Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't

prominent Montana political figures to endorse the ballot measure.
I left Montana in late August, but I agreed to remain a spokesman for the initiative and to return to the state in September and October to participate in several televised debates. When I first came back on September 19, I found my colleagues in the Economics Department in a state of panic. Several faculty members hollered at me that I was destroying the department because the university was going to punish it for my involvement in the initiative. I learned from the department chairman that there really was some truth to this—the university president and other administrators were calling him and threatening to cut the department’s funding if it did not get me to “shut up.”
On September 22, the day of my first TV debate, I spent a few hours in the chairman’s office listening to him describe the threats that my actions were posing to the department. He told me that while my analysis of the effects of property taxes was economically sound, it was best not to say anything about such a sensitive topic. I reluctantly agreed to skip that night’s debate, for which a local businessman filled in for me. Ironically, his opponent was a political science professor from the University of Montana.
I returned to Hoover, but over the next few weeks I continued talking to the press about the real economic implications of cutting property taxes. I flew back to Montana on October 9 to participate in a debate that evening with some state senators. When I arrived in Bozeman the next morning, I found the department chairman in a state of near-apoplexy. He demanded to know if I had really stated during the debate that public school teachers were overpaid. When I told him that I had, he related how incredibly upset the dean was, and that he was unsure what the consequences would be. Given the pressure facing the department, I went back to Hoover and refrained from scheduling any additional appearances in Montana.
Constitutional Initiative 27, which would have abolished property taxes in Montana, was defeated on November 4, receiving 46 percent of the vote. However, we took some measure of consolation that a parallel measure designed to freeze property taxes, Initiative 105, passed by a comfortable margin.
Things didn’t quiet down for me after the campaign ended. In the department evaluations conducted at Bozeman at the beginning of 1987, I received the department’s lowest ranking in the category of “outreach,” which deals with communicating with the nonacademic community. On a zero to four scale, with zero being the lowest score, I got the department’s only zero. I’m typically not overly concerned with that ranking, since I usually concentrate more on my teaching, research, and publications. However, given that my high-profile activities in support of Initiative 27 had made me one of the best known economists in the state and, more importantly, my research had gotten some national attention, I was a little surprised. The ranking was obviously a form of punishment for my politically incorrect activities supporting the abolition of property taxes.
As a final bit of collective punishment, I was told that the method used to rank the department relative to other departments had been changed. The new method would likely end the department’s ranking as the best department in the School of Agriculture, an event that could result in a cut in department funds. The chairman told me that the dean would consider returning to the old method if department members—especially me—behaved themselves in the future. The administration was particularly concerned over reports that there would soon be another ballot initiative on property taxes. The chairman asked me to promise not to talk to the press anymore about the issue. I declined, arguing that if the press were to publish more misleading statistics and I were asked about them, I would feel obligated to set them straight.
Perhaps I had been naïve, but I was surprised by the vehemence with which people who receive their income from taxes fought to protect that largesse. While administrators at Montana State University would constantly extol academic freedom, they would not let something that trivial prevent them from doing whatever they believed necessary to protect their jobs. The experience convinced me that there’s an inherent inconsistency between publicly provided education and academic freedom. Even when people do not try to silence dissent as overtly as my former colleagues did, the fact that professors and administrators receive their income from taxes cannot help but color their opinions on issues touching on the free market or the size of government.
Learning by Doing
Aside from concerns over their own salaries and jobs, there is another reason why so many academics are skeptical of the free market: too many of them spend their whole lives in academia. Many go straight from college to graduate school and then spend the rest of their lives teaching in the ivory towers, where their output is primarily evaluated by other academics. Academia is about the only profession that consumes its own output. It’s as if car companies limited their auto sales to employees of other car companies. This tendency keeps academics too concentrated on theory and not enough on real world practicalities. Think about it: academic research about how an industry operates is refereed by other academics. Neither the author nor the referees may have had any actual experience in the industry.
I have spent much of my own career in academia, but one of my most educational experiences was my service as the chief economist at the United States Sentencing Commission during 1988 and 1989. The Commission, which set the criminal penalties for individuals and firms who violated federal law, offered me an inside view into the criminal justice system. It gave me a better understanding of how prospective penalties affect criminal behavior. I began to see that debates among economists in academic journals could be quite removed from the real world. Sometimes,