Lyndon Johnson's Great Society: A Free Market Critique
By Richard Ebeling - March 10, 2011

Fifty years separate us, now, from the 1960s. For many who are college-age students, today, it all must seem like ancient history. And even for those of us who are old enough to have lived a part of our young lives in that decade, it seems a long time ago, also – and yet, at the same time, it seems like only yesterday.

Our memories fill up most frequently, I suppose, with two recollections of that time: the Civil Rights Movement and the Vietnam War. The first involved the abolition of the last remnants of that "peculiar" institution that had, at first, kept enslaved a portion of the population of the United States; and, then, even when slavery had ended, still used legal barriers, restrictions, and sometimes-brutal force to prevent a distinguishable minority of that population from having impartially secured equal rights before the law.

The second stands out as a searing memory of a military conflict ten thousand miles away from the United States, which went on for more than a decade, and at the cost of 55,000 American lives and at least one million causalities among the Vietnamese people. It was a war that tore the United States apart unlike any other armed conflict in American history since the Civil War of the 1860s, a century earlier.

Tens of thousands of young men, not fortunate enough to have a college deferment, were conscripted into the U.S. armed forces, and sent off to fight a war that at least half of the American people either did not support or did not understood. And which finally ended with one of the most humiliating defeats in American military history.

Vietnam: The Hubris of War Planning and Conflict Fine-Tuning

A part of the Vietnam War tragedy was due to the fact that it was managed by "the best and the brightest," as David Halberstam called them in his well-known book with that title. These were the people within the Kennedy and Johnson Administrations who orchestrated and escalated the war as the conflict progressed through the 1960s.

Halberstam referred to these war managers as the "whiz kids." They believed that they had the theoretical and quantitative knowledge and ability to fine-tune a military conflict. By incremental "escalation," they could bring to bear just enough pressure at vital points considered crucial to the enemy in North Vietnam. This would compel the appropriate response from the communist regime in Hanoi, to assure that the conflict ended with an "acceptable" outcome.

The disaster and the destruction that befell both the American and the Vietnamese people resulted from their arrogant pretense of possessing all the necessary and relevant knowledge for them to design and direct a war on the other side of the world, and, seemingly, all according to a central plan constructed in Washington, D.C.

What they learned (or should have learned) were the inescapable limits to man's ability to try to consciously direct the future course of human events, and the ever-present occurrence of "unintended consequences." It was a costly lesson in the need for humility and caution in believing that it is in our power to socially engineer global affairs to our own liking.

Lyndon Johnson – Master of Events and Manipulator of Men

The same, I would like to suggest, was also the case in the domestic policies of the Lyndon Johnson Administration, which became known as the Great Society agenda. Johnson was the consummate politician. Born in west Texas, he won a seat in the House of Representatives in 1937, and was a loyal supporter of Franklin Roosevelt and his New Deal programs. He won a seat in the U.S. Senate in the 1948 election, and later became the Democratic Party leader in the Senate, until his run for the vice-presidency of the United States as John F. Kennedy's running mate in 1960. He became president in November 1963, following the assassination of JFK.

Johnson considered himself to have an uncanny power to read situations, manipulate and intimidate men, and control the flow of political events. In his leadership role as majority leader, Johnson supposedly knew every detail of the public and private lives of all the other members of the U.S. Senate. He, seemingly, knew just the right "buttons" to push to make the votes and often the policies go the way he wanted.

In one of the ironies of history, in 1954 he was used his Senatorial influence to stop, then, President Eisenhower, from militarily intervening into what was at that time France's colonial war in Vietnam against Ho Chi Minh's communist guerrilla forces. The French defeat left a divided Vietnam that became the catalyst for next phase of this conflict, and which pulled America into the vortex of war and finally brought about the downfall of LBJ.

While the Vietnam War became inseparably intertwined with Johnson's name and was a defining mark of his presidency, he really viewed his Great Society agenda as the legacy for which he wanted to be remembered. In his mind, he was attempting to fulfill and complete the New Deal programs initiated by his mentor, FDR.

The Great Society: Designing a "War" on America's Ills

What guided the Great Society agenda was not just Johnson's political savvy. It was also the equally arrogant pretense of knowledge on the part of many in the economics profession of that time. As a student in my first undergraduate economics classes in the late 1960s, I soon learned that there was only one economics: Keynesian Economics, named after the famous British economist, John Maynard Keynes, who had published a book called The General Theory of Employment, Interest, and Money, in 1936.

Most economists, especially in macroeconomics, were convinced that the market economy was inherently flawed and susceptible to periodic and wide fluctuations in employment and production. They believed they had discovered the necessary monetary and fiscal policy tools to "steer" the economy and simultaneously maintain "full employment," stable prices, and stimulate long-run growth in the economy as a whole.

At the same time, there was a general attitude among many economists and a large number of self-proclaimed social critics that most of the "evils" of the world – poverty, illiteracy, lack of decent housing or medical care, and environmental degradation – were all due to a lack of will-power and well intentioned and implemented policy. The guiding premise was that the private sector had failed in meeting these problems, and indeed, may have contributed to them due to a disregard for "national needs," while pursuing private purposes.

In a speech in May of 1964, President Johnson proposed a series of "activist" government policies that would create a "Great Society" for America. He told his audience that he was determined "to assemble the best thought and broadest knowledge from all over the world to find [the] answers" to these social ills. In 1965, following Johnson's reelection to the presidency, he initiated a wide variety of pieces of legislation to fight his declared "wars" on these social ills. Government programs and spending were either introduced or expanded in almost every domestic direction.

Among the leading Great Society programs were:

· Medicare and Medicaid (as amendments to the Social Security Act)

· Economic Opportunity Act

· Office of Economic Opportunity

· Community Action Agencies

· Elementary and Secondary Education Act

· Higher Education Act

· Model Cities Program

· Housing and Urban Development Act

· Urban Mass Transit Act

· Supplemental Nutrition Assistance Program (Food Stamps)

· National Endowments for the Arts

· National Endowments for the Humanities

· Wilderness, Endangered Species, and Federal Water Pollution Control Acts

In the time available, it would, obviously, be impossible to offer a detailed, critical examination of each of these programs and pieces of legislation, and their impacts on various parts of society over the decades. Instead, I would like to approach it from a skeptical view of the underlying political, economic and social premises upon which the Great Society agenda was proposed and implemented. And, then, draw some conclusions about their longer-term effect on American society today, including the fiscal crisis in which the country finds itself.

Political Paternalism and the Reduction of Freedom

The fundamental premise upon which the Great Society vision for America was conceived is the idea of political paternalism. Good men, with enough political power, authority, and financial resources can successfully solve the problems of society. The dilemma, however, is that for government to do anything for us, it must at the same time have the police power do things to us.

If government is to plan our retirement, provide our education, oversee and guarantee our health care, supply our housing, and give us various amounts of cash and other in-kind benefits, then that same government must, invariably, determine and dictate the form, quality, quantity, and conditions under which we can be and will remain eligible for such welfare redistributive benefits.

Thus, many of the welfare programs specified, for example, the make-up and membership of a household to receive government housing, child allowances, and cash payments. Federal money to education invariably ended up coming with standards, requirements, and restrictions on the content of what was taught and the benchmarks for measuring student success for continued funding. Government financing of health care necessarily incorporated regulations, controls, and rules about the pricing of health care services, the types of treatments and coverage permitted or restricted, and access to what care in terms of age and gender.

Increasingly, the individual's options and choices were narrowed by, and confined to, what the government directly supplied, or mandated through its rules and regulations. This, obviously, hit those in the lower income categories the most. Once such individuals and groups were completely or heavily dependent upon these government programs, escape from them was difficult due to the significant loss of benefits if such a recipient wished to find private-sector employment at a wage that would greatly reduce or terminate their eligibility for these programs. Thus, an underclass of more or less permanent wards of the state was created with inter-generational dependency on government transfers growing in frequency.

This political paternalism, obviously, also implied that those in the government establishing these standards and rules for welfare eligibility presumed to know what all those receiving such benefits and services "really" needed. That is, what kind of housing, what type of medical care, what content of education, what kind of nutritional requirements the recipients of these programs should receive.

Political Hubris and Unintended Consequences

This, too, was no less an arrogance or hubris on the part of the government welfare providers that the poor and unfortunate recipients of the government largess clearly did not have the knowledge, experience, or forethought to make such decisions for themselves. Since the State was providing these benefits, the State clearly knew best what "these" people really needed for them to have some minimum form of a "decent life." The "poor" were classified and homogenized into one or a small handful of sizes that were to "fit all," with little regard or sensitivity to the diversity between individuals and their personal and family needs and values.

This implicitly condescending attitude toward those receiving Great Society transfers resulted in some free market critics, such as Milton Friedman, to argue that if government was going to redistribute wealth it would show much more respect and confidence in such recipients if, instead of in-kind benefits in the form of such things as government housing, food stamps, health care services, etc., the government merely gave them cash equivalents. This way, each individual, in his own circumstances, and in terms of his own judgment about what was more or less important to her and her family could make the market-based trade-offs that would most fit with what they needed or valued.

But here, in essence, was the same fundamental flaw in the Great Society agenda as was to be found in the executing of the Vietnam War: the confidence and belief on the part of the implementers of these programs that they could redesign the social order at home just like the foreign policy makers believed they could remake entire societies abroad.

And here, too, were a series of unintended consequences. These included the weakening and break-up of groups and families due to inter-generational dependency on government programs; the emergence of an "entitlement mentality" that taxpayer funded transfers from the government were as legitimate as a source of income as earning a living from a private-sector job; the entrapment of those on welfare in isolated, poorly-managed, and increasingly crime-infested public housing projects; and the deteriorating of educational standards in public schools, especially in inner city areas of the country.

For the free market critic, the entire direction of the Great Society agenda was wrong-headed. Precisely because that it was desirable to see an improvement in the condition of those least and less well off in society that government's role had to be less rather than more. As a later president was to say, "Government was the problem, not the solution."

The Free Market Agenda for a Truly Great Society

The free market agenda for a truly great society was for people to have the liberty to make their own decisions, find and take advantage of their opportunities, and have the latitude and incentive to design their own lives, according to their own conception of the good, desirable, and worthwhile. Government controls, regulations, redistribution, and handouts were the opposite of the direction needed for America.

· Government regulations and licensing requirements had to be reduced and abolished to make it easier for the less well off to start their own businesses, or expand their existing businesses to improve their own lives and create employment opportunities for others.

· Taxes had to be lowered in all personal income and corporate brackets to leave income, wealth, and savings in the hands of the people, themselves, to generate over time the investment and capital formation that would create jobs, raise the productivity and value of those in the work force, and increase standards of living for all over time through more and better goods and services of all kinds offered on the market.

· Union power had to be reduced since, historically, it had been used to limit entry into the labor market in many "closed-shop" sectors of the economy to artificially keep up the wages and benefits of those fortunate enough to belong to a particular labor union monopoly, at the expense of others locked out of employment opportunities.

Individual freedom, personal choice and responsibility, and open, competitive markets in a setting of limited government taxing, limited government spending and limited or no government regulation was the social and institutional circumstance most conducive to really fighting a war on poverty and illiteracy, and a lack of economic opportunity, with equal justice for all before the law.

Eliminating the disincentives for private sector construction of less expensive housing would better provide more housing for lower income groups. This would include ending or reducing zoning and various building codes that limited the locations for low-income housing and raised the costs of construction; it also required reducing property and other related taxes on the residential housing market.

Shifting to market-based education in place of the government monopoly school system would introduce needed competition in the educational market to improve the quality, variety and availability of education for all, including and especially for those in the lower income categories.

And moving to a truly market-based health and medical care system would provide the market-generated competition to keep costs down, while providing the incentives to improve hospital services and treatments.

Benefiting All Through the Freedom of Each

Free market economists, like Friedrich A. Hayek, explained that there is more knowledge and wisdom dispersed and decentralized in all the minds of all the members of society than can ever be known, integrated, or mastered by even the "best and brightest" who assert their ability to manage, direct, and redesign the complex society in which we live.

That is the advantage and the benefit of the competitive market order: it brings to bear all that there is to know and can be used to improve the condition of society through the informational mechanism of the price system, and the unhindered interactions of supply and demand. Shall we rely upon, and be limited to, what the government regulators, planners, and redistributors are able to know and understand; or shall we be free to utilize and benefit from what all of us can contribute through the institutions and workings of the free market economy?

Deficits, Inflation and Keynesian Mismanagement

Another legacy of the Great Society was the false confidence of the Keynesian macroeconomic planners that they could push the fiscal buttons and turn the monetary dials in just the right calibrated amounts to maintain full employment, stable prices, and economic growth all at the same time. They were sure that they could juggle the costs of an ever-more expensive war in Vietnam and supply all the needed money for the increased spending of the domestic Great Society programs without having to significantly raise taxes to foot the expanding financial bill, so the Johnson Administration could do all it wanted to do, both at home and abroad.

The government funded much of its spending through deficit financing. The amounts seem small by today's trillion-dollar deficit standards, but for the 1960s the spending and the deficits were large compared to what government had spent in earlier years. The Federal Reserve – America's central bank – attempted to keep interest rates low and private sector investment high by basically printing the money that was needed to feed the costs of growing government. In other words, they "monetized" the debt, to use the jargon of the economist.

Thus, added to everything else, by the end of the 1960s and into the 1970s, the United States was starting to experience and suffer from serious price inflation. Manipulated interest rates distorted and imbalanced the relationship between savings and investment; those who saved saw the real value of their "nest-eggs" eaten away due to rising prices; inflation distorted cost-accounting by making it difficult to know what one's wealth, capital, and investments were really worth due to the uncertainty of what prices and costs of doing business would be tomorrow compared to today.

The inflationary spiral was not "broken" until the early 1980s, by which time America was suffering from "stagflation" – rising prices and increasing unemployment – a dilemma for which standard Keynesian theory had no answer.

Thus, the Great Society dream heralded by Lyndon Johnson in 1964 and 1965 began to degenerate into a disillusioning reality in the 1970s and 1980s. The Great Society provided neither the prosperity, nor the justice, nor the freedom that Lyndon Johnson had held out as its promise.

Liberalism: True and False

And that gets us to our conclusion: What is a just, good and great society? The Great Society advocates of the 1960s argued that theirs was a liberal vision for a better America. But was it?

I would like to suggest that theirs was a false conception of liberalism, and therefore a misguided idea of a free and great society. The real, or true, liberalism, as it took form in the nineteenth century as a political and economic ideal, and an agenda for social reform, emphasized the freedom and rights of the individual to his life, liberty, and honestly acquired property. The individual human being was an end in himself, not the tool or means to the coercing will of others possessing political power.

These earlier (or, classical) liberals opposed and helped to do away with absolute monarchy and replace it with representative government. They lead the cause for, and finally triumphed in bringing about, the end to human slavery. They insisted upon civil liberties and equal justice before the law for those whom the older political order had discriminated against, including Jews, religious dissenters, various ethnic and national groups, and women.

They also considered economic liberty – the freedom to own and use private property for consumption and production purposes; to peacefully compete in any trade, profession, or occupation the individual found attractive and advantageous; and to freely enter into any voluntary association and market exchange found to be mutually agreeable, including the terms of trade found acceptable by the traders – to be inseparable from any understanding of and practical existence to human freedom.

The classical liberals considered this also to be a morally better society. Why? Because it is based on the idea of respecting the dignity of the individual not to be viewed and treated as a "pawn" (a coerced means) to be manipulated, controlled or restricted by police power, to serve someone else's preferred ends — even if that "someone else" is a large majority of his fellows in society.

The Self-Governing Individual and the Free Society

For these liberals, "self-government" did not only mean the right of the citizenry to participate in the political process to select those who will hold political office and enforce the laws of the land. It also crucially meant the "self-governing" individual. The individual was "sovereign" to freely live his life in peace, deciding what values and goals will give meaning and purpose to his own sojourn on earth. The individual had the unmolested right to the private property he had honestly produced or acquired in trade, as the means for pursuing and possibly fulfilling his dreams and conceptions of a good and happy life for himself and those others he may care about.

They considered such a truly liberal society also to be the one that provided the free market incentives and opportunity structures that would have the good affect of directing men (without force, and through the motive of self-interested improvement) to apply their knowledge, ability, and experience in ways — as if by an "invisible hand" — to reciprocally help improve the conditions of others as they advanced their own desired ends in the interplay of market competition.

They also argued that such a free society is more conducive to not only raising people out of poverty and making it possible for more people to be self-supporting, but also to foster a proper sense of benevolence and compassion towards others who may have fallen upon misfortune or "hard times" not of their own making. The history of voluntary charity and benevolence in the era of nineteenth century classical liberalism – before the advent of the modern welfare state and its undermining of some of this philanthropic spirit – attests to the magnitude of this private generosity and its success.

The Politically Governed Individual

What I have suggested to be considered the false liberalism of the Great Society turned its back on this earlier liberal tradition. Indeed, it turned liberalism on its head. Liberalism now meant bigger government, more intrusive government, more regulating and controlling government, with government's very visible hand increasingly in every corner and aspect of American life.

Rather than self-governing, the individual in this new Great Society was to be governed. By whom? By those who arrogated to themselves the idea that they were "the best and brightest," the social engineering "whiz kids," who claimed to know how various segments and groups in the society should and would be made to live.

This paternalistic legacy of the Great Society era remains with us today. Indeed, it is at the center of the political and social controversies enveloping American debate and conflict about the future direction of the country. Many, if not most, of the supposedly "untouchable" entitlement programs that are at the heart of the current budgetary and debt crisis facing both the Federal government and state governments are the outgrowths of the redistributive programs either introduced by or greatly expanded during the Great Society presidency of Lyndon Johnson.

LBJ wanted to be remembered for his Great Society legacy. And he has had his wish. His paternalistic and welfare state agenda is the Albatross that has a stranglehold around the fiscal neck of the American people.