Defending the Free Market: An Interview with Guy Sorman
Which economic policies can defeat recessions? And which are doomed to prolong them?
July 25, 2009 - 12:30 am
Addressing events across five continents, former professor at the Paris Institute of Economics Guy Sorman has published over twenty books in the course of his career. Currently he is a contributing editor for City Journal and a writer for the Wall Street Journal and Le Figaro. His latest book is most topical and entitled Economics Does Not Lie: A Defense of the Free Market in a Time of Crisis.
BC: Congratulations on the release of your new book, Dr. Sorman. First off, for those unfamiliar with its themes, is economics truly a science? Moreover, why is its study inconceivable without algorithms?
Guy Sorman: Economists are moved by data, not their opinions. We start from the real world and try to understand why some people and nations grow out of poverty while others do not. Growth is our agenda, as it brings more opportunities to people and more freedom of choice. Based on our observations, we then make recommendations. The 25 years of growth that we had before the current slump were a triumph of sound economic policy grounded in robust science.
Now, in a time of crisis, we need that science more than ever, in order to understand the crisis and recover from it. Basically, we can say that the crisis has been provoked by a lax monetary policy, which led to a bubble. Milton Friedman was proven right. We should have sound money. Regarding mathematics, it is only a language, convenient for assembling data and understood globally. It does not exclude or replace common sense.
BC: You mention that the Europeans have come around to embracing the Laffer Curve. Why has America failed to do so? I ask this because, under the proposed health care measures, the maximum overall rates of taxation in New York and California will reach nearly 60 percent.
Guy Sorman: Economics is always a matter of trade-offs: higher taxes will slow growth, but they can increase equality through wealth redistribution. This has been the dominant European model. If the U.S. opts for more wealth redistribution, we will get less growth. We can’t have it both ways, because resources are scarce.
BC: Did Franklin Roosevelt’s policies in the 1930s prolong the Great Depression? Was there any merit to the New Deal?
Guy Sorman: The merit of the New Deal was that it helped the U.S. avoid political violence of the kind that took place in Europe. There were fascist and communist temptations in the U.S. in response to the Depression. FDR was able to keep democracy on track. The price for doing that was a prolonged crisis, because he interrupted the capitalist process of creative destruction.
BC: What’s your opinion of Keynesian economics? If undertaken correctly, can a stimulus plan work?
Guy Sorman: Keynes suggested that government accumulates surpluses during periods of growth in order to invest them during downturns. This has never been done, though. What we have is public spending financed by public debt, which leads to an increase in interest rates, which in turn freezes the recovery. Thus, in real life, no stimulus plan has ever worked. Those mavericks who still advocate stimulus plans argue that they haven’t worked in the past because not enough money was spent. But to spend more could lead only to bankruptcy or socialism, not to recovery.