Can the free market provide opportunity for all?

Arthur Brooks, the president of the American Enterprise Institute, argues that raising taxes won't help the poor and that the free market is the way to bring people out of poverty.

Jeremy Hobson: Yesterday on the show, as part of our coverage of Wealth and Poverty issues, we spoke with President Obama's former top economic advisor Larry Summers. We talked about inequality, which is an issue that's become central to the presidential race this year.

Summers told us the government has a responsibility to make sure that everyone in this country at least has an opportunity to succeed.

Larry Summers: The market left to its own devices is not going to help those least fortunate communities provide decent pubilc education. There's much that government needs to do to create more equal opportunity.

Well that is one view.

For another, we're joined by Arthur Brooks. He's the president of the American Enterprise Institute, a conservative think-tank in Washington. Good morning.

Arthur Brooks: Good morning, Jeremy.

Hobson: Yesterday, Larry Summers told us that the discussion really needs to be reframed from inequality of income to inequality of opportunity. What do you think about that?

Brooks: I agree. And even more than that, we need to largely abandon the whole idea of inequality of economic outcome and talk about mobility in America, because that's the real issue. That's what people care about. People are not worried about inequality at all, as long as they feel there's sufficient opportunity to rise, as long as they think that there's mobility in the economy. And that seems to be what people are starting to doubt quite a bit.

Hobson: What do you think needs to be done to make sure that people have the equality of opportunity that you would like right now?

Brooks: Well, the one thing that we don't do is by wasting our time by talking about simply how we can redistribute more money from people at the top simply because they have more money, and that seems to be largely what's going on in America today. We can think of the United States as an apartment building, where people at the top floor are doing very well; people in the bottom are seeing flooding. The trouble is that the elevator doesn't work very well, and we have a president and an administration that seems most content to be throwing rocks at the top floor. Well that doesn't do anything to help the elevator, and that's a metaphor that's rather apt, I think.

Hobson: The way that you say that, it sounds like you think that there's a possibility that we can reach a point that nobody lives on the bottom floor?

Brooks: No, I'm not saying that. I'm saying that people who live on the bottom floor should always have access to the ability to rise. And I think that the responsibility of people in positions of political power should be not simply to try to redistribute more from the top, but rather find more ways to help people get out of their economic situation.

Hobson: Do you think then that the government should ensure that everybody has access to going a university?

Brooks: We spend tons of time talking about college, and college is indeed important, but first let's talk about primary and secondary education. The truth of the matter is that we're spending multiples per kid in real dollar terms compared to what we were spending decades ago, and arguably getting worse student outcomes. We've got to ask ourselves what's going on in this country, primarily because that affects the bottom 20 percent of the income distribution.

Hobson: We've talked about the government. What about the free market? What should they be doing to make sure that more people have the ability to succeed in this country?

Brooks: Well, the free market is exceptionally adroit at doing just that, when it goes largely unimpeded. The problem is that today, the free market's not allowed to help the poor in lots and lots of ways. If you back 100 years or even 50 years, you find that the ability of people in the bottom 20 percent of the income distribution to be entrepreneurs was much higher than it is today. There were fewer regulatory barriers to starting businesses. There were fewer punitive tax barriers to starting businesses. The free market is great at creating opportunity. It's generally speaking the state that gets in the way of the free market, such that the poor really can lift themselves up.

Hobson: So you think that too much regulation is making it impossible for the free market to help the poor in the way that it could?

Brooks: I think it's hurting a lot, and it's not hurting everybody. I think it's disproportionally hurting the people at the bottom. And that's the real moral problem that we should all have with the system that gets more and more complex.

Hobson: Arthur Brooks is president of the American Enterprise Institute. Thank you so much.

Brooks: Thank you Jeremy.

About the author

Jeremy Hobson is host of Marketplace Morning Report, where he looks at business news from a global perspective to prepare listeners for the day ahead.
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The more I think about Mr. Brooks comments the angrier I get; the absolute arrogance and ignorance of this man, and his ideology. I am not a business professional but I am a professional and have read a lot trying to understand how this economic crisis came to be. This crisis was lead in part by the lack of regulation and the people who are paying the biggest price are those on the “middle and lower” floors. Back in 2005 Daniel Altman wrote a book “Neoeconomics”. He detailed the Bush/Greenspan economic policies and stated these policies are risky and those who would lose the most if the economy was hurt would be the middle class, the upper class, those who had the most to make from the “neoeconomy” would be just fine. That is what happened and they are just fine. We need to get these ideologues out of our public policy and take back our representative democracy before we become a plutocracy.
And to Marketplace, any decent media organization needs to get specifics on just what exactly with facts is causing the ruination of the middle class. Somehow I do not think it is onerous government regulations.

I agree with all of the comments above. This is a view from right and far right. I have an issue with think tankers, they are all about ideology and not about facts and most conservatives live in a fact free zone, ideology rules. I heard a report the other day on NPR that most academic economists agree that regulations are needed and the government must play a role. You will never here that from the free marketeers.
Just why did all of these onerous regulations come about? Because the free market is blind to thieves and scoundrels, such as those in the big banks and on Wall Street.
The next time a conservative (no)think tanker complains about regulations I want to hear at least six specific law and just how they hamper income and opportunity inequality. What is their solution, privatize education.
This country is going to the dogs and leash is held by conservative lassiez faire idelolgy.

Wow, the full spectrum of views from the center right (bankster Larry Summers) to the far right (AEI). How about someone from the left side of the spectrum, like Ralph Nader?

In the metaphorical apartment building, the top floors have their own private elevators (including car elevators), they own their suites, and the police rarely make it up that high. People at the bottom use the stairs. The infrastructure of the middle floors is crumbling.

Brooks' arguments remind me of David Brooks. How many people down on their luck are supposed to start their own business? 2 million? 3 million? They enjoy economies of scale, foreign labor, and shifting taxable income to Ireland and the Caribbean if they do well? Even existing businesses with loyal customers were savaged in the last 5 years. Why don't the "job creators" produce tangible goods here, hiring domestic workers at a living wage? That's tax deductible.

Inequality of income matters, and wealth. Now they can pour millions to their favored Super PACs and taint democracy.

The free market, unfettered, would allow slavery, rampant pollution, child labor, etc. It doesn't help the poor, that's a canard, and fealty to it in a mixed economy won't help.

Considering all the harm to the U. S. economy that the free market has done, namely the outsourcing of jobs, I do not see the market doing anything different, nor do I see those at top doing anything different to make sure that those at the bottom can breathe clean air, drink pure water or exist in an unregulated market place. Regulation is not the problem, the problem is when there are no rules, there are no safeguards in place to protect the public. Look at the banking industry, they had/have no rules: What did they get away with in the free market? How much did they steal from all of us?

The rich continue to get richer by squeezing every dollar out of the poor. Why is it that those on the bottom pay more for everything? If there was true intent to make things better for those on the bottom, food prices would be reasonable (that is, of course, if there were food stores in the neighborhoods), cheaply made clothing would sold, appearing to be a bargain, only to cost more because they must be replaced more often.

Tell the congress that reasonable regulation is a must to save the lives of those on the bottom.

Thanks Marketplace for the opposing views. Proving once again that Economics is more a religion than science. (Albeit, a sophisticated one as the mathematical equations are more difficult than, say, tea leaves.)

Mr. Brooks gives his elevator metaphor an odd twist by blaming the President for throwing rocks at the top floor. Could it be that the President is trying to repair the elevator by asking those who are doing very well to pay a larger share of the repair bill? Or should those living at the bottom be asked to pay the repairs that will benefit those living at the top? Does that make sense to anyone?


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