is more to our country than New York, and your perspective changes.
I just had to make that statement because as soon as you refer to South Dakota, I myself had to be reminded about the rest of the country.
Are Covid Lockdowns Unconstitutional? History of Small Business in the US
Bob Zadek: Now, during the COVID pandemic experience, the governmental policies themselves, such as the lockdowns, disproportionately affected small business. A lot of big businesses were deemed essential, or got themselves to be essential, and they were able to more or less operate, but the effects of the lockdown mainly targeted small businesses. You helped us understand how the lockdown literally ripped the heart out of the Constitution, and shared with your readers (and I’ll ask you to share again) Hamilton’s observation about the fragility of the constitution.
So, tell us about what specific cherished rights were eliminated or subordinated by the lockdown. How unconstitutional are these policies, and what happened to our rights? What specific rights were diminished during the lockdown, because you wrote about it very well in your piece. It reminded us of that wonderful Hamilton quote.
Bob Wright: Hamilton calling the Constitution a “frail and worthless fabric.”
Bob Zadek: That’s right. That was his fear.
Bob Wright: It is the sense that the constitution is just a bunch of words. He was afraid that those words could be manipulated, and they have been, especially in the New Deal running pretty much up to the present. The mistake that the founders made, I think, was not enumerating our economic rights in the constitution. They were afraid that if they left something out that it could be used as a wedge to try to take that right away. They could never conceive of us losing essentially all of those unenumerated economic rights, like the right to work.
Bob Zadek: Freedom of contract.
Bob Wright: Freedom contract, right. The sea change is still happening, it’s just been accelerated by the lockdowns, which are very much like the dekulakization of America.
Bob Zadek: Your reference is to Stalin, when he took all the independent farmers and confiscated their land and took away their economic freedom. The audience may not be familiar with that term, but it refers to the Stalin era.
Bob Wright: Yes, that’s right. He took away their economic freedoms and outright killed many of them, while sending others off to reeducation camps in Siberia. When the US was founded, we were a nation of proprietors — of shopkeepers, artisans, and farmers. Almost everyone owned their own business. People who were employees were kind of looked at almost as slaves, especially if they weren’t young, an indentured servant, or were working up as an apprentice, because they were so dependent on their employers. Most people owned their own business. It might have been a professional service, like a law business or medical business, or it was a wholesale, or retail stall. trade house or retail. We’re, of course, back in that period. You know, many people were farmers. Lots of people had multiple businesses.
They might have been attorneys, but also politicians, or they might have been farmers, but also bankers, and so forth. Everyone had that independence of running their own business. By the time we get to the New Deal and the Great Depression and all of that, most people are employees. They don’t own their own business and they’re not politically independent. This happened slowly over the course of the 19th century and was one of the reasons why we shifted from having open forms of balloting, like by voice or by open ballot, to the Australian or secret ballot system. It was to preserve the independence of voters to the extent possible so when they work for some big mill or steel company or oil company, that they can no longer interlink to their votes. What we lost was that solid center of our politics, and so, starting around 1900 or so with the progressive movement, we started to see the radicalization of both the right and left in our political system.
Bob Zadek: You made a significant point just then. When we interact with entrepreneurs, there is relatively equal bargaining power. When you go to the hair salon or the local gym, or to whoever at the local, small business level, there’s nothing you need from the government, and you feel like you have somebody who’s fighting to make you happy. You don’t need protection, because you know that if the product isn’t any good, you will return it and they will accept it because it’s good business to do so. There’s no power imbalance, so the entrepreneurial class is one that thrives on the absence of a power imbalance.
It just needs freedom to do what it wants, which is to serve us. When you’re dealing with large business and small consumers, think cable companies and the like. Then there’s a profound power imbalance, and then you start clamoring for the government to interfere with that contract, because there is a power imbalance. So economic freedom, which is needed at the small business level, is damaging to the consumer without small business. With small business, you don’t need economic interference. You don’t need minimum wage laws. You don’t need much about employment law because you can quit and go to a different hair salon or a different gym or a different plumber. Their jobs are plentiful. Nobody has an economic monopoly.
So, there is such a parallel between the needs of small business and what they require or don’t want from government, and the needs of us ordinary people, the consumers, and what we need from government and don’t want from government. Small business is there as a group fighting for the very rights and the government that all of us want. Our interests are perfectly aligned with small business and that is my takeaway from what you have explained in your piece. The entry is a perfect alignment in the relationship between us and government, and small business and government.
Bob Wright: You definitely captured the essence of it, and I thank you for providing the platform to get those views out to a big audience.
Biden’s “Follow the Science” Policy Under the Microscope
Bob Zadek: Now, you have written extensively and very recently on the pandemic. Presidential candidate Biden, in his speech when he accepted the nomination of the Democrats, made one of the cornerstones of his policy, “Listen to scientists.” You have written with great knowledge and passion about science and governmental policy. First, when Biden says, “I will be different, I will listen to scientists in determining how to govern the country,” did that make you feel comfortable and looking forward to his election? Or are you concerned by the phrase, “I will listen to the science.”
Bob Wright: I’m very concerned. Throughout the article I used quotation marks whenever I referred to scientists. Which “scientists”? There is hardly a consensus. Which ones do you know to follow? If it was easy to know which one to follow, what do we need Joe Biden for anyway? Why not just put those scientists in charge and cut out the middleman? The fact is, of course, there is no scientist — there is a process of learning called science, and it’s supposed to be rigorous in that there is evidence that has a logical relationship to observed results that can be replicated by other researchers. We call it the scientific method.
It’s not a thing, it’s a process. It’s a mechanism for discovering the nature of reality, which of course is always nuanced and always very complex. There was a post by Vincent Geloso that picked up on my mentioning the Peltzman effect in one of my posts, and he went into considerable detail about it. It’s ultimately about the effectiveness of policy choices, and how they will affect how people act. It’s usually put in the context of mandatory seatbelt laws and their effectiveness or lack thereof, versus putting a big spike in the middle of this steering wheel. It turns out that putting this spike in the middle of the steering wheel is much more effective at making people drive more slowly. With the seatbelt law, all people did was drive faster and more recklessly, thinking they have a seatbelt that will save them.
You put a spike in the middle, then people know that if they get into an accident they’re going to be impaled on their steering wheel, so they behave in a safer manner. The same thing comes up now, with Covid. You might have science saying you should wear a mask, but if all that does is induce people to take more risks, then there might not be any aid to wearing a mask in the real world.
Bob Zadek: I started thinking about Biden and “follow the science,” and my question is which science he is talking about. For example, medicine is a science, but so is economics. If the scientist you listen to is an economist, then the economist would be speaking every minute of every day about the damage to the economy. On the evening news the big red letters wouldn’t be about the number of new cases, it would be the number of job losses and the damage to the GNP and the number of people who are first time applicants for unemployment insurance.
You would have that in red letters in bold behind the talking head. You would have economic results every day, and you would have economists on the evening news, not people wearing white lab coats standing behind the president giving the president political cover so he can say, “Don’t yell at me. It’s the doctor who told me what to do.” I would agree with Biden, if the science that was followed was, as was called by Thomas Carlyle, the dismal science of economics. If you follow that science, I’m all in, because that’s the right science to follow.
Bob Wright: As I obliquely hinted in the article, what if Joe wants to follow the science of phonology, or eugenics?
Bob Zadek: Eugenics was mainstream science in the 1920s. Think of that. Supreme Court Justice Oliver Wendell Holmes in a scary decision from the Supreme Court in the 1920s, decided that a southern state could impose compulsory sterilization on somebody with impaired mental ability. The woman was a third generation of a family with impaired mental ability, and the state wanted to sterilize her. The question was whether that was constitutional and in concluding that it was, a very leading Judge in the US Supreme Court, Oliver Wendell Holmes said (quoting science, if you will) that yes, you can sterilize her. He said in this famous quote, it’s painful to even report, “three generations of imbeciles are enough.” That was science, circa 1920. Follow the science? I don’t think so.
Closing Comments: Economic Prescience
Now, you predicted the rioting that’s been going on as an economist. Tell us what happened back in March when you presciently predicted the rioting?
Bob Wright: I’m studying the American Revolution and saw how it came about because of an economic recession followed by very dumb government policies coming out of Britain. I just couldn’t believe that Americans were going to put up with lockdown policies that weren’t doing anything really to help stop the virus for very long. I knew that anything could come along and trigger it. I didn’t know that it was going to be a police shooting. I did say that there was going to be riots by the summer if things hadn’t dramatically improved.
Bob Zadek: Oh, my goodness. Well, Bob, thank you. We’re running out of time. regretfully. Thank you so much for sharing your insights on the entrepreneurial class, and how if they go, we all go, and we will truly all suffer the loss of independence, our economic rights, and our political rights. As the entrepreneurial class goes, so goes America. Bob, how can our friends out there follow your writings at AIER?
Bob Wright: I have my own page. It’s got maybe 60 articles over the last couple of years. If you just find my page on there, you can have a look at them. I have all kinds of articles on things like California 85 and the travesty that that is, and lots of other things that should be of interest to readers or listeners.
Bob Zadek: That’s Robert E Wright, a prolific writer, a very wise man, and professor. Thank you so much for sharing your wisdom with us this Sunday morning.
Originally published at http://www.bobzadek.com on August 27, 2020.
