Restoring Economic Freedom in America
Two Very Different Definitions of Freedom
Raise America’s Pay (RAMP) will go far in defeating wage stagnation and restraining widening economic inequality in the United States. Nevertheless, its philosophical foundation lies not so much in the goal of promoting equality as in the desire to advance freedom. Freedom is the nation’s identifying value—Americans themselves take pride in calling America “the land of freedom and opportunity.”
The vision of economic freedom underlying RAMP comes from the vision held by our founding fathers as well as our greatest leaders who succeeded them, including both Abraham Lincoln and Franklin Delano Roosevelt. Emphasizing the availability of ample opportunity, their understanding of economic freedom guided America for nearly two centuries. Regrettably, over the past half-century, the nation’s thinking about economic freedom has changed as a different idea came to the fore, the libertarian idea that centers on the presence and smooth functioning of a free market.
That we have altered our historic vision of freedom poses an existential problem for the nation. Among other things, it’s a main reason why the nation has permitted wage stagnation and stalled economic mobility as well as their many damaging consequences to develop and persist for so long, and why the nation continues to do so.
Stated simply, wage stagnation in a growing economy violates the historic concept of economic freedom advanced by the Founders, Lincoln, and Roosevelt. Their concept of freedom calls for—indeed requires—the availability of opportunity for individuals to be able to provide a decent living and get ahead. In sharp contrast, wage stagnation in a growing economy does not clash with a libertarian understanding of economic freedom. That idea of freedom focuses not so much on individuals having opportunity, but instead on whether individuals are able to make voluntary choices and engage in voluntary exchange within a free market.
To recognize the neutral stance that the free-market idea of economic freedom takes toward wage stagnation, consider the struggle of an all too typical working American. Ray Sanders, a steady hard worker in his late 40s, teaches full-time at Hillcrest Elementary in southwestern Oklahoma City. Living paycheck to paycheck, he can’t make ends meet without working two additional jobs—one at a Subway sandwich shop and another at a Dollar General store. Even then, he still has to punt on bills some months. “There’s something wrong”, he says, “when you have a master’s degree and you’re ringing a cash register to pay for college for your kid and for things like scouting.” Understandably, he’s gripped by frustration.
The road Ray and his family have traveled has been a tough one, for a long time. Despite working nearly three decades, he’s been stuck and unable to get ahead. And Ray is no exception. It’s important to understand how common Ray’s situation is among working Americans. Adjusting for inflation, each of the three jobs Ray holds pays him nearly the same as or less than similar jobs did 45 years ago, even though the economy since then has practically doubled in size per individual worker. What’s true for the three jobs that Ray occupies is true for a majority of all jobs that American workers hold right now.
Nonetheless, Ray’s story, and those of most working Americans, is quite compatible with the libertarian way many Americans have come to think about what freedom is and should be. What Ray and others are experiencing, they argue, has resulted in good part from the free choices that employers, workers, consumers—including Ray himself—are making and have made within the operation of supply and demand occurring in a largely free market.
However, this way of understanding economic freedom is much narrower than the foundational value of freedom that guided the nation for most of its existence. It focuses on the absence of external restraints that wrongfully interfere with individuals’ decisions and actions. In this it becomes tempting, it is true, to believe that the libertarian view springs from the same notion of freedom America has always held, but nothing could be further from the truth.
To appreciate the error of the libertarian approach and the profound harm it has caused countless Americans, their families, and indeed the entire nation, one need simply refer to the timeless words that heralded the nation’s birth, “All men are created equal.” Every American becomes familiar with those words from an early age, though few learn that they were not Jefferson’s exact original words—a seemingly small detail with significant importance for today.
What Jefferson actually wrote is that “All men are created equal and independent.” A few weeks earlier, George Mason had proclaimed the same truth in the Virginia Declaration of Rights . Other members of the Continental Congress’s drafting committee, men such as Benjamin Franklin and John Adams, agreed with Jefferson and Mason. It’s not certain why the final two words were struck, since they exist in the founding documents of a number of the newly created states, including Virginia, Pennsylvania, and Massachusetts. To be fully free in the minds of these Founders, a person had to be independent, so perhaps in the end it was thought to be unnecessary to state the words. Freedom already conveyed independence. In addition, the Declaration proclaimed individuals’ inalienable right to the freedom “to pursue happiness,” which in the Founders’ time was also commonly understood to call for conditions that enabled individuals to achieve a comfortable economic independence.
During the Founders’ era, attaining “independence” meant that individuals had the capacity to provide a dignified living and improve their living standard through means under their own control, including their own effort and hard work, such that they were not unduly dependent upon any other. This idea of economic freedom presumed the ready availability of economic opportunity at a level sufficient for individuals to be able to attain a condition of independence. It’s a very similar idea to the promise of the “American Dream”—that enough opportunity is available in our country for every hardworking person to make a respectable living and get ahead through one’s own efforts and work, enabling individuals to control their own lives. The American Dream, in effect, is a manifestation of the vision of economic freedom held at the nation’s founding.
Consequences of the Libertarian Notion of Freedom
We’re not talking here about some academic distinction, one with no meaningful difference, between two ideas of economic freedom—between the idea of "free-market economic freedom” that is common today and the more historic “economic freedom involving conditions necessary for independence.” Nearly all workers in America today, whether employed or unemployed, would meet the libertarian meaning of economic freedom. According to libertarians’ own measures, the United States ranks very high on economic freedom, within the top 5% of all nations. In stark contrast, a solid majority of working Americans—workers like Ray Sanders—do not meet the Founders’ meaning of freedom, in which those workers are able to provide a dignified living and get ahead though their own efforts. In America, even at the economy’s zenith in 2019 right before the onset of the pandemic, nearly 1 in every 3 of our workers held a job paying beneath a basic living wage of $15 per hour necessary to support a minimally respectable living in most areas of the country.
Equally important, the opportunity to better one’s condition through work had narrowed to the point that well more than half of working Americans were unable to improve their living standards by very much through work. All those Americans occupied jobs whose real pay per hour—even at the economy’s recent zenith—was hardly above or even less than the average job paid more than 40 years ago. It’s why Ray Sanders, despite working more than full-time and essentially taking three shifts, has run out of ideas as to how he can make ends meet, let alone get ahead.
The typical American today earns barely 12% more in real hourly compensation than the average job paid nearly five decades ago. That’s a raise of just 0.4% annually over all those years, and just one-ninth the rate of real compensation increases that occurred in the 1950s and 1960s. Importantly, too, such sluggish wage performance didn’t come from any lack of growth in American businesses or the economy over those 45 years. Quite the opposite: America’s GDP per capita as well as worker productivity both practically doubled; real pay increases for employees at the very top more than doubled; and, profits reaped by businesses tripled.
Almost all the robust gains from the near doubling of the GDP and productivity during the past 45 years bypassed everyday workers. In effect, the wages of workers became decoupled from the growth actually taking place in businesses and the economy over those years, with nearly all of the increases going to employees at or near the top and to business profits.
The losses to rank and file workers have been steep. Due to the disconnect between the growth of businesses and wage gains for everyday workers, the share of total compensation and profits going to the bottom 90% of workers dropped from 61.8% to 48.5% from 1973-2015. Had these workers simply received the same proportion of growth as the share they got in the early 1970s, the average rank-and-file working American would be paid about $15,000 a year more today. This means that the drop in the share of total compensation and profits they received has been the primary driver of stalled wages. In turn, a typical family with two workers would be paid nearly $26,000 a year more. Cumulatively over the four plus decades, an average two-worker family has lost more than $400,000 in pay they otherwise would have received if the overall share from the early 1970s had been maintained. Is it any wonder that burning resentment replaced former confidence?
Even working Americans with a four-year college education paid a steep price. Pay for those workers, on average, fell two-thirds behind both worker productivity gains and GDP growth over the past four decades.
Nor has anything changed under the current president. Prior to the pandemic, how often did Donald Trump hail the economy’s booming growth, soaring profits, bull market, and plunging unemployment? While he was saying that, real pay for America’s rank and file workers during Trump’s first 36 months, through December 2019, rose only 0.8% per year and would have been still lower, closer to 0.5% annually, had many states and localities not raised their own minimum wages. The average new job the economy created paid a lower than average wage as well.
The past half-century of wage stagnation and stalled economic mobility has taken a devasting toll on the nation. It has contributed to the decline of whole communities, the rise of opioid use and drop in longevity, family struggles and division from economic anxiety, rising rates of personal borrowing, and widening skepticism about capitalism. Ultimately, it helped fuel the loss of confidence in public institutions and fed the anger that upended our politics and put Donald Trump in office.
One obvious question to ask at this point is how and why we have permitted wage stagnation for everyday workers to persist for so long and with such little relief. For more than two generations now, Americans have suffered its many destructive consequences. One logical answer is that wage stagnation has inevitably followed from the changed filter through which we’ve come to assess the economy.
By viewing economic freedom through the lens of a free market, the tendency has been to see jobs and wages needed for independence mostly as a predictable result that will follow from the dynamic growth of the market economy rather than looking at establishing the conditions for independence as the direct aim itself. Growth in the overall economy became the direct goal of public policy, with greater opportunity—more jobs, higher wages, and better benefits—understood as a natural consequence that a growing market would inevitably create. To the degree there was growth, according to this view, opportunity would follow. Any response to the ensuing economic suffering from critics has tended to be in the form of redistributionist initiatives, frequently in the name of fighting inequality, rather than fixes to the system itself.
Consonant with this, there are few public policies any longer with the direct goal of raising the returns employers pay for work. The few policies that remain are very dated—such as a minimum wage that is significantly lower in real terms now than it was a half century ago. Like the boiling frog, we didn’t clearly see—and certainly didn’t emphasize for many years—the dangerous byproduct that emerged from shifting our focus toward the growth of the market and away from the conditions needed for independence. That byproduct is the disconnect that steadily developed, between the solid level of growth taking place in the market and the dramatically slower increase in real pay delivered to rank and file working Americans.
A vision of economic freedom that focused on the conditions needed for independence would have urged undertaking particular actions. First, it would have urged purposefully tracking and publicly prioritizing conditions essential for independence separate from other conditions, including the economy’s overall growth, allowing us to recognize the problem’s occurrence in a more timely way. Second, it would have meant intervening in the economy with the focus directed to generating the jobs, wages, and benefits needed to ensure the availability of opportunity for hard-working Americans. The measure for this would be whether sufficient opportunity existed enabling all willing Americans both to provide a dignified living and improve their condition through their work and, as important, to have ready choices of jobs toward that end. There’s a mutual obligation to one another here that freedom entails.
That said, however, restoring such a vision of freedom wouldn’t take us very far unless effective ways also existed to restore the American Dream as a reality in the lives of working Americans while still ensuring that individual businesses can prosper.
Effective ways do exist if we care to use them. The federal government has many kinds of incentives available to it—subsidies, tax relief, tax penalties, federal contracting, and so forth—all of them constitutional. Those incentives can affect corporate after-tax profits, either positively or negatively, with sufficient strength to serve as powerful incentives. They could be made potent enough to leave companies that share their growth proportionately with their rank and file workers gaining measurably higher profits than the companies would get by continuing to suppress workers’ wages as a way to maximize profits. The same incentives, kept in place, would then stimulate companies to continue lifting wages in line with business growth over time. There are mixtures of incentives that are able to accomplish this goal while keeping business profits strong—despite businesses paying higher wages to workers—and also with a net financial surplus to government. Businesses that try to game the rules can be identified and restrained.
That is the objective, and we believe the outcome, of the proposal our group has developed, called Raise America’s Pay, or RAMP.
Freedom as Opportunity for Independence in History
Giving priority to the restoration of the conditions needed for individuals to attain economic independence, as RAMP proposes, would be nothing new in our nation’s history. For FDR and the New Deal, too, freedom as independence was the bottom-line goal: “True individual freedom cannot exist,” FDR proclaimed, “without economic security and independence.” We had a fundamental obligation to one another to assure the availability of the economic conditions that freedom required. However, in the context of a prolonged economic collapse and persistent rising unemployment, FDR addressed the scarcity of opportunity to secure and sustain economic independence in a very different way. Through government actions, the New Deal directly created many millions of jobs, established job training programs, legislated the first minimum wage and still higher overtime pay when work exceeded an 8-hour day, introduced unemployment insurance, strengthened unions and collective bargaining to lift pay and conditions, and created Social Security.
A single idea lay behind every one of these pillars of the New Deal. That idea was to enable individuals to secure and sustain economic independence based upon means under their own control, in particular their own work and work histories. This was especially critical where the market itself did not provide adequate opportunity, or where it placed certain individuals at serious disadvantage. No economic benefits came from any of the programs just outlined except through either current employment, prior work history, or taking jobs in the future—that is, by way of actions that were under an individual’s control.
Other later programs, such as Medicare, followed the same principle. Medicare is related to an individual’s past work as well as his or her present income in retirement. The Earned Income Tax Credit (like both the minimum wage and regulation of overtime pay) focuses on wage-earners currently in jobs. At the front end, policies that provide free public-school education, various kinds of assistance to attend college, and skills-training programs, deliver little economic benefit for individuals and families except through future employment and work.
Looking further back, Abraham Lincoln and the Republican Party revived Thomas Jefferson’s idea that would make land sufficient to support independence freely available to any person—in Jefferson’s time, 50 acres; during Lincoln’s day (with the available land in drier country much further west) 80-to-160 acres. Every head of household who was a citizen or had applied for citizenship was eligible. The Homestead Act of 1862 ultimately transferred a total of 270 million acres of land—almost 15% of the entire continental United States—into the ownership of individual holders and families willing to live on the land and improve it. Still today about one-in-five American adults descend from those homesteading families. Because of the widespread availability of land in America (notwithstanding how the land was won), the yeoman farmer remained the paragon of American economic independence and freedom for 125 years following the nation’s birth. America, in Jefferson’s way of thinking, was so large that it “contained room enough for our descendants to the thousandth and thousandth generation.”
Some will say that even if Lincoln had it right, mandated communal programs such as those marking the New Deal surely violate the ideal of freedom as independence by their very collectivist nature. However, where collectivist programs enable individuals to be and remain independent on the basis of their own actions, and where their independence otherwise would be at serious risk, collectivist programs are not in conflict with the idea of freedom as independence.
Some also might argue that employment itself cannot and does not support actual independence in either the Founders’ or Lincoln’s meaning because employment—unlike landed self-sufficiency—places an individual under undue dependence upon others, particularly the individual’s employer. That is why independence requires opportunity sufficiently available to individuals to have a ready choice of jobs.
The Choice Before America
The vision underpinning RAMP follows a time-honored tradition, beginning with the Founders and passed down through Lincoln and FDR. That vision views the ready availability of opportunity for individuals to provide a dignified living and improve their condition through their own efforts as essential to the very idea and practice of freedom. Exemplified by the story of Ray Sanders and his family, for the past half century most working Americans have been unable to experience that core component of freedom. They have remained stuck in place, either beneath a living wage or unable to get ahead, despite their continued hard work. It’s plagued the majority of working Americans, not just a few. Equally troubling, by operating on a different and much narrower notion of freedom, our public policies have largely ignored all those Americans and instead tolerated the gains from growth channeled almost exclusively to top employees and to profits. All the while, opportunity available to most Americans evaporated. A multiplicity of harms resulted that have done grave damage to the nation.
If we cling to our current practices and enact nothing better than half-measures, most Americans will remain unable to advance their living standards through work. In contrast, by directing the nation’s policies towards whether businesses are delivering proportionate shares of their gains to their everyday workers, we can overcome wage stagnation and the spread of low paying jobs, along with the damage they’re inflicting, even while businesses continue to prosper. Regenerating the opportunity that workers and families need for upward mobility will restore the ideal of economic freedom and opportunity that created our nation and restrain widening economic inequality. Accomplishing all this is needed for our nation to resolve many of the most difficult problems it faces today and heal. There is a path to create the required change. We need only to take it.