President of the AEI says free enterprise is good for the poor – and good for the soul

BILL MOYERS: You once wrote, that you shouldn't talk about the poor unless you've been out among them and listened to them before you listen to experts at Brookings or AEI. And I've done that as a journalist.

And capitalism is not getting down to them.

ARTHUR C. BROOKS: That's true. It's absolutely right--

BILL MOYERS: Capitalism is not getting down--

ARTHUR C. BROOKS: It's absolutely right. And that's why we all need to be hawks for the free enterprise system.

And until we're warriors for opportunity, pushed all the way down to the bottom, until we understand that entrepreneurship exists as a moral force for poor people, for my grandparents and yours, unless we understand that then we've repudiated the promise of our founders.

BILL MOYERS: Did you read the book "Winner-Take-All Politics" by the political scientist Jacob Hacker and--

ARTHUR C. BROOKS: Yes.

BILL MOYERS: Paul Pierson?

ARTHUR C. BROOKS: Yeah.

BILL MOYERS: They describe how Washington made the rich richer and turned its back on the middle class. They showed clearly to me how our political system, which once served the interest of the middle class, has been hijacked by the very rich.

That the great explosion of wealth inequality which preceded Barack Obama, of course, was politically engineered in Washington by decisions taken under both parties, in both parties, by the people who make policy, in response to the powerful interests. Have you seen that playing out since you got to Washington?

ARTHUR C. BROOKS: Yes, sure. Absolutely. Look in the increasingly bureaucratized social democratic state that we're building. You have greater levels of intricacy and complication. You have an explosion of statist ideas in Washington, D.C.

And what this is effectively is, metaphorically that's a trough. And who comes to the trough? It's people who feed there. And people who feed there are the sophisticated, they're the wealthy, they're the people who are well connected. We have an explosion of cronyism because it's the illegitimate spouse of statism. If you want to get rid of cronyism that creates as winner-take-all politics, if you want a true democratic polity, you have to take away the pervasive statism that creates all of these incentives.

You know, the interesting thing is that the two populist movements that we saw over the past five years were the Tea Party and Occupy. They were both right. I mean the Tea Party talked about statism and Occupy talked about privilege and crony capitalism largely. I mean they-- all of their solutions were wrong. You know, the problem with, you know, excesses of capitalism isn't getting rid of capitalism. You need true free enterprise. That's actually the solution to it, which is a highly populist thing to do.

So what's happened effectively is-- not for any ill intention. No. We have public policymakers, we have a president who loves his country. We have a Congress that's gotten together and said, "What can we do to solve some of these terrible problems?" They've expanded the state. They've created greater complexity. And who has showed up to reap the rewards of that? It's the most well connected citizens and corporations. And it's left poor people, it's left small entrepreneurs, it's left ordinary citizens behind.

BILL MOYERS: Yes, it was the big banks that got bailed out and the CEOs of those very banks that helped drive us over the edge who got the big bonuses while the borrowers out there got very little help.

ARTHUR BROOKS It’s the same story again and again and again. American housing policy was largely executed through the entities; the GSEs, Fannie Mae and Freddie Mac. They were implicitly going to be bailed out by government. And in fact they were.

They created the incentives to create more and more credit that blew up the American housing bubble. That’s what destroyed the financial markets in this country. And of course through these incentives a lot of private sector banks jumped on the bandwagon. And then a Republican president and a progressive Democratic president said, “We have to bail them out, because the whole financial system might go down. And who would be hurt the worst? Poor people. Because they always were.

BILL MOYERS: But they were hit the worst.

ARTHUR BROOKS: But remember it was big government and bad public policy that sparked this crisis.

BILL MOYERS: They were hurt the worst and they haven't recovered the way the --

ARTHUR C. BROOKS: I know and it's a scandal.

BILL MOYERS: --the bankers and the hangers-on and the lawyers--

ARTHUR C. BROOKS: It's a scandal.

BILL MOYERS: --and the lobbyists and all of those have benefited.

ARTHUR C. BROOKS: I agree with you. And this is the reason that political progressives and conservatives should band together and say this plutocratic tour de force that we call Obamanomics, or whatever else you want to call it, has been a major mistake for this country.

It's time to be pro-poor for once, as opposed to this sham of a recovery that talks about free money and that makes sure that reform at the state and federal government level actually doesn't accrue to certainly to citizens. But even to anything that would lower the size of government. That you go down through the policies and you find that the system's rigged.

BILL MOYERS: But Arthur I'm no cheerleader for Barack Obama.

ARTHUR C. BROOKS: I understand.

BILL MOYERS: Anybody who's watched this show has--

ARTHUR C. BROOKS: Nor would I assume so.

BILL MOYERS: No. But the economy and the financial center came crashing down while Bush and Cheney were in office. The long period from 1980 when we began deregulation and began cutting taxes for the rich, from 1980 to 2006; 26 years. Eighteen years of those were under Republican presidents. I think it's a cheap shot to say Obama's policies since the crash have been responsible for the circumstances we're in—

ARTHUR C. BROOKS: Oh no. No, the crash happened--

BILL MOYERS: That's what I--

ARTHUR C. BROOKS: --before Obama.

BILL MOYERS: Exactly. But I hear you--

ARTHUR C. BROOKS: Absolutely.

BILL MOYERS: --say that we haven't recovered because of Obama's policies. And I think that--he deserves some of the credit. The stimulus wasn't enough.

ARTHUR C. BROOKS: No, no, no, no. I think we've gone in the wrong direction over the past five years. But let me take your point, because your point is important. The crash itself is not Obama's fault.

ARTHUR C. BROOKS: The crash is a confluence of normal bubble behavior with a lot of bad public policy, especially bad housing policy that was utterly bipartisan. Look, it was the Bush administration and it was the Clinton administration largely that conspired to blow up Fannie Mae and Freddie Mac. And a housing policy that utterly destabilized the entire financial system.

That led of course to all of the metastasis through the financial system that blew up the American economy in the first place. You can't place blame on a particular party, certainly not Bush and Cheney, any more than if you want to place the blame squarely on the shoulders of Clinton and Gore.

BILL MOYERS: But since Robert Reich and others have pointed out that before the crash we had the highest gap in inequality, wealth inequality, of any industrialized democratic nation. “The Economist” in 2006, wrote that if America's not careful, it's going to have a class-based system like Europe has had. All I'm saying is that we were on the path to gross inequality and injustice long before the crash.

ARTHUR C. BROOKS: Now, the truth is exactly that we have an inequality crisis, but it's not the inequality crisis that we're hearing about today. It's the opportunity inequality crisis in America. If you go back to 1980 to the present-- again, this is a bipartisan problem.

You'll find that economic inequality has been systematically falling in this country. Americans don't care about income differences. What they care about is the ability to get ahead. Nobody begrudges the fortune of Bill Gates to Bill Gates. What they begrudge is a system that says that your kid could never even remotely approximate even the success that would be that you would think of as something that a prosperous person could achieve.

Now, why is that? That is because, you know, there's a very important book by Thomas Piketty, a French economist. It's tremendously influential inside the Obama administration and inside progressive politics in America today. And it basically-- I mean they're-- people are haggling over whether the data are right, but forget all that. It makes one very important observation. We don't have an income inequality problem. We have a wealth--

BILL MOYERS: A wealth.

ARTHUR C. BROOKS: --and income inequality problem.

BILL MOYERS: Which means what people own.

ARTHUR C. BROOKS: But we really have a capital inequality problem. That's what's really going on. But no, capital is three things. Three kinds of important capital out there. There's financial capital, which is what they own, there's human capital, which is what they know and what they can do, and there's cultural capital, which is the institutions of success. And the truth of the matter is we've been marginalizing poor people across all three types of capital for decades.

BILL MOYERS: I saw a study just this morning, a vast majority of the people who are very rich in this country believe this inequality is wrong. And they would like to see it ameliorated. So what public policy would do that by your lights?

ARTHUR C. BROOKS: Okay, again. Ask people if they care about economic-- if they're an income inequality or opportunity inequality. And you will find vast--

BILL MOYERS: Or wealth inequality.

ARTHUR C. BROOKS: --of Americans.

BILL MOYERS: Or wealth inequality.

ARTHUR C. BROOKS: Ask 'em if it's about opportunity, that's what they really care about. Now--

BILL MOYERS: Everybody wants the opportunity. But our system--

ARTHUR C. BROOKS: True.

BILL MOYERS: --is not delivering it to them.

ARTHUR C. BROOKS: That's the problem. The minute people think the system is rigged, then they will put their hand in another man's pocket.

BILL MOYERS: It is rigged? You concede that?

ARTHUR C. BROOKS: Well, the system is not working.

BILL MOYERS: You're right there in the middle of the rig—you’re not you're doing it, AEI'S not-- I'm just saying, you're right there to see it work.

ARTHUR C. BROOKS: No, nor are our donors. We are morally committed at AEI to a system that benefits everybody. Where opportunity benefits-- we are warriors for education reform. We are warriors for true entrepreneurship, which is, you know, it doesn't matter if you don't speak English, it doesn't matter if you don't have an education. If you have a strong back and want to cut lawns, morally, the only thing you should have to own is a lawnmower.

We're committed to these ideals. We're committed to the idea that work is a good and an honorable and a blessed thing and it should pay. These are the ideals of pushing prosperity and pushing the American ideal, the dream all the way down to the bottom. Because when you don't, you get what we've got today. Which is--

BILL MOYERS: But we--

ARTHUR C. BROOKS: --asymmetric recovery.

BILL MOYERS: An-- meaning most of it is going to the rich?

ARTHUR C. BROOKS: Well, of course most of it's going to the rich.

BILL MOYERS Hacker and Pierson make it clear that there are no such thing as a pure market. That markets have--

ARTHUR C. BROOKS: Of course.

BILL MOYERS: -- are shaped by law, rules and regulations. By the institutional arrangements themselves that are determined by the political process. Which is now controlled by the very wealthy and by big corporations.

But you've said that you don't know anyone who comes to town to service his cronies. Right? I mean--

ARTHUR C. BROOKS: Absolutely.

What six-year-old child says, "Mommy, when I grow up I want to be a crony capitalist."

BILL MOYERS: But how is it they wind up consistently doing the bidding of big donors?

ARTHUR C. BROOKS: If we don't take away incentives, people will follow those incentives. Either it's to become dependent on welfare or it's to take crony capitalist benefits at the corporate level. This is a function of runaway government.

BILL MOYERS: But the other day when the House approved continuing the highway fund they took some of the funds to pay for it out of pension plans. Now that's where the pensioner had no influence and the powerful contractors and others had all of the influence, right?

ARTHUR C. BROOKS: Look, this happens every day, Bill. This happens every day. And here's the interesting thing. Here's the reason that we shouldn't be too worried about the breakdown in our ability to understand each other in Washington, D.C. By the breakdown between the parties and the inner party tensions.

You know, you were in Washington in for a long time when you were working for President Johnson. Going forward, the one thing that you knew for sure, there was one thing that the right and left could get along on, and that was a way to split up the dough. That was a way to get the pork in a completely opaque way and to split it up among constituencies.

At least you and I are talking about it. At least there's outrage. At least Occupy and the Tea Party movement and conservatives and liberals-- I mean you have the fringiest right wing and left wing groups, what do they agree on? They agree on the fact that Washington is conspiring against the country.

BILL MOYERS: How can the Republican party adopt reform when it's got the really loud and angry-- right to its right?

ARTHUR C. BROOKS: Reform doesn't necessarily mean making or trying to repudiate somebody who's loud and angry. On the contrary. Most of the interesting reforms in history come from social movements that magnetize around some level of anger. The key thing is basically that we need to remember that reform conservatism has to not be about fighting against things. It has to be about fighting for people. That's what reform conservatism really needs to be.

And it's plenty okay to be angry. I bet you've been very angry about injustices toward people. In fact I know because I've seen you over the years. You're angry about the injustices toward people who are powerless. You know, if we basically can say this, we believe that conservative policies, generally speaking, are the most consistent with economic facts and the best for creating poverty-- for creating prosperity, for alleviating poverty.

That said, imagine if on the conservative side we have an examination of conscience where every night before we go to sleep we say, "Did all of my work go for the benefit of people with less power than me?" Then that could be a profoundly moral movement. I bet it's one that even you could get behind.

I think that if you and I band together with all of our friends on the right and left, and we demand this collective examination of conscience, then we truly can have a better politics where we're fighting in the competition of ideas specifically to help those who are the least advantaged.

BILL MOYERS: There’s a new study coming out, by the scholars Martin Gilens and Benjamin Page.

They examine more than 1,700 policy outcomes in Washington over 20 years. And they found economic elites and organized groups representing business interests have a great deal of impact on U.S. government policy, while mass-based interest groups, and you were talking about some of those, and average citizens have little or no independent influence. In a country founded on the idea of representative government, doesn't it curdle your soul to hear respectable evidence-driven scholars conclude that average citizens have little or no independent influence on public policy--?

ARTHUR C. BROOKS: Drives me crazy. Wakes me up at night. But here's the deal. You got to ask yourself what happened. It's not that business influence was immaculately conceived. And it's not businesses per se. It's that power can run away when you have a power that's not answerable to the people.

And that's what's happened when the government in Washington has grown so much. So strongly. So virulently. I mean it's metastasized in our lifetimes in ways that would have been unrecognizable. Not just to the founders, but people 100 years ago. They would’ve said, "It's what percentage of GDP in the richest country in the world?"

Well, again, when you amass power, as an empirical proposition, as we understand through history, if you amass power in some particular place, all of the other power will be drawn to it. It's shocking to me that the center of economic activity in the United States is in Washington, D.C. And the reason is because the government dispenses the benefits. The government dispenses the favors. And as the government grows more through Republicans and Democrats, as the government grows, power will grow. As power grows, it will attract and you'll get just more and more and more of that.

BILL MOYERS: I've been pursuing you on this because you once wrote that the moral code of our free-enterprise system is neither profits nor efficiency. It is quote, "creating opportunity for individuals who need it most." And that's what's not happening today.

ARTHUR C. BROOKS: This is an abdication of the moral promises of our founders to us. It's exactly not the reason that your grandparents or great-grandparents came to this country.

They were not steaming through New York harbor saying, "Thank God I can get a better system of forced income redistribution in America." They wanted to go to Texas and start a farm. I'm just going to guess. There was something in there. It was the reason for this country. It's morally impermissible when we lose that, number one. Number two, we have to redouble our efforts in public policy to the opportunity society with a preference for the poor themselves.

Opportunity does not mean food stamps. I believe in food stamps. I believe in them. I believe in the safety net. But it's not the same thing. Why do we forget that entrepreneurship is not earning a billion dollars, it's the dignity to live your life as an individual, to build your life up yourself. And why do we talk about dead-end jobs as opposed to making all jobs pay, and remembering that all work is dignified. If we did that, Bill, we could have a truly different country and it wouldn't matter if you're a conservative or a liberal. You'd be coming at it from different sides to achieve the same goals.

BILL MOYERS: If Robert Reich was sitting here, he would say, "All admirable aspirations, but in fact, unachievable at the moment because capitalism is failing us."

ARTHUR C. BROOKS: The problem that we have is that we're actually not practicing capitalism. The problem is that the free-enterprise system is not allowed to flourish. Furthermore, the problem is the runaway growth in government that Mr. Reich was involved in that's putting a break on the ability of people to participate in the free-enterprise story in the first place.

And most of all it's because we're forgetting the moral principles of our founding. The moral principles of the pursuit of happiness that brought people here. And when we forget all those things, we can find a culprit. "It's the markets." It's not the markets. It's the people who are making the markets fail.

BILL MOYERS: Who rigged the markets?

ARTHUR C. BROOKS: Who rigged it, allowed it to fail, and set up systems of public policy and any other systems that try to get around competition as opposed to trying to win competition. Individuals should be wired to use systems to find their unique capabilities and talents. To meet-- to make their passions and their skills meet.

And government should be helpful in helping people to find that nexus instead of, "What am I trying to do? I'm trying to find a way around competition. I'm trying to find a special source of benefits." That's what we've turned into. To blame capitalism is not just to get the solution wrong. It's to take us backwards.

BILL MOYERS: No, but it was a failure of corporate governance that helped spark the financial meltdown you were talking about that wiped out $2 trillion in retirement savings in 15 months, lost two million homes to foreclosure over two years, and saw the disappearance of 7.2 million jobs. That was rampant greed.

ARTHUR C. BROOKS: I wouldn't call that rampant greed as much as I would call that bad public policy that set up incentives, incentives that were not tempered by a proper sense of morality.

BILL MOYERS: Bad public policy that removed the firewall between--

ARTHUR C. BROOKS: No, no, no, that's not right.

BILL MOYERS: I think so.

ARTHUR C. BROOKS: That's not right. It's bad public policy that blew up a housing market on the basis of the government-sponsored enterprises. On the GSE's, Fannie Mae and Freddy Mac. And it was not Democrats or Republicans, it was politicians together that decided that cheap housing was the goal and it was using it as a means of social engineering.

That was a very dangerous thing. That's what blew up the housing market. That's what wrecked the financial markets. And I will not defend corporate governance. Because people-- it does not matter how bad the incentives are and how corrupt the government is and how big and corpulent and immune to good ideas and morality the government is. We still as individuals, no matter what we do, we have a responsibility to not do dangerous things and to be stewards of both a good culture and the resources at hand.