by Brian Balfour
Senior Vice President of Research, John Locke Foundation
Free markets lower disparities, while government-controlled systems make things worse
We are conditioned at a young age by progressive institutions and propaganda to believe that capitalism only works well for the rich and that it oppresses poor and minority communities. As a result, we see impoverished groups falling further behind and racial inequities, in which minorities suffer worse outcomes in socioeconomic indicators across the board.
Heavy government intervention is required to create an economy that “works for everyone” and to narrow unjust racial inequities, we are told.
But what if the poor were better off and racial inequities minimized where markets are allowed to thrive with relatively minimal amounts of government intervention?
Clear-eyed observation finds this to be the case.
As economist David Friedman wrote in his 1989 book “The Machinery of Freedom”: “In spite of popular myths about capitalism oppressing the poor, the poor are worst off in those things provided by government.”
Indeed, everything politics touches gets worse as a result. Where progressives complain loudest about inequities in results is where you will find the hand of government the heaviest.
Where progressives complain loudest about inequities in results is where you will find the hand of government the heaviest.
Take the government provision of education. Despite encouraging upticks in school choice in North Carolina and other states, the overwhelming majority of schoolchildren continue to be educated in traditional public schools.
From standardized test scores to grades to dropout rates, the racial achievement gap in education has been long documented. Moreover, it’s no secret that a robust amount of research shows that poverty is one of the most reliable indicators of academic achievement. Education is one example of a largely government-run system failing poor children and producing racial disparities in results.
Now let’s have a look at the health care system.
Progressives consistently bemoan “racial disparities and inequities in health care.” Those include, for example, the disparate impact from Covid-19 on minorities, African Americans being more likely to die from issues like heart disease and colorectal cancer than whites and twice as likely to have diabetes, and significant racial disparities in pregnancy-related deaths.
Similarly, as the American Academy of Family Physicians noted, “Poverty and low-income status are associated with various adverse health outcomes, including shorter life expectancy, higher infant mortality rates, and higher death rates for the 14 leading causes of death.”
The government is the primary health care provider for the poor. More than 91 million Americans are enrolled in Medicaid and CHIP (Children’s Health Insurance Program). That’s slightly more than one in four. As of 2021, the Kauffman Foundation reported that African Americans are enrolled in Medicaid at more than twice the rate of whites, 34.5% compared to 16.5%.
Yet again, a largely government-run system is producing appalling results for low-income groups paired with disparate results for minorities.
There’s a substantial lack of affordable housing across the country. The National Low Income Housing Coalition estimated “a shortage of more than 7 million affordable homes for our nation’s 10.8 million plus extremely low-income families.” There also persists a sizeable racial gap in home ownership. According to the U.S. Treasury, the “homeownership rate for white households was 75 percent compared to 45 percent for Black households, 48 percent for Hispanic households, and 57 percent for non-Hispanic households of any other race.”
The government is of course heavily involved in the affordable housing arena. The Urban Institute reported that in 2019 (pre-Covid), the federal government spent $78 billion on housing assistance and community development. State and local governments added nearly $20 billion in such spending. Local governments are highly involved in regulating their housing markets, with mountains of restrictive zoning and land-use regulations. For instance, the City of Charlotte’s zoning ordinances run 889 pages long. In 1958, it was just 20 pages long.
Moreover, we have the Federal Reserve’s manipulation of interest rates through their centralized control of the money supply. The Fed kept interest rates, and in turn mortgage rates, at all-time lows for several years prior to Covid, resulting in cheap borrowing for housing, which helped inflate a real-estate bubble that put affording a house further out of reach for more people.
The government’s fingerprints are all over the housing market, and the results are the same: devastating for the poor and especially acute for minority communities.
Conversely, where markets are allowed to function relatively free from government control and manipulation, the poor fare much better and racial inequities shrink.
Let’s start with cellphones. A technology that didn’t exist a generation ago, and for years were the playthings of only the rich, now virtually everyone in the country owns one — including the poor. Pew Research in 2021 found that 97% of American adults owned a cellphone of some kind. This finding included 97% of those in households earning under $30,000 per year. Of course, at such a high rate of ownership, there’s no room for racial gaps in cellphone ownership. Pew reported 97% of whites, 99% of blacks, and 100% of Hispanics responding to their survey owned a cellphone.
Pew also reported that three-quarters of U.S. adults own their own desktop or laptop computer.
Moreover, 93% of American adults have internet access, with whites, blacks, and Hispanics all above 90%. Even 86% of households with annual earnings under $30,000 have regular internet access. Total home broadband usage has reached 77% overall, with blacks exceeding 70% and even low-income households reaching 57%.
Similarly, 99.8% of households own at least one fridge, with the New York Times adding that roughly 30% own two refrigerators. Nielsen estimates 96.2% of U.S. homes have at least one television hooked up to some sort of content provider.
I could go on. But, in short, where markets — not government — dominate, the poor are much better off and racial and economic disparities fall. Markets deliver and, as Ludwig von Mises said, turn luxuries into necessities.
Free-market capitalism, far from oppressing the impoverished and the common man, instead creates abundance out of goods that once were reserved for the wealthy elite. Such progress, Mises noted, tends “to wipe out the striking contrast between the mode of life of a fortunate elite and that of the rest of a nation.”
Meanwhile, where government remains the dominant force instead of markets, the poor and minorities suffer vastly inferior results. Let this be a warning to progressives who insist on still more government interference in markets under the guise of helping people.