The Real Cause of American Growth

Richard Epstein*

Richard Epstein

Richard Epstein

Judging from all the hype, the economic book of 2016 is Robert Gordon’s The Rise and Fall of American Growth. Gordon’s book offers the definitive account of how the many technological innovations between 1870 and 1940 dramatically improved life in the United States. On the positive side, he accurately chronicles the major advances in electricity, public sanitation, pharmacology, and communications—and documents the rise of the internal combustion engine. But on the negative side, the book is utterly silent on why American society was capable of making such a radical transformation during that period.

Gordon’s book has attracted much attention because of his warning that America is not likely to again see such dramatic improvements in the standard of living. The question is why. The first part of the answer is simple enough. In the late nineteenth century, there was a lot of low-hanging fruit—that is, there were many ripe opportunities for innovation. This partially helps explain why American society grew in the years between the end of the Civil War and the start of the Second World War. The second part of the answer, which Gordon leaves unmentioned, is that these innovations coincided with a period of American history when laissez-faire capitalism was at its peak. Growth started to decline because of the massive expansion of the government occasioned by the New Deal, which put a strain on the free market.

Gordon paints a vivid portrait of the painful drudgery of life in 1870: heavy manual labor in darkness and silence, with only primitive drugs and medical procedures. Overall economic growth before 1870—and on this point 1850 may be a more accurate date—took place at a snail’s pace, with life expectancy stuck at 40 years for over three centuries. Gordon argues that things began to shift when Great Britain and the United States first developed decent sanitation systems. The natural experiment of the London cholera epidemic of 1854 persuaded Dr. John Snow that the pollution of the Thames River, and not some mysterious miasma, was the source of the disease. Thereafter, the construction of the London sewers dramatically reduced infectious diseases in England and, when imitated, produced the same result in the United States. Then, in 1881, Louis Pasteur developed the germ theory of disease, which led to the isolation of several major pathogens, and many human lives being saved. At the same time, technical progress surged forward with the invention of the telephone, the electric light, the radio, the automobile, the airplane, aspirin, and much more.

The reason for this advance, as Gordon points out, is that there was so much room for growth. A horse drawn carriage averages about five miles-per-hour. At that rate, a 1000-mile journey takes a painful 200 hours. A train moving at 50 miles-per-hour not only provides greater safety and comfort, but also allows that same journey take place in 20 hours. With the development of the airplane, 20 hours becomes two hours, saving 18 hours but at far greater cost.

This pattern repeats itself with other forms of innovation, too. Understanding vitamin deficiencies in the early part of the twentieth century eliminated many horrific diseases—niacin for pellagrathiamine for beriberi, and vitamin C for scurvy. Simple dietary supplements saved numerous lives. Similarly, the standard treatment for diabetes in 1920 was slow starvation, often ending in death. But the isolation and purification of insulin in 1922 saved many lives. (Consider the case of Elizabeth Hughes, daughter of Supreme Court Charles Evans Hughes. She contracted the disease at age 11 in 1919. When she was 15 years old in 1922, she weighed 45 pounds. But her life changed with her first shot of insulin. She rose, as if from the dead, married in 1930, and lived until 1981.) And the discovery of antibiotics had a similar transformation on the lives of individuals suffering from infectious diseases. The great Vannevar Bush, who headed the American science effort in World War II, noted in his neglected 1945 classic Science: The Endless Frontier, “The death rate for all diseases in the Army, including the overseas forces, has been reduced from 14.1 per thousand in the last war to 0.6 per thousand in this war.”

Gordon’s supports this thesis with an impressive amount of evidence. But his account overlooks why this transformation took place chiefly in the United States and Great Britain, and not elsewhere in Europe, the Americas, or Asia. The explanation cannot lie in the general state of scientific knowledge, which is always freely available across the globe. Rather it lies in the set of national institutions and norms that shape society. On this score, it is noteworthy that the words laissez-faire and capitalism do not appear in the index to American Growth, even though these institutions set the dominant political, economic, and legal frame of the age.

Gordon seems determined to negate the importance of strong property rights and limited government. It is surely no accident that the dust cover of American Growth is the 1939 painting, “The Construction of a Dam,” by the artist William Gropper. The picture shows a group of muscular and determined men precariously perched in the dangerous work of putting up the iron bars needed to support the future dam. Gropper painted in the social-realist tradition, and was known for his “lifelong antipathy to capitalism.”

The picture is an absurd counterpoint to the underlying message of the book. The source of growth and innovation was not brawn. It was brains and innovation, both of which could only take place in a culture that cherished and protected both of these values. It is supremely ironic that the most dynamic period in the world is usually described by lawyers in ominous terms as the Lochner Era, during which the Supreme Court was denounced as a superlegislature for overriding the decisions of the political branches of government when, the story goes, they sought to ameliorate the hardships of the new industrial revolution. Pundits like Louis Brandeis and Felix Frankfurter chided the Supreme Court for failing to see that the rise of large industrial complex required not only a strong antitrust law, which came with the Sherman Act of 1890, but also an extensive range of other interferences in the market in order to promote health and safety.

It is impossible to reconcile the progressive attack on laissez-faire institutions with the huge rate of material and social progress that took place in large measure because the old Court consistently followed classical liberal principles. The majority in Lochner v. New York (1905) got it right when it recognized that the maximum hour legislation of the New York baker’s law was an anti-competitive effort to advance union labor at the expense of non-union, and often immigrant, workers.

The same theme runs through the Court’s stout response to organized labor. Thus the Court properly struck down mandatory collective bargaining statutes at both the federal level in Adair v. United States (1908), and at the state level in Coppage v. Kansas (1915) for the simple reason that labor cartels should never receive state support. The old Court was equally correct in Hitchman Coal v. Mitchell (1917) in enforcing yellow-dog contracts, under which employees agreed (often at their own request) not to become (or promise to become) union members so long as they remained on the job. Similarly, the Court rightly subjected unions in Loewe v. Lawlor (1908) to liability under the Sherman Act for their collective refusals to deal. The flexible labor markets that the Court protected resulted in higher productivity, higher wages, shorter workweeks, and a higher standard of living. The progressives never noticed.

The same pattern held with the new industries. It is not generally appreciated just how expert and precise the judicial response was to government regulation of large firms, common carriers, and public utilities. The Court understood that regulation was intended to curb monopoly profits, not to create endless cross-subsidies between interest groups.

Nor should anyone overlook the excellence of patent law during this period, which gave ample protection to inventors, without allowing any one to dominate an industry or new form of technology. The situation has gotten far worse now that the misnamed America Invents Act of 2011 has undone most of the good work done by the Patent Act of 1952. It is also worth noting that the FDA had no power to stifle the development of new drugs until the constitutional revolution of 1937 gave the United States virtually plenary power to regulate the economic sphere. The 1938 Food Drug and Cosmetic Act was the first modest foray into this space, but the 1962 Kefauver-Harris Act set back drug innovation in ways that continue to this day by requiring “efficacy” to be proven in addition to safety.

The list of course does not end here: just think of the impact of Dodd-Frank on financial regulation and the Affordable Care Act on healthcare. None of these major pieces of legislation receive more than passing mention in American Growth. In his TED talk on this issue, Gordon attributes the decline in innovation to matters of demographics, education, debt, and inequality, ruefully noting the negative growth in income over the last few years in the United States. But at no point does he mention that the source of all these negative trends is an expansion in the size of government that outpaces the rise in GDP.

To be sure, the optimal government is not so small that Grover Norquist could “drag it into the bathroom and drown it in the bathtub,” whatever that means. It should be large enough to deal with the protection of individuals and their property, the creation of infrastructure, and the regulation of monopoly. But over the last 50 years, most government growth has been unrelated to these ends and concentrates on a dangerous combination of redistributive policies, which do not help the poor, and excessive economic regulations that harm everyone. Is there any wonder that the rate of economic growth has slowed, and that median income has gone down as the size of government has gone up? Gordon misses how the decline in our political institutions and social ethos have kept our anemic growth rate below 3 percent per annum since 2005. Gordon, it seems, wants to be understood as yet another champion in the war against economic inequality, just like the flawed Thomas Piketty. Pity he is fighting on the wrong side of the battle. 

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.

Hard Questions on Same-Sex Marriage

Richard Epstein*

Richard Epstein

Richard Epstein

It doesn’t take a weatherman to tell which way public opinion blows. The huge uptick of support for same-sex marriage has beendescribed as swift and broad, to which we can add, in all likelihood, lasting.

In my view, every time the defenders of the traditional view of marriage speak in public on behalf of a ban, they lose the support of neutral third parties. The problem is that they are trying to tell other people how they should lead their own lives, and are using the power of the state to do it. Their justifications are far from compelling. They talk about the need for procreation in marriage, though many straight married couples use contraceptives. They talk about the risks to parenting, when there is no evidence that suggests that gay and lesbian couples are worse parents, especially when compared to dysfunctional couples in traditional marriages or single parents of limited financial means. Their arguments against same-sex marriage thus fall flat to modern ears, so that the basic support for same-sex marriage only grows.

The transformation of public opinion dovetails nicely with the recent Supreme Court decision in Obergefell v. Hodges, in which Justice Anthony Kennedy’s Olympian opinion echoed the social tidal wave in favor of same-sex marriage. Kennedy did not bother to articulate what standard of scrutiny, high or low, controls the case. In his mind, the case for an inclusive definition of marriage is so strong that the ban on same-sex marriage cannot survive under any standard of review. Analytically, however, he provided only weak answers to an even more fundamental question: What judgments should be left to democratic processes and what judgments should be insulated against majoritarian politics?

This problem has special urgency here because of the unbroken historical record that defines marriage as a union between a man and a woman. Justinian’s Institutes of the sixth century AD, for example, apply the rules of marriage only to human beings, but treat them as part of “that law which nature teaches to all animals.” That code of law states: “Marriage, or matrimony, is a binding together of a man and woman to live in an indivisible union.”

The defense of the traditional understanding of marriage that was raised forcefully by Judge Jeffrey Sutton in the Sixth Circuit(and picked up by Chief Justice John Roberts in his pointed dissent in Obergefell) raises the question of how can the Court read the Constitution to invalidate the universal definition of marriage as between a man and a woman? Tradition is a legitimate ground on which to defend social legislation elsewhere, so why not here?

The best way to go is to try to understand why the traditional definition of marriage was universal. The defenders of traditional marriage claim that the purpose of marriage is procreation, which is impossible with same-sex couples. Kennedy denies that there is any good fit between marriage and procreation: After all, many men and women wish to marry when they do not or cannot have children, so the state could never condition a marriage license on couple’s commitment to have children.

Nonetheless, this response underestimates the role of procreation in defining marriage. Historically, procreation was widely regarded as the essential purpose of marriage. Indeed, the words in Genesis 1:28, “be fruitful and multiply and fill the earth and subdue it,” read as much like a command as a blessing. Within this framework, same-sex relationships are different: They can never add offspring to society, but they can reduce them by taking both men and women out of the reproductive market, and thus undercut that social imperative. The preservation of society through reproduction is strongly tied to traditional marriage, but not to same-sex marriage. So why condemn the traditional view as arbitrary when it tends to advance a desirable societal end?

Historically, this point found a constitutional home. Even though the traditional “morals” head of the police power is nowhere mentioned, it had long been used to give the state extraordinary leeway in regulating all sorts of sexual relations, as was detailed in Justice Byron White’s now-widely-reviled 1986 opinion in Bowers v. Hardwick, whose historical accuracy remains unquestioned. As late as 1961, all 50 states outlawed all forms of sodomy, even though many bans fell into desuetude. But throughout it all, no one, anywhere, has suggested that it would fall in the power of the state to abolish the traditional institution of marriage altogether. The overall consequences for child rearing would be disastrous.

It is fair to respond, as Kennedy does, that the advocates of same-sex marriage do not wish to ban marriage but to partake in it, so that there is nothing to fear from the decision except the fuzzy sentiments of individuals opposed to the practice. That is a good reason to ask the legislature to change the definition. But it is less clear that it is a good reason to allow courts to preempt the democratic process. On this point, the Kennedy response is to say that there has already been “far more deliberation” than the Sutton opinion acknowledges in every conceivable forum. In Kennedy’s view, the endless discussion has led to an “enhanced understanding” of the issue—namely his—which displaces the vote as a way to resolve the debate. The dignitary interests of these couples is so strong that it is “demeaning to lock same-sex couples” out of marriage.

Yet at no point does he ask whether the criminalization of polygamous marriages under the Supreme Court’s 1878 decision inReynolds v. United States—an uncommonly ugly invocation of the morals head of the police power—should be overturned given how it demeans and punishes polygamous families. His blinkered view of autonomy lets him attack the restriction of marriage to persons of opposite sexes, but not its limitation to two people.

The Scalia dissent scores big points in attacking Kennedy for judicial hubris, by insisting that the whole point of democracy is not just to inform the justices but to let the people decide on the issue. So Kennedy, like everyone else, must explain why a nationally consequential decision on same-sex marriage should be taken out of the democratic process. His answer is that it involves the assertion of a “fundamental right,” a term that he nowhere defines. Thus, when the fundamental rights of persons are violated, “the Constitution,” he writes, “requires redress by the courts, notwithstanding the more general value of democratic decisionmaking.”

At this point, his analysis turns wobbly. Kennedy eagerly talks about the “dignity” of the individual in two-person marriages. And he lauds the Court’s 1967 decision in Loving v. Virginia for striking down the ban of interracial marriage between a man and a woman, on the combined strength of the Due Process and the Equal Protection Clauses of the Fourteenth Amendment. The libertarian foundations of Loving are also evident.

But why stop there when the concept of liberty goes a lot further? In particular, Kennedy never explains why his notions of dignity and autonomy do not require the Supreme Court to revisit its 1878 decision in Reynolds upholding criminal punishment for polygamy, which is still on the books. Nor does he ask whether the dignity of workers could, and should, be used as a reason to strike down the full range of labor regulations on both wages and hours that make it flatly illegal for two individuals to enter into a simple employment contract on mutually agreeable terms.

To his credit, Chief Justice Roberts—no libertarian—sees the connection, and thus uses his condemnation of the 1905 Supreme Court decision, Lochner v. New York, for striking down a maximum hours law, as a cudgel to explain why the Constitution has nothing to say about same-sex marriage. Unfortunately, Roberts lurches too far in the opposite direction. Historically, the case for economic liberties is far stronger than that for same-sex marriage because labor never got entangled with the morals head of the police power. Indeed, much recent scholarship, especially by David Bernstein, shows the dubious special interest, anticompetitive politics that Lochner helped thwart. It would be a lot easier to accept the Kennedy position if he were prepared to embrace a concept of liberty for all by overturning Reynolds and restoring Lochner. But on those areas, inexplicably he flips back to the democratic side, without ever defining the state interest in squashing the operation of competitive labor markets.

It gets worse because in the wake of Obergefell, we have to ask what the next step in the struggle over same-sex marriage will be. By insisting that same-sex marriage is a fundamental right, Kennedy has consciously introduced an equivalence between race and sexual orientation. How far is he prepared to go? In the 1983 case of Bob Jones University v. United States, the Supreme Court upheld an IRS decision to deny tax-exempt status to schools engaging in racial discrimination. The Court acknowledged that it could not outlaw the Church’s practices, which were protected as a free exercise of religion. But the differential tax treatment was fine because “the Government has a fundamental, overriding interest in eradicating racial discrimination in education.”

Can the IRS now deny tax exemption to the Roman Catholic Church on the ground that it rejects, on religious grounds, same-sex marriage? If so, that judicial notion of “fundamental interests” works effortlessly both to expand and contract state power. It can insulate the exercise of some liberties from state control, but allow other liberties to be burdened by differential treatment of other liberties, including those expressly embedded in the Constitution.

The point here is not idle speculation. Here are three data points. In Martinez v. Christian Legal Foundation (2010), a five-to-four majority with Justice Kennedy concurring, held that it was perfectly proper for Hastings Law School, a public institution, to deny the tiny Christian Legal Foundation the full benefit of school facilities largely because of its opposition to same-sex marriage. The government can offer its subsidies to some groups but not to others, and in so doing, force small isolated groups to subsidize powerful gay rights organizations. Religious intolerance best describes that outcome.

Since then, the situation has only gotten worse. Last year there was public outrage at the Supreme Court’s decision in Burwell v. Hobby Lobby, which upheld claims under the Religious Freedom Restoration Act that a closely held company did not have to supply contraceptives to its female employees in a fashion inconsistent with its owners’ religious beliefs. And more recently, claims for religious autonomy have been crushed in state court decisions that have fined individuals who have refused on religious grounds to make wedding cakes for same sex couples. No one seems to be concerned with the autonomy and dignity of those under the state’s thumb. They will have to abandon their chosen profession to honor their religious beliefs. I see no evidence that gay and lesbian rights advocates are prepared to back off of these statist claims.

The hard question is how Justice Kennedy—now the swing vote on all matters “fundamental”—thinks about this issue. Here the evidence is decidedly mixed. To be sure, his opinion in Obergefell talks about the importance of letting religions “teach” the central principles of their faith. But as Justice Thomas’s dissent points out, a religion that is allowed to teach its beliefs may be forced to give up its tax-exempt status if it puts those beliefs into practice, and its adherents can be hounded by the state if they decide to run their personal lives in accordance with their religion. We thus face a serious risk in the aftermath of Obergefell: liberty in gay rights will turn out to be a one-way street. Some liberties will be guaranteed for some people while other liberties will be squashed for others. As I write, the gay rights movement is gearing up to expand the scope of the antidiscrimination laws in housing and labor markets.

No one says that democratic theory is easy to understand. But there is nothing in the Kennedy opinion that offers any assurance that the religious beliefs and practices of the shrinking religious minority who are opposed to same-sex marriage will be respected by the Supreme Court. As a libertarian, I support same-sex marriage. As a libertarian, I fear the totalitarian overtones sounding from the next round of gay rights initiatives.

*Considered one of the most influential thinkers in legal academia, Richard Epstein is known for his research and writings on a broad range of constitutional, economic, historical, and philosophical subjects.