Defending the Free Market: An Interview with Guy Sorman
BC: Thus far, in terms of the economy, what would you say are the main failings of the Obama administration? Do you see any successes?
Guy Sorman: Obama’s success has been not to follow the most radical suggestions of liberal economists like Paul Krugman: advocating even more public spending, more nationalization of industries, and more regulation. All of Obama’s decisions, though, are half-baked: as a consequence, the U.S. may not be turning socialist, but it is becoming unpredictable.
BC: The panoramic view provided of world economies is what I found most educational about your book. In regards to Russia, how much did economic incoherence and ignorance doom Gorbachev?
Guy Sorman: Gorbachev was doomed by the Soviet economic system as devised by his predecessors, starting with Stalin. The Soviet economy then was based on its gas and oil exports, just as it is today. When prices were high, the Soviets seemed powerful. Gorbachev came to power when prices had dropped: he had no more resources to buy food or build arms. Moreover, there was no innovation in the USSR: everything was copied or stolen from the West. At a certain stage, you cannot copy anymore what has become too sophisticated to be understood.
BC: There is a sentence in the Russian chapter that I really liked: “The Western intelligentsia believed and still believes that the capitalist system rewards them poorly for their talents.” How much is the intelligentsia of the U.S. to blame for the reemergence of socialism as a viable economic alternative?
Guy Sorman: The intelligentsia does not usually like the free market for two reasons. First, it is not an ideal system: intellectuals prefer utopia. Second: intellectuals are paid less than entrepreneurs. As a consequence, they see capitalism as unfair. In former socialist regimes, intellectuals were well treated when they toed the party line. If they didn’t, they were jailed.
BC: What is the truth about China? How economically stratified is it? You cite a source who maintains that there really is no middle class there.
Guy Sorman: In China, 20 percent of the population exploits the rest in the name of socialism. When you belong to this new bourgeoisie, you have a lot of opportunities. Another 20 percent draws some trickle-down benefits: migrants working in factories, for example. Everyone else lives in the countryside in a medieval kind of poverty. Because of this unjust system, many rebellions occur, but the party puts them down, often using extreme violence.
The only way to develop all of China would be to privatize the land. The exploited peasants could then become entrepreneurs. The party does not want that.
BC: In your chapter “Setting Sun,” you mention that Japan has gone from one extreme to another in terms of reputation. What can the United States learn from Japan’s experiences over the past four decades?
Guy Sorman: Japan has kept a remarkable edge in the world market in many high-tech industries. It’s still second to the U.S. in innovation, measured by the annual number of registered patents, ahead of Europe and far ahead of China. The strength of Japan comes from its strong educational system and a unique network of sophisticated, high-tech small businesses.
Unfortunately, the nation’s economic policy between 1990 and 2000 was disastrous. The government, with lots of corruption behind the scenes, invested huge sums in useless infrastructure. Private investment was crowded out by this public stimulus, which brought the country to a standstill. This so-called lost decade is the most illustrative demonstration of the adverse effect of public spending.
BC: What is the rationale behind your statement that “any country that instituted a carbon tax by itself … would be committing economic suicide?” Also, what’s your opinion of the recent cap-and-trade bill that passed the U.S. House of Representatives?
Guy Sorman: If global warming exists, if it is man-made, there can be only global solutions. A local solution, like cap and trade, reduces your own dynamism without benefiting the climate at large. Thus, a U.S. cap-and-trade system, if it goes into effect, could be useless and costly. More likely, probably, the U.S. will follow the European precedent. Europe has had a cap-and-trade system for five years, but it is not practically applied; it is only ecological posturing. What we should fear most in the U.S. is the creation of a costly and undemocratic green bureaucracy.
BC: You argue in your book that global warming seems certain, but is it? Hasn’t there been recent evidence of global cooling?
Guy Sorman: We’ll all be dead before we know for sure whether global warming exists. To escape this ideological controversy which has religious overtones, I have, like many free market economists, made a rational choice: since we do not know much about climate change, let’s implement a modest carbon tax. This tax will be an incentive for diversifying our energy resources. Such a tax should be small in order not to disrupt the economy. And it should replace other existing taxes on business, not be added to them.
BC: Thank you for your time, Dr. Sorman.
“higher taxes will slow growth, but they can increase equality through wealth redistribution.”
Everyone should perhaps read the above assertion a minimum of ten times. You need to really pound it into your head. The Democrats are advocating economic policies that most assuredly will limit growth—merely to feel good about themselves. They will guaranteeably make us all overall poorer! How in heaven’s name does that help the so-called disenfranchised? Shouldn’t we instead focus on making the pie bigger for everybody?
When everything is said and done, Keynesian doctrines are an excuse for the “elites” to grab power and tell the hoi polloi what to do. They desire to become our benevolent dictators. The elites literally, and I am nor exaggerating in the slightest, contend that the vast majority of Americans are too stupid to handle their own financial affairs. They admittedly prefer not being so blunt—but that’s ultimately the only reasonable interpretation of the Keynesian mindset.
Dr. Sorman’s most notable observation: “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.”
It is my strong belief that, had the bipartisan stimulus, for which Presidents Bush and Obama (as well as Senator McCain), are to blame, never been passed, the recession would be ending about now. President Obama says the stimulus is working as planned, which means that, at least to him, it was never really designed to stimulate the economy, only to markedly increase deficit spending on Democratic programs and expand the size and scope of the government. Cap and Trade and Nationalized Health Care have the same objectives: They certainly won’t affect the climate or make America healthier, but they will grow government power, control and taxation to unprecedented proportions.
Read Ann Coulter’s latest column: Where there are free markets, products and services are plentiful and cheap. For $299 you can by an iPhone that performs innumerable tasks using thousands of times more computing power than we used to go to the moon 40 years ago. During that same period, beginning with the passage of Medicare in 1965, government has increasingly dominated health care, making it vastly more expensive. Whether insured or not, the poor have access to quality health care in the U.S. because hospital emergency rooms cannot deny treatment based on financial ability. Despite the President’s contrary promises, putting more federal money (borrowed from our children and grandchildren or taken from small business) into health care will drive up costs and drive down availability. The proposed nationalization will produce no new doctors, nurses or hospital beds, and government control can only lead to rationing of care, the burden of which will probably fall most heavily on the elderly, who won’t get non-emergency surgery and may not even get the choice of blue or red pills.
There is no such thing as a modest carbon tax; it will be progressive if at first modest,and the regulations and regulatory apparratus would be death to a free economy.
Obama’s ideology does “exclude and replace” common sense in his economic as well as all his other progams and policies. He is practically an ideological,antiAmerican,anticapitalist robot.
It all boils down to Obama and the Democrats in Congress and the Senate have done the completely wrong thing to “fix” the economy, it is instead dragging down the economy instead of raising it up. I knew when he was elected it would be bad however I would have never thought it would be such an outright disaster. 2010 is almost too far away but it will come and it is hoped that it will create a new congress minus many democrats that are currently there.
Please someone do something with Henry Waxman (a bgg or hood over his head) seeing him hurts my eyes. He is certainly proof that people do not consider looks when voting!
“higher taxes will slow growth, but they can increase equality through wealth redistribution.”
That is exactly correct. Yes, Taxes are anti-growth, but they have nothing to do with equality.
Equality is strictly a POV (Point of View) thangie.
I seriously doubt that Bill Gates vision of equality is the same as that guy living under a bridge in Brooklyn.
ALL economies are about wealth redistribution. Every last one. A Capitalist is taking a little bit of wealth from a whole bunch of poor or semi-poor people and redistributing it to his pocket. He then shares it with his cronies, who share from their pocket. That way when thing go sour, he has access to many other pockets, both full and almost empty.
With Socialism, the Government takes wealth from the pockets or poor people and redistributes it to those holding powerful government positions. Ever notice that there are more mansions in Socialist countries then in Capitalist one? Although the Capitalist mansions are generally bigger. Just as the average house is bigger and more comfortable then in a Socialist state.
Therein lies the difference.
In a Capitalist economy, the capitalists moving wealth around creates more wealth. They are using their deeper pockets to bake a new, bigger and tastier pie. In a Socialist economy, the Bureaucrats don’t DO pie. They fight over the crumbs.
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.
I agree with Bob that this is the high point of the interview. It is also the clearest short explanation of the fiscal side of Keynesian economics that I know of, as well as the best short explanation of why it never worked in the real world, and why it won’t work this time.
#5 Typos – No, Capitalism does not take wealth from the poor. The poor have no wealth. They do not create wealth. If they knew how to create wealth, they would be wealthy.
The poor do labor, labor as dictated by those who know how to create wealth, the entrepreneur. Their labors produce wealth, but the wealthe creation is done by the minds of those entrepreneurs.
Without those entrepreneurs, most poor would live in abject poverty, as is evinced in so many countries where the entrepreneurs have “gone Galt” (actually, been suppressed). The wealthy allow the poor to escape poverty by creating opportunity. The wealthy maximize the value of the workers labor, thereby allowing them to live in some comfort.
The basic rule is that you either work from the neck up or the neck down. Some people labor with their minds, but wealth creation is a skill, just like any other, but it is always in addition to other skills. Most people lack such a second skill, and so, rely on the skills of others to enable them to feed themselves.
very interesting obsevations. looks like another book to add to my list of “need to read”
Great Article.
It all makes sense if you have an elementary understanding of Free markets and human nature.
Why don’t we teach the basics in the Public Schools?
Oh I forgot, the Liberals control the schools and would never get elected if we were less ignorant.
I fully agree with Mr Sorman, problem we don’t see him much in our medias at the moment, when ihe would be useful : Borloo (Minister of “ecology” and Rocard (ex Mitterand prime minister) just planned a nex carbon taxe (about 300 € per family) on oil (already high taxed), gaz (idem) and electricity (which is completly idiot, it’s nuclear).
I’m going to send them the link to this article
As a free market libertarian, this is one of the most informative articles I have ever read. Any Obamanomics supporter should be forced to read this at gunpoint. A special thanks to Bernard Chaping and Guy Sorman is due.
Many thanks to Mr. Sorman & Mr. Chaping…and Marie Claude, if you send Borloo the link to this article…it may also be helpful to send them a link to the Heritage Foundation’s “Economic Freedom Index”. France is embarrasingly low on the list, lower than a snake’s belly in a wagon rut! Well…on the other hand it’s probably cause for the likes of Borloo to celebrate! It’s a strange world we live in…where after all…we have a perfect right to be wrong!
For global economy, in a nutshell, the problem is that money creators/lenders ran out of sound borrowers. It took different forms, or bubbles, most obvious real estate, commodities, and fixed income securities bubbles.
Unfortunately, I do not see what newly invented goods or services (like resently Internet, PC, cell phones, or even plasma TV) will boost world economy into growing mode again.
Except for one thing: personally genetically engineered drugs.
“Keynes suggested that government accumulates surpluses during periods of growth in order to invest them during downturns. This has never been done, though.”
In US, it is. It was done in China (on massive scale), Chili (copper reserve fund), Russia, Kuwait, and Norway (oil reserve funds), and to some degree in Canada.
These countries do have some “spare change” to outspend economies from deflation spiral.
Simply put, but profound…… Are we getting the message yet???
You cannot multiply wealth by dividing it
What a profound short little paragraph that says it all
“You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it.” ~~~~ Dr. Adrian Rogers, 1931
While consumers and economists love *competitive* free markets, businesses generally don’t: to them that just means slim margins, constant insecurity, and hard work. Hence to a group of mom & pop operations competing with each other — especially if the moms and pops who started the businesses are no longer on the scene — there will always be strong temptation to merge with or sell out to a larger corporate entity that would provide greater stability and likely higher profit margins from supplier consolidation and having less competition. So there is always this Catch-22: if you allow for totally free markets, you’ll probably end up with anti-competitive consolidation that would essentially end competitive free market operations in that business sector; but if you regulate free markets to keep them from consolidating into oligopolies/monopolies — or in the case of a Chrysler, to prevent liquidation of an infrastructurally important business — you can be accused of not supporting free markets.
#12 Richard Morgan
I just had a look at http://www.heritage.org/index/ranking.aspx
well, I don’t know on which basis they stated that Germany is 25th and France 64th in freedom economic rank, but to me it seems rather erroned, considering the economical results of the moment, Germany is as well facing money crisis and unemployment ; besides in many anglo-saxon papers France’s results were surpisingly not so bad as expected (by clichés of socialism that we are rewarded from anglo-saxon cultured persons, and that our “colbertism” was doing well when everywhere there is collapsing of the free private enterprises, depending of short term benefits gain
Now, I am for more freedom in businesses affairs, just that big projects such as nuclear energy, EADS industry, Ariane Space industry, can’t be only private, they must be supported by a long term agenda, and only States have the means to await their payings back
“#5 Typos – No, Capitalism does not take wealth from the poor. The poor have no wealth. They do not create wealth. If they knew how to create wealth, they would be wealthy.”
Just what I was saying, or trying to.
One small detail. Just what do you mean by ‘wealth’? One can be poor and still have wealth. I argue that poor with wealth is as good an explanation of Inflation as to many dollars chasing to few goods. That depends on how wealth is defined.
I think by poor you mean what I would call ‘broke’. As in not having a pot to piss in. No money at all. Buddy can you spare a dime? By poor I mean no capital.
That means the poor can still buy the things they need, unlike those that are broke.
Someone living paycheck to paycheck is poor. No matter what size those paychecks are. Someone without a paycheck is broke. A lot of that going around.
Meanwhile, the economy is based on providing ‘poor’ people what they need. All business does is pay the producers of goods as little as possible and sell them to all those poor people for as much as those poor people can afford to pay. Those poor people trying to get to the next paycheck will look for ‘deals’ to stretch out their wealth a little more, which means the producers of those goods compete with one another for the wealth of those poor people.
This system works very well, although it has a razor thin margin of error. When some politician who has never produced anything in his life and is far removed from a paycheck to paycheck world makes changes, the System breaks. Then we all suffer.
The long term solution is to take the politicians out of the loop. You do that by replacing Nationalism with the Corporate State. Citizens become corporate shareholders and the CEO’s are elected on their ability to provide the higher standard of living for their shareholder/citizens.
This isn’t a rational argument, it’s just the appeal to ignorance fallacy applied to global warming. It’s also moral cowardice to appease eco-nazi aggression. We don’t need any more economic Nevil Chamberlains, what we need are logical and principled defenders of capitalism.
Kim, you didn’t forget your “clichés” while reading an article about a french economist, too bad you’re missing the point
20. Marie Claude,
The virtue of using an appropriate cliché is that you can make your point and expect to be widely understood, without wasting the reader’s time with a bunch of nuanced non-essentials.
nah, just that we have a sight of what you’re up to, and it ain’t the article purpose
22. Marie Claude,
From the title of this article, one might expect a defense of capitalism. Instead what we have is a man who endorses a tax, which is an attack on the free market, and an enlargement of the welfare state, thus taking us in the direction of more socialism or fascism. For this reason, Guy Sormon is no defender of the free market. He’s selling us out, and he knows it.
“a tax, which is an attack on the free market”
you completly misunderstood that he is taking the very “context” in account (that we are already a country that is high taxed), where there is a global (mondial) consensualy ubout global warming and carbon taxes, that isn’t France who is at the origin of this global hoax, but your beloved politicians Al Gore & Cie
Besides he said that France was rather “phony” than effective on the subject since it was on all politicians board, 5 years ago.
now our greens only represents 1,5 of the french voters in last presidential elections, and they surely can’t dictate our policies, what you didn’t capted too, is that THESE policies come from Brussels, and from the “atlantic alliance” shared by your peers, my dear !
Thanks for reading everyone. Dr. Sorman does defend the free market ardently in his book. I understand your concerns though. Personally, I am in agreement with the commentors about global warming and believe we should institute no tax whatsoever on life sustaining carbon dioxide.
Capitalism, free market, is the only MORAL system.
To quote Ayn Rand:
“The moral justification of capitalism does not lie in the altruist claim that it represents the best way to achieve “the common good.” It is true that capitalism does—if that catch-phrase has any meaning—but this is merely a secondary consequence. The moral justification of capitalism lies in the fact that it is the only system consonant with man’s rational nature, that it protects man’s survival qua man, and that its ruling principle is: justice.”
On american sites I have learnt how to polemic on politics, which what I do now on my twitter account, funny that french journalists and politicians follow me now, I don’t miss the occasion to tell what I think