- College football metrics: machines say the Pac-12 is the strongest football conference, humans erroneously believe the SEC is stronger
- Ken White on the cultural implications of the War on Drugs
- Orin Kerr on the case that sparked Ken White’s analysis I linked to above
- Ali Ezzatyar, a lawyer at UC Berkeley’s Program on Entrepreneurship and Development in the Middle East, makes The Case for Kurdistan
- A Barton Hinkle, echoing Dr Delacroix’s recent work, advises us to ‘cheer up’ because things are getting better (thanks to capitalism)
capitalism
Shopping in communism versus capitalism
In a narrative portion of his latest (and characteristically riveting) novel the author has written the following sentence that prompts me to wag my finger at him a bit. “Now it was a Western-style shopping mall stuffed with all the useless trinkets capitalism had to offer…” Daniel Silva, The English Girl (2013). The sentence reveals something very important about capitalism as well as Silva’s apparent failure to understand it.
Silva was contrasting the Soviet style, drab, grey shopping center with the more recent type that have been springing up in Russia and the former Soviet bloc. Yet instead of showing appreciation for the mall with its great variety of trinkets, which include both what he can consider useless and the useful kind, he appears to show disdain for it.
It is precisely the fact that such malls include thousands of trinkets, some useful to some, some not, that makes capitalism so benevolent. Unlike the Soviet Union and its satellites, where only what the leadership deemed to be useful got featured in shopping malls (such as they were), in Western-style malls millions of different individual and family preferences are on display and for sale, aiming to satisfy the huge variety of tastes and preferences.
I recall many moons ago there was a fuss about the popularity of the Pet Rock! It was — may still be — a trinket sold as a novelty item. I remember defending it from its disdainful, snooty critics, arguing that there may well be a few people for whom it would be suitable gift.
Say your grandfather worked in a mine or quarry and now on his 80th birthday you want to get him something not quite useful but meaningful! He has everything useful already, so you pick the Pet Rock for him. It would make a nifty memento! Might even bring tears to his eyes.
For millions of others it would indeed be a “useless trinket” but not for old granddad. And for every other item that author Silva may consider useless, there will be someone who finds it touching!
That is precisely what individualism implies. Something Marxists cannot appreciate since for them only what advances the revolution counts as useful. Individuals as such, with their idiosyncrasies, do not count for anything! And capitalism rejects this misanthropic doctrine, which is why the enormous variety of goods and services is part of it while under socialism and communism only what is proper for the revolution makes sense to produce!
I wish Mr. Silva had indicated some of this as he derided those Western-style shopping malls. Even if he cannot find something useful for himself in them, he can at least appreciate them as contemporary museums of possibilities.
From the Comments: The four broad pillars of the market-based economy
NEO’s response to my musings on decentralization in Africa is worth highlighting:
It strikes me , Brandon, that one of the impediments here, there may be others, I’m no expert, is that the nascent US was composed mostly of literate folks with a (at least somewhat) common outlook that specified above all honesty and a “government of laws, not men”. I would also state that this is a good bit of our problem now.
This is a great observation. An anthropologist by the name of Maya Mikdashi recently wrote an article on the effects of market-based reforms in the Middle East. She essentially argued that the market-based reforms assume that only a certain type of individual can successfully participate in the market economy (stay with me here): the rational, autonomous, freedom-seeking, and legally-protected-as-an-individual type. Over the past two decades, as more states have moved towards a market-based economy, we have seen the institutional and cultural rewards being reaped from this process. Instead of people who have known only poverty and want, the market-based economy has pushed individuals to seek to become more rational, autonomous, freedom-seeking, and legally protected as an individual.
Now, stay with me. The market-based economy, capitalism, has four broad institutional pillars that it needs to thrive: private property, individualism, the rule of law, and an internationalist spirit. From these pillars come the fountains of progress that the West has come to enjoy over the past 300 years. While I doubt she realizes it, Mikdashi is simply echoing the writings of the great classical liberal theorists of the past three centuries: institutions matter, and they matter a lot. A big point both Dr. Ayittey and myself have been trying to make is that the institutions necessary for progress and capitalism are already in place in the post-colonial world; when I was in Ghana doing research one of the things I always asked farmers is where they got their property titles and they answered “the chief.” I asked them why they didn’t go through more official routes to obtain their property titles (i.e. through the state), and I’m sure you can finish the Ghanaian farmer’s answer for him.
The fact that most, if not all, citizens of the new republic desired the rule of law is one that cannot be stressed enough, and it is definitely one of the reasons why we have grown so prosperous, and answers why we are in trouble today. However: Africans don’t desire the rule of law?
Some reflections on the Right to Private Property
[Editor’s note: the following is an essay by Dr Tibor Machan, professor emeritus in the department of philosophy at Auburn University, and current holder of the R. C. Hoiles Chair of Business Ethics and Free Enterprise at the Argyros School of Business & Economics at Chapman University in Orange, California. He is also a research fellow at the Hoover Institution at Stanford University, an adjunct scholar at the Cato Institute, and a former adjunct faculty member of the Ludwig von Mises Institute. Machan is a syndicated and freelance columnist; author of more than one hundred scholarly papers and more than thirty books. We are extremely grateful for his generosity in regards to sharing this article.]
Private Property Rights
The first step in the destruction of capitalism must be the abolition of the right to private property. Marx and Engels were clear about this in The Communist Manifesto. And many who sympathize with his idea of a socialist political economy agree. This is one reason many such thinkers and activists are champions of land use, eminent domain and related legal measures that render even the most personal of real property subject to extensive government control.
Of course, there are others who have argued that the right to private property is not only the basis for vigorous commerce but also the foundation of other individual rights, including freedom of speech, freedom of religion, and freedom of the press. It is arguably, in a somewhat roundabout way, the conceptual foundation of the right to freedom of political participation. Without some safe haven, one’s private domain, to return to after the vote has gone against one’s way, one will be vulnerable to the vindictiveness of the winners! And political advocacy without exclusive jurisdiction over one’s domain is difficult to imagine since advocacy, support and such political activities could not be carried out independently of other people’s permission.
Accordingly, it is no mere academic curiosity whether the idea of private property rights is well founded, sound, or just. Within American political and legal history there has been some confidence in the soundness of this principle but the basis of it has not gone unchallenged over the last two centuries. One need but consider the recent work by Liam Murphy and Thomas Nagel, The Myth of Ownership, Taxes and Justice (Oxford University Press, 2001) to appreciate how vulnerable is that confidence. Indeed, it is mostly members of the discipline of economics who see merit in the idea of private property, and then not as a feature of justice but more as a feature of an efficient system of resource allocation.
Yet, there is reason to think that the right to private property is a good idea, that everyone should be understood to have this right and that the institutions built upon it should be preserved. Indeed, they should be extended into areas where other ideas have held sway (for example, environmental public law). Let us consider this idea, then, and see whether we can be confident in its validity as a sound political-legal concept.
From Mixing Labor to Rewarding Good Judgment Continue reading
Path Dependency and the Republican Party
Let’s apply path dependency to the plight of the national Republican Party and see where it takes us:
Writing in Fortune in the run-up to the 1962 congressional elections, Max Ways asked, “Is Republicanism a Losing Cause?” Arguing at the height of JFK’s popularity that there was nothing wrong with the party’s two main convictions, namely that individual liberty is best served by a strong, yet limited, federal government, and that “market capitalism is a beneficent force in the world,” Ways insisted that Republicans would never “reinvigorate their party so long as they let the Democrats set the terms of battle.”
After a drubbing in the 1964 election, the party was able to set the terms of battle as America’s cities burned and the war in Vietnam headlined the evening news. In Ronald Reagan, the party’s reinvigoration was complete. His ability to communicate the party’s convictions and win elections suggested that Republican dominance of the White House might be sustained. It wasn’t. But even in the aftermath of defeat, in 1992, the party could take solace in Bill Clinton’s declaration that the era of Big Government was over. Perhaps the party had truly won the battle of ideas.
But now the Republican Party has come full circle, and is again in crisis, having suffered defeat in the popular vote in five of the past six presidential elections. As was the case in 1962, there is no end to prescriptions for saving the GOP. To the accumulating heap of advice, I add this to the pile: Consider path dependency before formulating policy, conducting politics, and making appeals to voters.
California’s Republican Governor Arnold Schwarzenegger famously promised to “blow up” the boxes of a bloated government in Sacramento—and then not much happened. At the national level, Republicans have been promising to repeal, dissolve, and defund laws, agencies, and programs since the 1930s, with little overall success, notwithstanding the odd victory here and there. The yearning to begin anew may be alluring, but there ain’t no going back.
In rhetoric, Republican Party leaders still call for ratcheting back Leviathan, at least on the economic front. Yet, just as Governor Schwarzenegger did, they falter when it comes to actually blowing up the boxes of government. Republicans make poor revolutionaries. At the same time, they seem to have eschewed democratic politics as a means to their ends. Perhaps, in their view, playing politics would constitute an exercise in making “socialism” more efficient, in which they allegedly hold no interest. But by failing to reconcile ideas and ideals with path dependent history, the party is becoming ever more out of touch.
Gaining an appreciation for path dependency may help the party connect with voters: a prerequisite to articulating effectively a vision of a political economy based on individual liberty, limited government, and market capitalism. After all, if no one is listening, it doesn’t really matter what you might be saying.
Another problem: It’s rather difficult to figure out what the Republican Party stands for these days. Since the 1980s, its calls for racheting back Big Government have been long on promising a return to some ideal state and short on mapping a pragmatic path toward reining in the actually existing state. Interestingly, the rhetoric heats up when the party is out of power, casting doubt on the sincerity of those spouting it. When they have occupied the Oval Office, Republicans have had no less a penchant increasing the size and scope of government than the Democrats they accuse of being enthusiasts for socialism. The Bush administration used the crisis of 9/11 to increase government surveillance of private citizens and expand Washington’s interventions overseas. The crisis of the Great Recession served as occasion to bail out Wall Street. Indeed, in economic terms, Republicanism has come full circle, not from the free soil, free labor, and free men days of Lincoln, but from the Gilded Age. Where the rubber hits the road, that is, in terms of implementation, there is little evidence that the Republican Party holds individual liberty, limited government, and market capitalism as core convictions. But let’s stipulate, for the sake of this post, that Republicanism at its core remains grounded in the two main convictions identified by Mr. Ways.
So how might a consideration of path dependency help to right the listing Republican ship?
In a previous post, I applauded Daron Acemoglu and James A. Robinson for their effective deployment of path dependency in Why Nations Fail: The Origins of Power, Prosperity, and Poverty. They showed that “critical junctures” that disrupt the existing political and economic balance in society launch nations down their respective dependent paths. And once embarked on a dependent path, the weight of history makes it extremely difficult for a nation to change course.
In America, as Robert Higgs has shown, two world wars, with a great depression sandwiched in between, constituted the critical junctures—or critical episodes, as he calls them—that resulted in an immense expansion in the scale and scope of the U.S. government. With the passage of time, the American people have accepted most aspects of Leviathan—especially when it comes to social insurance—as the norm. In Higg’s view, there is no going back because the federal government’s responses to successive crises engendered a sea shift in ideology among the people. Writing in 1987, Higgs doubted that the Reagan Revolution would live up to its billing. And he was spot on.
For an intraparty conversation on the appropriate scale and scope of government to be productive and persuasive, it ought to begin with coming to terms with the state as it “really is” and reflecting on how it came to be (including the many contributions of all postwar Republican administrations to expanding said state).
Take Social Security. Opposed on the Right, it was passed in a form that didn’t please the Left. But over the years, Social Security expanded in scope and size under Democratic and Republican administrations alike. It’s now been around for more than 75 years. Talk of entitlement reform as Baby Boomers age, at least in terms of assessing, funding, and perhaps adjusting future liabilities? Absolutely. But apocalyptic talk of Social Security’s impending bankruptcy as prelude to overhauling this mainstay of middle-class entitlements surely has lost more votes than it has gained. And to what end? Leaving aside the question of individual liberty, replacing mandated contributions to a government plan with mandated contributions to private ones introduces risk for which future retirees seemingly have no appetite. Path dependency does not mean that all doors to reform are shut for all time. But Republicans have little hope of blowing up this box.
So, what to do? First, acquire a deep appreciation for the path dependencies embedded in America’s laws, regulations, policies, and political institutions. Use the exercise to identify potentially winning issues that align with core convictions, as stipulated. Then embrace the democratic process as a platform from which to win hearts and minds and accomplish realistic goals.
US Allies in Egypt: Economically Adept or Not?
It also isn’t clear that the secular crowd is economically more adept than the Muslim faithful. Socialism has been a hard-to-kick drug for Egypt’s legions of nominally college-educated youth, who came of age expecting government jobs. Capitalism has probably got firmer roots among devout Muslims, where Islamic law teaches a certain respect for private property.
This comes from Reuel Marc Gerecht in the Wall Street Journal. This is something that hawks in Washington (and Santa Cruz) have yet to confront. Interventionists – advocates of robust government programs in foreign affairs – want democracy in the Middle East, though they have yet to define democracy for those of us who are skeptics of overseas intervention.
What we do know is that there are two major currents of thought about governance in the Middle East today: national socialism and Islamism. The national socialists get their education from the universities. The Islamists from religious schools. None are friendly towards democracy.
Here is the upside though: democracy is not the end all be all. Liberty is. In fact, democracy is a byproduct of liberty. By liberty I mean, of course, a regime that protects individual rights (including private property), adheres to a system of checks and balances, and is generally favorable towards free trade. By trying to form alliances with various national socialist or Islamist regimes over the past three or four decades, the United States has continually shot itself in the foot. This is because Washington has made the simple mistake of confusing democracy for freedom.
If hawks are really concerned with helping other people (and it is not clear that they are), then it would be wise on their part to slow down and actually start looking at the factions of the Middle East and what they advocate. One thing has become crystal clear over the past 25 years, though, and that is that virtually no political faction in the Middle East – from Rabat to Tel Aviv to Tehran – is friendly to liberalism. This does not bode well for anybody.
Bombing these regions, and supporting dictators in these regions – in the name of liberalism to boot – only makes this hostility that much worse.
No Capitalism Means No Peace: Egypt Edition
I just briefly touched on this in an earlier post, but I thought I’d bring in another perspective to shore up my argument. Fraser Nelson, writing in the UK’s Telegraph, explains some of the important differences between freedom and democracy:
While the West was celebrating Egypt joining the comity of democratic nations, Egyptians themselves were sliding into an economic abyss, with terrifying shortages of fuel, food and security. Sectarian violence has been thrown into the mix, with persecution of the Coptic Christians followed by Sunni v Shia strife. The murder rate trebled. Things were falling apart, which is why the generals were welcomed back.
But the Arab Spring was a demand for freedom, not necessarily democracy – and the distinction between the two is crucial. Take, for example, the case of Mohammed Bouazizi, who started this chain of events by burning himself alive on a Tunisian street market two years ago. As his family attest, he had no interest in politics. The freedom he wanted was the right to buy and sell, and to build his business without having to pay bribes to the police or fear having his goods confiscated at random. If he was a martyr to anything, it was to capitalism […]
The narrative of a 1989-style revolution in hope of regime change seemed so compelling to foreigners that there was little appetite for further explanation. But […] this was a protest for the basic freedom to own and acquire ras el mel, or capital.
Read the rest. I think it is pertinent to note that liberalism (the institutional face of capitalism) was murdered by British imperialism in its infancy (“Egyptian freedom means no more British imperialism, therefore…”).
The people of the Middle East will not get out of the rut they are in until there is a revolution of ideas in their societies. The demand for liberal ideas is certainly there, but Western imperialism provides a convenient scapegoat for authoritarians in the region. Western imperialism is different from Russian, or Persian, or Turkish, imperialism because the Arab public holds the West to a higher standard than other states. It’s time we started doing the same: remove all troops and military equipment owned and operated by the United States from the region.
This will lead to the rapid disappearance of the Islamist monarchies our government protects, and will open up the region to important dialogue. As long as the US military remains in the region, though, the Middle East will not taste freedom. Imperialism is antithetical to freedom, as both the society funding imperial projects and the society being forced to receive imperial projects are coerced in the name of central planning.
See also “Moral Markets and Immoral ‘Capitalism’” and “The Hidden Vice of Capitalism” for more in-depth arguments about the term “capitalism” and what it actually means.
Classical Liberals Who Weren’t Right About Everything
Many classical liberals and their ideas have been maligned by their interpreters. We must set the record straight. Professor Ross Emmett, in “What’s Right with Malthus,” from The Freeman, champions the cause of Thomas Robert Malthus, who, contrary to what one might think after encountering Malthus’ followers and critics,
argued that private property rights, free markets, and…marriage were essential features of an advanced civilization.
Some disciples of Malthus took his erroneous population theory as evidence of the need for eugenics, population control, and environmental “regulation.” They ignored Malthus’ arguments favoring institutions more capable of (and more compassionate in) achieving their desired ends; institutions that first came about not by design, but by convention. The eugenicists Francis Galton and Julian Huxley (both related to Darwin), and eco-catastrophist Paul Ehrlich come to mind.
But there were also critics, who, preferring utopian visions of the perfectibility of mankind, denounced Malthus’ pessimistic views. Anarchists William Godwin and Pierre-Joseph Proudhon are most notable in this regard. Godwin and Malthus had exchanged criticisms (noted by Emmett) in some of their essays. Malthus attacked Godwin’s utopianism. Godwin assailed Malthus’ assumption of arithmetical increase in agricultural output, as compared to geometrical increase of population. And Proudhon targeted the overzealous Malthusians of his day, citing as grievances the former’s antagonism toward the lower classes. While neither Godwin nor Proudhon did terrible injustice to Malthus himself, they unintentionally contributed to the myth that the worst variety of population catastrophists were the most orthodox.
Notice the themes that Professor Emmett brings to our attention. First, that even in their controversial and disputable contributions, great theorists illuminate the path for later philosophers. Second, that human institutions can mitigate human nature’s undesirable effects.
In light of these, consider two other social theorists whose ideas have been abused by overenthusiastic students and overreactive peers alike: Herbert Spencer (insightful Malthus adherent), and the aforementioned Mr. Proudhon (noteworthy Malthus critic).
Leading “social Darwinist” (a pejorative used to link eugenics and capitalism), Herbert Spencer (considered a conservative anarchist by Georgi Plekhanov) was, like Darwin, influenced by Malthus’ idea that the fittest tend to survive overpopulation-induced catastrophes. He is known for having coined “survival of the fittest,” a term later used by Darwin in the fifth edition of On the Origin of Species (1859). Spencer originally used it to convey Darwin’s concept of natural selection, and drew parallels between biological evolution through natural selection and social evolution through market competition. But he never implied that they were identical or that marketplace competition was necessarily an outgrowth of natural selection.
If anything, it should be thought of as an alternative to natural selection. Humans, to survive as a species, might practice natural selection as a matter of biological fact. And without the ability to reason this might eventually lead to a Hobbesian jungle. But since man is rational, natural selection’s role in social evolution is significantly lessened. Society arises from the natural order of things. There is no need for the Commonwealth or the General Will to step in and provide it.
Friedrich Engels saw things differently when he wrote in the introduction to his Dialectics of Nature (1872/1883):
Darwin did not know what a bitter satire he wrote on mankind…when he showed that free competition…is the normal state of the animal kingdom. Only…production and distribution…carried on in a planned way, can lift mankind above the rest of the animal world…
Competition exists in both the natural world and free markets, so the connection between natural selection and marketplace competition, though spurious, seems all too obvious for critics of one or the other. They wrongfully project the cold, deterministic properties of nature onto economic freedom. But marketplace competition is an outgrowth of the ability to reason, not base survival instincts. The will to survive is certainly a factor of social progress, but taken on its own would tend toward more similarities with nature, such that the life of man would be “solitary, poor, nasty, brutish, and short.” Man has the faculties to escape the jungle, to leave the animal kingdom, to better his life without worsening others’.
Communist anarchist Pyotr Kropotkin (influenced by Godwin) juxtaposed social Darwinism, evolution requiring competition, with his own take, evolution requiring cooperation, in his book Mutual Aid: A Factor of Evolution (1902). In so doing, he disagreed with Engels on Darwin, by describing how natural selection depended at least as much upon cooperation as it did biological competition. But unfortunately he conformed to Engels on the false dichotomy between rational competition (free markets) and cooperation (mutual aid).
Our second subject, Pierre-Joseph Proudhon was a mutualist, an anarchist and a socialist. Yet some of his ideas are more in line with libertarianism than with contemporary socialism. They were often based on a fairly consistent concept of natural rights, but understood in light of fallacious economic principles, especially the labor theory of value (held by Locke, Smith, Ricardo, and Marx).
But utility-based theories are in vogue among today’s classical liberals and much of Proudhon’s economics has been rightly tossed aside. But his theory of spontaneous order and support for free markets should not be so readily discarded. Leave that to conservatives fearful of anything tainted by the socialist label, and to leftists whose only alternative would be to admit that the labor theory is passé.
Proudhon (General Idea of the Revolution in the Nineteenth Century, 1851) was also opposed to Hobbes’ and Rousseau’s social contract theories, having his own:
What really is the Social Contract? An agreement of the citizen with the government? No…The social contract is an agreement of man with man…from which must result what we call society…Commerce…the act by which man and man declare themselves essentially producers, and abdicate all pretension to govern each other.
Organic institutions, neither designed nor imposed!
It seems there’s much knowledge and inspiration to be gained by examining the forgotten words of discredited intellectuals. Warts and all.
Cognitive Blocks and Libertarianism
Last year Brian Gothberg, who was lecturing at a summer seminar I attended in 2009, left the following comment in response to a post about media coverage and Austrian economics:
I think there’s a perceptual or cognitive block, that simply makes it hard for many people to see government activity in the foreground of the story, as an actor which actively and (often) arbitrarily changes outcomes. It reminds of the recent Brian Greene programs on cosmology on PBS. In one, he compares the treatment of space, through most of scientific history, as simply being the unadorned theater stage, upon which the truly interesting things actually happen. It’s only later that Einstein (using Riemann’s math) described space as having positive, unambiguous characteristics. After Einstein brought space itself into the foreground, you could make statements about particular things that space did do, and other particular things that space did not do.
Another example: at a gathering of friends with children, my wife and I were observing a small boy (3-ish) who kept biting the other children. When it came to tears, parents would come in and intervene, and scold him. Later, we watched the same parents — who were baffled at the boy’s biting — laugh and giggle as the father playfully bit his son. Apparently, nobody had ever brought the father’s behavior into the foreground, for their scrutiny, as a possible influence on the son’s problem. Sometimes, the obvious does stare people in the face. I think that the way we describe the role and actions of government, in the press and schools, goes a long way to explain this cognitive block. Libertarianism is nothing like common sense; not nearly.
I was reminded of this as I read the following 2008 piece by Roger Lowenstein in the New York Times, where he documents the regulatory regime that was built by the state in the years leading up to the Great Recession. Check this out: Continue reading
Petitioning for a Redress of Grievances: Chinese Style
Has Beijing suddenly begun hearing the demands and complaints of its citizens? Not quite. From the Economist:
In recent days Chinese internet users have begun to petition the White House on other issues; for instance, asking President Obama to “remonstrate” with China over a proposed paraxylene chemical plant in the south-western city of Kunming, where thousands of people staged a protest on May 4th. Others are more frivolous, asking America to send troops to liberate Hong Kong, or that the official flavour of tofu be designated as sweet rather than salty.
The petitions obviously have no legal force, but they reflect a popular lack of faith in Chinese justice and the seductive soft power of America. China has a petitioning system of its own, but those who use it are often threatened or detained.
This is quite interesting for a few reasons:
- I think it helps lend credence to arguments that claim a functioning democracy is a byproduct of capitalism.
- I think it just goes to show you that no matter how hard Beijing tries to initiate a nationalism compatible with its aims, the reality of American prestige and liberty – despite all its many faults – is simply too high a hurdle for Chinese statebuilders.
- Let it be duly noted that many collectivists on both the Left and the Right here in the US have pointed to China as a great model for the future (unlike the reactionary federal system currently in place).
I mean, just imagine if Americans began writing to Mexico City or Ottawa rather than Washington to air out their grievances. What kind of signal would that send to others around the globe? It wouldn’t necessarily mean that the US is bad so much as it would signal that Mexico and Canada set the standard for excellence in governance (not an oxymoron, by the way; see Dr Foldvary’s piece for details).
Another fact the article takes care to point out is that authorities in Beijing have been quick to clamp down on internet usage. Check out this map of worldwide internet connected devices. It’s a little bit more honest than the maps showing China to be a giant “dark spot” of internet usage that I’ve seen displayed around the web.
Lastly, the article in question shows, once again, that the US has nothing to fear from Beijing.
Moral Markets and Immoral “Capitalism”
The question, “Is capitalism moral?” was raised by Steven Pearlstein in a 15 March 2013 article in the Washington Post. He is a professor of public and international affairs at George Mason University and a column writer for the Washington Post.
Pearlstein writes that we in the US are engaged in a “historic debate over free-market capitalism.” Maybe so, but “free-market capitalism” is a contradiction in terms. There are two reasons why the economic system is called “capital”ism rather than “laborism” or “landism.” First is that capital dominates labor. The second reason to call the system “capitalism” is to hide the role of land, so that people focus only on the conflict between workers and capitalists. The chiefs of finance and real estate are able to dominate because of their political clout. They obtain privileges from government in subsidies, limits on competition, and periodic bail outs. In contrast, in a free market, there is no domination, with neither subsidies nor imposed costs.
Pearlstein then says that if “markets” were providing prosperity for most folks, there would be no need for governmental intervention. But we don’t have pure markets. We have a mixed economy, with intervention into markets, so one has to first analyze whether it is markets or else interventions that cause high inequality, instability, poverty, and unemployment. Since pure markets are not given an opportunity to work, how can they be responsible for economic woes?
He then asserts that for the past 30 years, the world has been moving towards a greater role for markets. That is so for China and the countries previously dominated by the USSR, and these economies have indeed experienced greater growth and prosperity.
But, contrary to Pearlstein’s assertion, the US has been moving away from a market economy. Frequent governmental crises – the fiscal cliff, budget deadlines, ever changing tax rates – threaten the stability of financial, industrial, and labor markets. The subsidies to real estate and its financial allies have never been greater. The domination of the Federal Reserve over money, banking, and interest rates has reached historic heights. The tax reforms of the 1980s have been reversed by Congress, which has made income taxes ever more complex. Costly regulations continue to pour out of Washington DC by the thousands each year. And now the government will dominate medical provision like never before.
The decline in the role of markets can be measured by an index of economic freedom. According to the Fraser Index of Economic Freedom, U.S. market freedom peaked out in the year 2000 at a rating of 8.5 out of 10, and then declined to 7.69 in 2010 as intervention grew. The US freedom ranking among countries dropped from third place in 2000 to 18th out of 144 in 2010, and most probably has continued sinking since then.
Critics of markets have asserted that stagnant household incomes and financial crises are the fault of a greater role for markets, when in fact, in the US and Europe, massive subsidies to real estate caused the recession, excessive government borrowing has caused the fiscal crises, and a governmental redistribution of wealth from workers to landowners has stagnated net wages.
I agree with Pearlstein that we should welcome the debate on economic morality. But we should use words that have real economic meaning, rather than propaganda terms. Any person who refers to “capitalism” other than with critical quotation marks contributes to the confusion. The critics of markets opportunistically use the term “free market” to refer to the mixed economy, and then use the term “capitalism” also for the concept of a pure free market. Hence they argue that “capitalism,” as the mixed economy, suffers from economic woes, and then jump to the false conclusion that “capitalism,” meaning the pure market, causes the problems.
A real debate should also unmask the role of land that hides under the label “capital”ism. Critics who speak of the “market’s” unequal distributions overlook the massive redistribution of income from workers to landowners, as taxes on wages pay for public goods that pump up rent and land values. Their call for higher taxes on the rich disregards the distinction between earned income from entrepreneurship and unearned income from governmental subsidies.
Pearlstein admits that “many of the arguments have been a bit flabby, with both sides taking refuge in easy moralizing.” That is true. An honest and robust debate should avoid the deceitful switching of meanings for “capitalism”, and indeed avoids using the flabby term altogether. Instead, use the clear and honest words “pure market,” “intervention,” and “mixed economy.” If we say that the mixed economy has economic woes, one cannot then conclude that the pure market has caused them, because the mix also includes intervention. Clear thinking about economic morality cannot begin until we have clear terms that reflect the full-spectrum of economic reality.
“How China Became Capitalist”
That’s the title to this short piece by Nobel laureate Ronald Coase and his co-author Ning Wang published by the Cato Institute. Among the gems:
The presence of two reforms was a defining feature of China’s economic transition. The failure to separate the two is a main source of confusion in understanding China’s reform. The Chinese government has understandably promulgated a state-centered account of reform, projecting itself as an omniscient designer and instigator of reform. The fact that the Chinese Communist Party has survived market reform, still monopolizes political power, and remains active in the economy has helped to sell the statist account of reform. But it was marginal revolutions that brought entrepreneurship and market forces back to China during the first decade of reform when the Chinese government was busy saving the state sector.
Do read the whole thing. The Cato Institute ranks third on my list list of trustworthy think tanks. Hoover and Brookings are two that I think produce university-caliber research. Cato ranks far below Hoover and Brookings in my estimation, but it occupies a lonely third place, as none of the other think tanks out there are even close to Cato’s stature, either.
You can check out Cato’s website here.
Government Programs, Coffee and Bread
I have been vexed for years by a simple problem: How to explain to young people who were not taught anything of substance at school why free markets are desirable. You would expect this to not be much of a problem is this overall still capitalist country. When, I try, most of the time, I end up making their eyes glaze over although I am captivating speaker overflowing with charisma.
The difficulty is that the concept of market is counter-intuitive. In everybody’s personal experience, good things generally happen because someone makes them happen: Mom, Dad, the boss, God. The “invisible hand” of the free market is just that, invisible. To understand our economy takes an effort of imagination.
Lack of understanding of markets opens up people, especially young people, to the direct, unsophisticated emotional appeal of government intervention. In many minds again, especially in the young’s, government solves problems and when it does not, problems go unsolved. There is a good reason for this misapprehension of reality: The many good things that the market does, it does undramatically, almost imperceptibly. Its achievement tend to be taken for granted. By contrast, government interventions are nearly always thunderous, even and especially, if they turn out to be completely ineffective.
Below is a micro-essay question that illustrates this phenomenon. (No grade and no reward except the pleasure of discovery.) Continue reading
The Disaster: A Teenage Victory
Last Tuesday (11/6/2012) there was a vote about the future and the teenagers won. They now have the keys to the family car.
I have never in my life so wanted to be wrong in my judgment. Here it is: President Obama’s re-election is an even worse disaster than his election was. Do I think that many of the people who voted for him gave serious thought to the giant national debt, to the impending entitlement implosion, to the tepid economic growth, or even to the unusually high rate of unemployment? No. Do I think a sizable percentage did? No. Do I think a few did consider all or any of this? I am not sure.
President Obama won re-election decisively. His margin in the popular vote was nearly three million votes. Apparently* there were none of the gangsterish electoral tactics that marred his 2008 election. This makes the results worse as far as I am concerned.
President Obama is still not a monster. It’s possible that he is manipulated by a brand of leftists we thought had disappeared long ago. It’s also possible that someone like me will nurture in his brain paranoid notions at a time of major anxiety, such as now. Continue reading
Notes On Liberty 