The following first appeared in the June Liberty Forum at Law and Liberty.
Professor David Tucker argues in his Liberty Forum essay that a grand strategy, at least one that is dreamed of by experts, “is not a possibility for the United States,” and that if it were, we Americans would have fewer liberties. I agree. But I think he should have pursued that point much more aggressively. Partly because U.S. governments in this century and the last did pursue ambitious goals in other countries, we already have fewer liberties.
That does not mean that we, as Americans, should not have a grand strategy. I believe we should. Our strategy should be to maximize our liberty subject to the constraint that we should be relatively safe in the larger world. Fortunately, this strategy of maximizing our liberty would likely increase the liberty of many others in many other countries.
The Government Ratchet
Let me first explain why the previous grand strategy of intervening in other countries’ affairs has led to our having fewer liberties. I’ll start with the “ratchet” model of governmental spending and control that economic historian Robert Higgs identified in his 1987 book, Crisis and Leviathan.
Higgs pointed out that much of the growth in state spending, taxation, and regulation in the 20th century was a result of three crises: World War I, the Great Depression, and World War II. To deal with these crises, Washington dramatically increased federal spending and regulation. Federal taxes went up, as well. When the crises ended, spending, taxation, and regulation did recede some; but they never returned to their pre-crisis levels. In each case, the federal government gained substantial power.
So, for example, the top marginal tax rate in 1916, the year before the United States entered World War I, was 15 percent and it kicked in for taxable income above $2 million. Just one year later, in 1917, the top rate was 67 percent for that same income level and by 1918, the height of U.S. war spending, the top tax rate had increased to 77 percent on income over $1 million. Even though Treasury Secretary Andrew Mellon, who served Presidents Harding and Coolidge, successfully led the drive to cut tax rates, the top rate never fell below 24 percent and that rate kicked in at an income of $100,000.[1]
Similarly, the top income tax rate in 1941, during most of which the United States was not at war, was 81 percent, and applied to income over $5 million. By the end of the war, during 1944 and 1945, it had hit 94 percent and that rate kicked in at an income of $200,000. Although the top rate fell to 82.13 percent in 1948-1949, it applied to incomes above $400,000.
Two other major changes in income taxation occurred during World War II. First, the “class tax” became the “mass tax.” In other words, whereas the income tax was paid by a very small percent of Americans before the war started, by war’s end it applied to the majority of Americans. In 1944-1945, the marginal tax rate for a married couple was 23 percent on the couple’s first $2,000 of taxable and income. Prior to America’s entry into the war, that couple paid a marginal tax rate of “only” 10 percent. By 1948-1949, the rate fell, but only to 16.6 percent. The second change was the introduction during World War II of tax withholding. This made employers into tax collectors on their employees, and made the higher tax bite more palatable by making it less noticeable. It goes without saying that we are still subject to withholding. This is a loss of economic liberty.
Another kind of liberty had been lost during World War I, of course, and that was the introduction of mass conscription of young men. The draft went against the U.S. tradition of a volunteer military and even arguably violated the 13th Amendment’s stricture against involuntary servitude.[2]
The draft ended after that conflict, but was reinstated later. World War II conscription was even more extreme, with the length of service extended to the duration of the war plus six months. The number of people in the military, largely conscripts, swelled to a peak of over 12 million (almost 20 percent of the whole U.S. labor force) in 1945. And, true to the Higgs’s “ratchet effect,” the draft went away only briefly after that war ended. It was in force from mid-1948 until June 1973.
On the regulation front, the federal government nationalized railroads during World War I and, although it returned them to their original owners after the Armistice, the return was accompanied by a heavy dose of regulation. The Transportation Act of 1920 gave the Interstate Commerce Commission “complete authority over entry, abandonment, mergers, minimum rates, intrastate rates, and the issuing of new securities.”[3] That regulation lasted until 1980.
Even Prohibition, which began in 1920, had its roots in World War I, during which, under the Lever Act of 1917, the supply and consumption of food were both federally regulated. Part of the Act required that no food be used in the “production of distilled spirits for beverage purposes.” Since many distilled spirits require some foods (for instance, wheat) as an input, this amounted to a modest version of Prohibition, softening up Americans for the real thing in 1920.
Nor should we omit as an assault on liberty brought on by World War II one of the worst deprivations of all: the relocation and internment in 1942 of over 100,000 peaceful people of Japanese ancestry who had been living on or near the West Coast of the United States.
A World Without the “War for Democracy”
Imagine how different things might have been had President Woodrow Wilson not declared war on Germany and Austria in order to “make the world safe for democracy.” Without the U.S. government lending its mighty power to one side in the European war, Germany and Austria would likely have negotiated a peace with France, Britain, and Italy very different from the Versailles Treaty. In particular, Germany would not likely have been saddled with such huge reparations payments; therefore, Adolf Hitler would have had less support from the German people.
Consider, too, that in return for financial support of Russia’s Provisional Government that took over after the czar abdicated, President Wilson had insisted that the Russian government stay in the war. The war’s unpopularity with the Russian people was part of the reason that they supported, or at least did not strongly oppose, a communist revolution. Historian and diplomat George Kennan claimed that Allied pressure on Russia to stay in the war hastened the failure of the Provisional Government, which led to the takeover by the Bolsheviks.
In short, a reasonable case can be made that without Wilson’s intervention in World War I, there would have been no Soviet Union. So it’s arguable that without U.S. involvement in World War I, there would not have been a World War II and we would still be referring to World War I as the “Great War.”
What About World War II?
One might reasonably argue that, given that the Americans did get involved in World War I, we needed to get involved in World War II. But this argument takes as a given that the Japanese attack on Pearl Harbor was not preventable. It was preventable. The Japanese military did not wake up one day and decide that it was a good idea to attack the United States. Rather, its actions were a response to a steady tightening of the screws by President Franklin D. Roosevelt.
Between June 1940 and July 1941, FDR stopped the export of iron, steel, and oil to Japan and froze Japanese assets in the United States.[4] His actions, which had widespread popular support, were understandable; he observed the Japanese government’s horrific treatment of people in China and other parts of East Asia and wanted it to back off. To say that the Japanese sneak attack resulted from FDR’s actions is not at all to say that the attack was justified; it was not. But just as the way to avoid getting attacked by a thug is to avoid provoking the thug, so also if the U.S. government had wanted to avoid a Japanese attack, it would have been wise to avoid the actions that FDR took.
Moreover, if the U.S. goal with the sanctions was to avoid a vicious government killing millions of Chinese people, the U.S. participation in World War II was a failure: the Chinese Communist government that came after the war killed tens of millions of Chinese people.
While many people see the wisdom, in retrospect, of having the United States avoid entry into World War I, more will balk at the idea of avoiding U.S. participation in World War II. But the point remains. We give up a lot of freedom so that our government can fight wars and so one of the serious costs of the war is the freedoms we lose and only partially get back.
The Cold War and the War on Terror
This point applies also to the Cold War and the war on terror. One of the government agencies created during the Cold War was the National Security Agency. Earlier this decade, the NSA was revealed to have been collecting data on millions of Americans. The Director of National Intelligence at the time, James Clapper, when asked whether the NSA did this, answered that it might do so inadvertently but “not wittingly.” He later admitted that he had answered in “the most truthful, or least untruthful manner.” We simply do not know how much the NSA has turned into Big Brother, but the risk is clearly there.
With the Cold War being long over, one main reason the NSA gathers data is to spot incipient terrorism. But the terrorism itself is partly a response to U.S. foreign policy. University of Chicago political scientist Robert Pape, who compiled a complete list of suicide terrorist attacks from the early 1980s to 2003, found that 95 percent of them were in response to a military occupation. Quit basing troops in other countries and you reduce, if not eliminate, suicide terrorist attacks. Moreover, when we recognize that President Barack Obama had a list[5] of people in other countries who were suspected of being terrorists and ordered that the people on that list be killed without even a trial, we can see how far this country has come from the rule of law in pursuing its foreign policy.
Trade and Peace
But if we forswear military intervention in other countries, are there any tools left to affect the world in a positive way? Yes, and one of the main ones is free trade. In 1750, the Baron de Montesquieu, whose philosophy influenced the Founding Fathers, opined that “the natural effect of commerce is to bring peace.” More recently, economists Solomon W. Polachek of SUNY Binghamton and Carlos Seiglie of Rutgers have shown that a doubling of trade between two nations leads to a 20 percent decline in belligerence between those two nations.
So we as Americans can help the world become a more peaceful place by supporting free trade and by engaging in trade ourselves.
Furthermore, as Professor Tucker points out, we should not worry about whether “Canada and Mexico get a greater advantage from our mutual trade than we do” because both sides gain from trade. He should have gone further. The greater gains from trade for Mexico and Canada are not, as he says, “a small price to pay for their good will.” They are not a price at all. Again, both sides gain.
If we forswear military intervention in other countries’ affairs, there will be times, to be sure, when we see bad things happening around the world that our government could have had the power to change. That is, to paraphrase the 19th century French economist Frederic Bastiat, what’s seen. What is unseen is the often bad consequences to ourselves – and to people in other countries – of U.S. intervention. So let’s get rid of a grand strategy for the U.S. government and substitute our own strategy of peace and liberty.
[1] All of the tax data are from Joseph A. Pechman, Federal Tax Policy, Fifth Edition (Brookings Institution Press, 1987).
[2] In 1918, the Supreme Court rejected the claim that conscription violated the Thirteenth Amendment. Chief Justice Edward White, writing for a unanimous Court, stated that the Court was “unable to conceive upon what theory the exaction by government from the citizen of the performance of his supreme and noble duty of contributing to the defense of the rights and honor of the nation, as the result of a war declared by the great representative body of the people, can be said to be the imposition of involuntary servitude in violation of the prohibitions of the Thirteenth Amendment.” Such a contention, said Justice White, “is refuted by its mere statement.” If the Court was unable even to conceive of the argument, it apparently didn’t try very hard. And even if the argument were wrong, the statement of the claim does not refute the claim.
[3] Thomas G. Moore, “Surface Freight Transportation Deregulation,” in The Concise Encyclopedia of Economics, Second Edition, edited by David R. Henderson (Liberty Fund, 2008).
[4] See Gary Clyde Hufbauer, Jeffrey J. Schott, and Kimberly Ann Elliott, Economic Sanctions Reconsidered: Supplemental Case Histories, Second Edition (Institute for International Economics, 1990), pp. 53-60.
[5] Jo Becker and Scott Shane, “Secret ‘Kill List’ Proves a Test of Obama’s Principles and Will,” New York Times, May 29, 2012.
David R. Henderson is a research fellow with the Hoover Institution and an emeritus professor of economics in the Graduate School of Business and Public Policy at the Naval Postgraduate School. He is author of The Joy of Freedom: An Economist’s Odyssey and co-author, with Charles L. Hooper, of Making Great Decisions in Business and Life (Chicago Park Press). His latest book is The Concise Encyclopedia of Economics (Liberty Fund, 2008). He has appeared on The O’Reilly Factor, the Jim Lehrer Newshour, CNN, MSNBC, RT, Fox Business Channel, and C-SPAN. He has had over 100 articles published in Fortune, the Wall Street Journal, Red Herring, Barron’s, National Review, Reason, the Los Angeles Times, USA Today, The Hill, and the Christian Science Monitor. He has also testified before the House Ways and Means Committee, the Senate Armed Services Committee, and the Senate Committee on Labor and Human Resources. He blogs at http://econlog.econlib.org.
