Some reasons why I love capitalism

Here is a list of things I love about capitalism. Before presenting the list, it is important to say what I mean about capitalism. By capitalism, I mean free market capitalism. I don’t mean oligarchic capitalism (as it is very common in Latin America), state capitalism (communist countries) or Crony capitalism (sadly, more and more prevalent in the US). What I mean by capitalism is a system consistent with personal choice, private property, and voluntary exchange. The system Adam Smith described in Wealth of Nations. With that in mind, here is the list:

capitalism is true to human nature;

capitalism (slowly but surely) produces (immense amounts of) wealth;

capitalism is (more or less) stable;

capitalism helps the ones who need the most;

capitalism allows us to help others in need;

capitalism reduces violence;

capitalism reduces the incidence of wars;

capitalism breeds cosmopolitanism;

capitalism makes a better use of natural resources;

capitalism produces more beautiful cities;

capitalism is consistent with the Bible.

Immigration, Cultural Change, and Diversity as a Cultural Discovery Process

I have spent a couple of posts addressing various spurious economic and fiscal arguments against looser immigration restrictions. But, as Brandon pointed out recently, these aren’t really the most powerful arguments for immigration restrictions. Most of Donald Trump’s anti-immigrant rhetoric revolves around strictly alleged cultural costs of immigration. I agree that for all the economic rhetoric used in these debates, it is fear of the culturally unfamiliar that is driving the opposition. However, I still think the tools of economics that are used to address whether immigration negatively impacts wages, welfare, and unemployment can be used to address the question of whether immigrants impact our culture negatively.

One of the greatest fears that conservatives tend to have of immigration is the resulting cultural diversity will cause harmful change in society. The argument goes that the immigrant will bring “their” customs from other countries that might do damage to “our” supposedly superior customs and practices, and the result will be a damage to “our” long-held traditions and institutions that make “our” society “great.” These fears include, for example, lower income immigrants causing higher divorce rates spurring disintegration of the family, possible violence coming from cultural differences, or immigrants voting in ways that are not conducive to what conservatives tend to call “the founding principles of the republic.” Thanks to this insight, it is argued, we should restrict immigration or at least force prospective immigrants to hop through bureaucracy so they may have training on “our” republican principles before becoming citizens.

There are a number of ways one may address this argument. First, one could point out that immigrants face robust incentives to assimilate into American culture without needing to be forced to by restrictive immigration policies. One of the main reasons why immigrants come to the United States is for better economic opportunity. However, when immigrants are extremely socially distant from much of the native population, there a tendency for natives to trust them less in market exchange. As a result, it is in the best interest of the immigrant to adopt some of the customs of his/her new home in order to reduce the social distance to maximize the number of trades. (A more detailed version of this type of argument, in application to social and cultural differences in anarchy, can be found in Pete Leeson’s paper Social Distance and Self-Enforcing Exchange).

The main moral of the story is that peaceable assimilation and social cohesion comes about through non-governmental mechanisms far more easily than is commonly assumed. In other words, “our” cultural values are likely not in as much danger as conservatives would have you think.

Another powerful way of addressing this claim is to ask why should we assume that “our” ways of doing things is any better than the immigrant’s home country’s practices? Why is it that we should be so resistant to the possibility that culture might change thanks to immigration and cultural diversity?

It is tempting for conservatives to respond that the immigrant is coming here and leaving his/her home, thus obviously there is something “better” about “our” cultural practices. However, to do so is to somewhat oversimplify why people immigrate. Though it might be true that, on net, they anticipate life in their new home to be better and that might largely be because “our” institutions and cultural practices are on net better, it is a composition fallacy to claim that it follows from this that all our institutions are better. There still might be some cultural practices that immigrants would want to keep thanks to his/her subjective value preferences from his or her country, and those practices very well might be a more beneficial. This is not to say our cultural practices are inherently worse, or that they are in every instance equal, just that we have no way of evaluating the relative value of cultural practices ex ante.

The lesson here is that we should apply FA Hayek’s insights from the knowledge problem to the evolution of cultural practices in much the way conservatives are willing to apply it to immigration. There is no reason to assume that “our” cultural practices are better than foreign ones; they may or may not be, but it is a pretense of knowledge to attempt to use state coercion to centrally plan culture just as it is a pretense of knowledge to attempt to centrally plan economic production.

Instead of viewing immigration as a necessary drain on culture, it may be viewed as a potential means of improving culture through the free exchange of cultural values and practices. In the market, individuals are permitted to experiment with new inventions and methods of production because this innovation and risk can lead to better ways of doing things. Therefore, entrepreneurship is commonly called a “discovery process;” it is how humanity may ‘discover’ newer, more efficient economic production techniques and products.

Why is cosmopolitan diversity not to be thought of as such a discovery process in the realm of culture? Just as competition between firms without barriers to entry brings economic innovation, competition between cultural practices without the barrier to entry of immigration laws may be a means of bettering culture. When thought of in that light, the fact that our cultural traditions may change is not so daunting. Just as there is “creative destruction” of firms in the marketplace, there is creative destruction of cultural practices.

Conservative critics of immigration may object that such cultural diversity may cause society to evolve in negative ways, or else they may object and claim that I am not valuing traditions highly enough. For the first claim, there is an epistemic problem here on how we may know which cultural practices are “better.” We may have our opinions, based on micro-level experience, on which cultural practices are better, and we have every right to promote those in non-governmental ways and continue to practice them in our lives. Tolerance for such diversity is what allows the cultural discovery process to happen in the first place. However, there is no reason to assume that our sentiments towards our tradition constitute objective knowledge of cultural practices on the macro-level; on the contrary, the key insight of Hayek is it is a fatal conceit to assume such knowledge.

As Hayek said in his famous essay Why I’m Not a Conservative:

As has often been acknowledged by conservative writers, one of the fundamental traits of the conservative attitude is a fear of change, a timid distrust of the new as such, while the liberal position is based on courage and confidence, on a preparedness to let change run its course even if we cannot predict where it will lead. There would not be much to object to if the conservatives merely disliked too rapid change in institutions and public policy; here the case for caution and slow process is indeed strong. But the conservatives are inclined to use the powers of government to prevent change or to limit its rate to whatever appeals to the more timid mind. In looking forward, they lack the faith in the spontaneous forces of adjustment which makes the liberal accept changes without apprehension, even though he does not know how the necessary adaptations will be brought about. It is, indeed, part of the liberal attitude to assume that, especially in the economic field, the self-regulating forces of the market will somehow bring about the required adjustments to new conditions, although no one can foretell how they will do this in a particular instance.

As for the latter objection that I’m not valuing tradition, what is at the core of disagreement is not the value of traditions. Traditions are highly valuable: they are the cultural culmination of all the tacit knowledge of the extended order of society and have withstood the test of time. The disagreement here is what principles we ought to employ when evaluating how a tradition should evolve. The principle I’m expressing is that when a tradition must be forced on society through state coercion and planning, perhaps it is not worth keeping.

Far from destroying culture, the free mobility of individuals through immigration enables spontaneous order to work in ways which improve culture. Immigration, tolerance, and cultural diversity are vital to a free society because it allows the evolution and discovery of better cultural practices. Individual freedom and communal values are not in opposition to each other, instead the only way to improve communal values is through the free mobility of individuals and voluntary exchange.

Some thoughts on the Olympic Games and cosmopolitanism

Right now my city, Rio de Janeiro, is hosting the Summer Olympic Games. It is in many ways a great moment, and it is especially good to see people from so many parts of the world together in relative harmony. In other words, a good example of cosmopolitanism. The cosmopolitanism in the city today reminds me of the attempts of multilateralism that marked Brazilian (and world) foreign policy in previous governments, but that now seem to fade away. The two terms, cosmopolitanism and multilateralism, are not exactly synonyms, but are closely related: multilateral policies should work in bringing peoples together in a more cosmopolitan world. Concerning that, I think of a multilateralism that does not work in bringing people together through cosmopolitanism, and one that can work in that way.

When the Cold War was over, multiple theories were presented to explain what would happen to a world without the tension between two superpowers. Some suggested that the US would reign as a lone superpower; others that it would embrace some form of benign hegemony, in a New World Order. Others still believed that US power was in decline, and that the World would see more multilateralism in the 21st century. This last view was especially dear in Brazil, but as the 21st century progresses, it does not seem to hold as much water anymore.

One great example of multilateralism substituting American hegemony was the integration of Western Europe, but that does not seem to be the case anymore. It is true that beginning shortly after WWII European countries experienced growing levels of regional integration, culminating with the European Union and the Euro in the 1990s. But even then, economists warned politicians and the general public that such a level of integration was not possible, at least not without a central government in Europe. Successive economic crises, Brexit, and the harsh questioning of immigration policies show today that economists were right back then.

Another example of multilateralism celebrated in the 1990s was the growing importance of the UN. Successive humanitarian missions and interventions in several countries suggested that that UN could now surpass the dawn that marked the relationship between USA and USSR in the previous period. Optimism went so far as to discuss themes such as the ‘obligation to intervene’, substituting previous understandings of state sovereignty. But as the years go by, cases like Haiti, Rwanda, Sudan, and many others show that the optimism was at best too high.

Finally and more recently, Brazil and other underdeveloped and developing countries focused greatly on South-South Cooperation, trying to substitute the more standard paradigm of North-South Foreign Aid. This materialized in initiatives such as UNASUR and BRICS. Although presented as a new development, that was actually very reminiscent of The Non-Aligned Movement, The Group of 77, and other initiatives from the 1960s and 1970s. Now, as Brazil, Venezuela, Ecuador, Bolivia, Turkey, China, Russia, and several other countries face growing levels of economic and political hardship, attempts to “overcome American hegemony” seem but preposterous.

New forms in multilateralism in Europe, the Global South, and even the World (in the UN) did not work because they are not really democratic, as they claim to be. Behind a rhetoric of democracy, empowerment of the poor, and so on, they are just new forms of mercantilism: political elites trying to control the economy, not just at the national level, but the international one as well. The point was never to actually bring people together, but to maintain the status quo by avoiding real competition.

The multilateralism that can bring about cosmopolitanism, and that somewhat shows in the Summer Olympic Games in Rio, is one characterized by spontaneous order. People do come together: that is the natural ways of things. The desire to trade spontaneously brings different peoples closer to one another, and as they are closer they realize how much they have in common, and also what can be learnt from the differences. It is not always a peaceful dealing, but the more people are educated to tolerate the differences and to benefit from them, the more cosmopolitan they become.

A top down approach to cosmopolitanism is just a deformed clone of the real thing. Even if some results appear, they always seem to fall somewhere in the uncanny valley, and anyway, the results do not last very long. A bottom up cosmopolitanism is the real thing, and if only elites let it be, it can grow stronger, bring more wealth, and even a little more peace to the world.

Classical Liberalism, Cosmopolitanism and Nationalism

In another thought-provoking post on Facebook (does the guy ever write mediocre stuff, I wonder?) Barry raised the question of the relation between classical liberalism, nationalism and cosmopolitanism. He wrote the following:

“On the capture of classical liberal/libertarianism by anti-cosmopolitans. This is very influential at the heart of the ‘leave’ ‘elite’ in the UK, and can only be destructive of classical liberalism/libertarianism. The immediate political consequence of Leave is the elevation of Theresa May to Tory leadership/Prime Minister’s office on a much more ‘Red Tory’, communitarian, corporatist foundation than existed under Cameron. ’To the extent to which the current wave of populism maps into a conflict over national versus transnational identity (Dan Drezner is unconvinced), the problem is not an excess of cosmopolitanism but rather its absence, especially on the conservative, free-market right.”

He seems to take a positive relation between classical liberalism and cosmopolitanism as the default position. Of course Barry did not provide definitions in a FB post, but here I take cosmopolitanism to mean “the idea that all human beings, regardless of their political affiliations, belong to a common moral community. Cosmopolitans often believe that all individuals have the same basic moral status, and tend to downplay the importance or desirability of national political institutions. [They are] opposed to nationalism” (source: Matt Zwolinski (editor), Arguing About Political Philosophy, Routledge, 2009).

I argue that Barry overlooks that classical liberalism combines a cosmopolitan side, with a strong defense of national political institutions (e.g. the state). The cosmopolitan side is perhaps easiest to see, if one takes the idea of free trade as the guiding principle. Free trade is by nature morally neutral for the individuals involved, and has numerous positive economic effects; it fosters cultural exchange as well as innovation and knowledge sharing. In that sense classical liberalism is indeed related to cosmopolitanism.

Yet this stops where the national state comes into play. Classical liberals never predicted any positive political effects of trade (see my earlier notes on this topic) and, just as importantly, they actually favor a strong state, with a limited number of tasks. At the same time, from Hume and Smith onwards to Mises and Hayek, they strongly dislike the idea of transnational political institutions, because these lack any substantial emotional basis which nations do posses. Also, these large political institutions easily become a threat to individual liberty, even more so than national states with too many tasks. So, there is no really no relations between political cosmopolitanism and classical liberalism at all.

There is also no relation between nationalism and classical liberalism. A preference for the national state does not lead to nationalism, which is the vicious and poisonous belief in the superiority of one’s country, often accompanied with a dislike of allegedly inferior neighboring countries or peoples or groups. This is collectivism turned even worse, which is a double ‘no’ from a classical liberal perspective. This said, if patriotism is defined as national pride, then classical liberalism and patriotism can and will go together. There is a fine line between the two sometimes, but patriotism is not violent and dividing, but a binding force between individuals sharing a national state.

The last point is on the European Union. Hayek and Mises have been on record with strong support for a European Federation, primarily as a remedy to war-torn and nationalism-infected Europe. In these circumstances the default position of an international order as a society of states no longer functioned, so there was a need to seek an alternative. Needless to say their federation had little resemblance with the current super state we know as the European Union, which has become a classical liberal nightmare in terms of liberty and property rights violations it commits on a daily basis.

The current EU has some classical liberal traits (the imperfect common market is the single most important one), which is of tremendous use to all European individuals. It is, however, way too cosmopolitan in the bad political way. A likely consequence of Brexit is that this will become even worse, now that the French and their allies will get more room for their collectivist fallacies.

What’s the One Big Change?

I enjoy idle speculation, and like many libertarians I like to speculate on the following question: If you could make one big change, what would it be? In other words, what’s the real big issue.

I’m increasingly convinced that the one big issue is immigration. If we opened borders internationally, world GDP would increase by an estimated 50-150%. World income would double! That’s incredible. All those people living on $2 per day would suddenly by doing significantly better if they could only be allowed to work for you!

And the benefits don’t stop there! Gains from trade! By now we all should understand that if I work for you it’s because I value my wages more than my time and you value my time more than the wages (and payroll taxes, and administrative costs) that you pay in order to hire me. So by letting poor people into America they gain by making their employers better off. Their employers are made better off by making their customers better off. You and I are those customers.

So why isn’t this already happenings. There are three basic oppositions.

  1. They’ll use public services without paying taxes.
  2. They’ll depress wages and steal jobs
  3. They might be dangerous. Either because they’ll commit crimes, or they’ll vote for stupid things (like restricting immigration).

I’m not including a more traditional reason for opposing liberalized immigration: xenophobia and racism. Xenophobia makes sense from the perspective of evolutionary psychology, but it’s not a legitimate reason, and it’s one we can choose to be bigger than.

Okay, so point one, simple solution: give anyone who wants one a work visa. Problem solved. Anyone can come here, but nobody is automatically eligible for public services. They’re above board, on the grid, we can see them, and if they commit crimes they’re out. But they’re obliged to pay into a system that they can’t exploit.

Point two: empirical evidence is that the only group in America genuinely negatively affected are high school dropouts. Want to increase high school graduation rates? Increase the cost of dropping out by letting in immigrants. Everyone else is made more productive because immigrants have different skills than natives, creating opportunities for gains from trade. They are complementary to us, and so make us better off by working along side us. Imagine a lone man on an island. He’s a baker. If he meets another marooned baker, it’s nice, but not as nice as if he meets a marooned butcher.

Point three: first off, getting rid of illegal immigration will make it easier to keep people safe from the foreign menace. Second, immigrants currently have lower incarceration rates than natives. Besides, it’s cheaper to punish them: just deport criminals. No feeding, sheltering, and clothing them; just ship them off. For voting: again, just give them a worker’s visa that doesn’t let them vote.

So what’s the takeaway? A simple policy of letting people come into the U.S. to live and work will make nearly everyone better off, especially the world’s desperately poor. America’s poorest (high school drop outs) may suffer, but there are fairly simple ways to address that. Here’s one: use a slice of the tax revenue from the new immigrants to pay for GED’s, and a stipend to give these folks time to study and pass the test. If they aren’t willing to do that, then that’s on them. If they have some disability that prevents it (maybe they dropped out because of undiagnosed learning disorders), then address those problems, because with that increased tax revenue we can afford to. And anyone born after 1999 is responsible for graduating high school and will be told the costs of failing to do so.

What do we get out of it? International poverty reduction, local wealth increase, a more cosmopolitan society, and a better, more humane world.

The Holy Roman Empire was…

…_______________ (fill in the blank!).

I’ve been meaning to link to a fascinating article in the Economist on the parallels between the Holy Roman Empire and the European Union, but travels, getting ready for school, and other stuff has gotten in the way.

Among the gems:

The empire faced the same problem as today’s EU, only worse. The EU currently has 27 member states. During its final 150 years, the empire had more than 300 territories (the number varied). Should each member get one vote? If so, any hillbilly could block progress. Or should votes be weighted by territory? If so, big princes could bully little ones. Should decisions be taken by simple majority, qualified majority or unanimity? The empire answered these questions as the EU does: with a characteristically decisive it-all-depends.

Do read the whole thing.

My only critique of the article is that it misses a huge piece of the puzzle: the presence of the US military, as a conquering power, on the continent. As long as Uncle Sam is around, Europeans don’t have to worry about descending into yet another war. None of them will ever admit this, though. Europeans would rather spend their time ignoring this point while simultaneously assaulting the very political and economic system that enables the US to provide for Europe’s security.

I’ve written about this before, but due to the inevitable fiscal constraints of empire I think American military policy towards Europe needs to go one of two ways: 1) either withdraw our troops completely or 2) start implementing trade policies that would make living, working, and traveling between the US and Europe much, much easier. Like moving to Louisiana from Languedoc should be as easy as moving from California to Connecticut.

Taking the second route would pay for itself and much, much more. Unfortunately, there are too many isolationists and too many reactionaries (mostly on the Left) on both sides of the pond that would oppose such a policy no matter how much it would benefit themselves and everybody around them. The second route might be the one we need to take. Both, as I mentioned, are going to have to be necessary if the US is going to get its fiscal house in order.