Alguns mitos, equívocos e objeções comuns ao capitalismo parte 2

Continuando um post antigo, seguem mais alguns mitos, equívocos e objeções comuns ao capitalismo.

Três mitos a respeito da Grande Depressão e do New Deal

Mito #1: Herbert Hoover praticava o laissez-faire, e foi sua falta de ação que levou ao colapso econômico.

Na verdade Herbert Hoover era tremendamente intervencionista na economia. Sua intervenção cooperou para o início da depressão e sua continuada intervenção evitou que a economia se recuperasse logo.

Mito #2: o New Deal trouxe fim à Grande Depressão.

Longe de ser uma série de medidas coerentes contra a depressão, o New Deal foi uma tentativa de Frank Delano Roosevelt de demonstrar que estava fazendo alguma coisa. As medidas do New Deal apenas agravaram e prolongaram a crise. Países que adotaram uma postura menos intervencionista se recuperaram da crise mais rápido do que os EUA.

Mito #3: A Segunda Guerra Mundial deu fim à Grande Depressão.

Talvez este seja o pior mito de todos: a produção industrial no contexto da Segunda Guerra gerou empregos, aumentou o PIB, e com isso acabou com a Depressão. Conforme Friedrich Hayek afirmou, “da última vez que chequei, guerras apenas destroem”. Este mito é uma aplicação da falácia da janela quebrada, observada por Frédéric Bastiat. Guerras não produzem riqueza. Na verdade elas a destroem. O exame cuidadoso dos dados históricos demonstra que a economia dos EUA só se recuperou realmente quando a Segunda Guerra Mundial já havia acabado.

Mais alguns mitos, equívocos e objeções comuns ao capitalismo:

1. Capitalismo é racista e sexista

Considerando o capitalismo economia de livre mercado, onde indivíduos são livres para escolher, nada poderia estar mais longe da verdade. O capitalismo assim definido é cego para raça ou gênero. O que importa é a troca de valores. Para ficar em apenas um exemplo, as lideranças políticas do sul dos EUA pressionavam os donos de empresas de ônibus a segregar os passageiros com base na cor da pele. Os próprios empresários de ônibus queriam ganhar dinheiro com transporte de pessoas, independente da cor da pele. Apenas uma observação: recusar serviço com base em cor de pele, gênero, orientação sexual ou qualquer outro motivo é uma prerrogativa do indivíduo dentro do capitalismo. Leve seu dinheiro para uma instituição que o receba. A instituição que recusa serviço está perdendo dinheiro, e neste sentido já recebeu a punição dentro do capitalismo.

2. Capitalismo tende a bolhas e pânico

Esta é uma observação presente tanto em Marx quanto em Keynes. Conforme observado nos mitos sobre a Grande Depressão e o New Deal, exatamente o oposto é verdade. Conforme a Escola Austríaca em geral e Friedrich Hayek de forma especial observaram, é a intervenção do governo, particularmente no setor bancário e financeiro, que produz bolhas e pânico. A tentativa do governo de estimular a economia através de juros baixos e outros artifícios apenas cria ciclos de crescimento e queda. Milton Friedman e a Escola de Chicago fizeram observações semelhantes. Deixada livre a economia é de certa forma imprevisível, mas através do sistema de preços podemos nos guiar sobre quando e no que é melhor gastar.

3. Capitalismo não investe em coisas importantes

É difícil saber o que seria um investimento importante. Somente indivíduos podem avaliar o que é importante para eles mesmos. O raciocínio aqui é que há investimentos de longo prazo, que custam muito dinheiro e não produzem resultado imediato. Capitalistas não investiriam em voos espaciais ou na cura de doenças, por exemplo. Mais uma vez observa-se a falácia da janela quebrada: investir em uma coisa significa não investir na próxima melhor opção. Exemplos recentes mostram que empresas atuando no livre mercado podem fazer mais, melhor e com menos desperdício do que governos, inclusive quando o assunto é exploração espacial.

4. Capitalismo leva a produção de coisas duvidosas

Mais uma vez este é um argumento de orientação subjetiva. Aquilo que é duvidoso para um individuo pode ser bom para outro. Há aqui a velha máxima de que “o capitalismo produz necessidades artificiais”. Conforme Voltaire respondeu a Rousseau mais de 200 anos atrás, este argumento não se sustenta. O que é uma “necessidade artificial”? Tesouras são necessidades artificiais? E sabão? E pasta de dente? Porque seres humanos viveram por séculos sem estas coisas. Conforme já foi observado por Joseph Schumpeter, a grande virtude do capitalismo é justamente trazer conforto a baixo preço não para reis e rainhas, mas para as pessoas mais simples em uma sociedade. Ainda que alguns possam considerar certos produtos de consumo duvidosos. Apenas não comprem.

Referências:

3 Myths of Capitalism (YouTube)

Top 3 Myths about the Great Depression and the New Deal (YouTube)

Common Objections to Capitalism (YouTube)

Weekly Wakeup 01-24-2014

Making this a quick copy paste job today.  It has been a busy week.

To make a long story short, read this.

Myth:  The Great Depression was caused by government inaction in the face of a failing economy.

Reality:  The Hoover administration was the most active interventionist of a non-war economy in American history.

To quote the man himself:

“[W]e might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action.

No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times. . . . For the first time in the history of depression, dividends, profits, and the cost of living have been reduced before wages have suffered.”

And to quote the Murray Rothbard about Hoover’s actions:

At St. Paul, at the end of his campaign, Hoover summarized the measures he had taken to combat the depression: higher tariffs, which had protected agriculture and prevented much unemployment, expansion of credit by the Federal Reserve, which Hoover somehow identified with ‘protection of the gold standard’; the Home Loan Bank system, providing long-term capital to building-and-loan associations and savings banks, and enabling them to expand credit and suspend foreclosures; agricultural credit banks which loaned to farmers; Reconstruction Finance Corporation (RFC) loans to banks, states, agriculture, and public works; spreading of work to prevent unemployment; the extension of construction and public works; strengthening Federal Land Banks; and, especially, inducing employers to maintain wage rates. Wage rates ‘were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.’ But was there any causal link between this fact and the highest unemployment rate in American history? This question Hoover ignored.

Hoover had, indeed, “placed humanity before money, through the sacrifice of profits and dividends before wages,” but people found it difficult to subsist or prosper on “humanity.” Hoover noted that he had made work for the unemployed, prevented foreclosures, saved banks, and “fought to retard falling prices.” It is true that “for the first time” Hoover had prevented an “immediate attack upon wages as a basis of maintaining profits,” but the result of wiping out profits and maintaining artificial wage rates was chronic, unprecedented depression. On the RFC, Hoover proclaimed, as he did for the rest of his program, “Nothing has ever been devised in our history which has done more for those whom Mr. Coolidge has aptly called the ‘common run of men and women.'” Yet, after three years of this benevolent care, the common man was worse off than ever.

Hoover staunchly upheld a protective tariff during his campaign, and declared that his administration had successfully kept American farm prices above world prices, aided by tariffs on agricultural products. He did not seem to see that this price-raising reduced foreign demand for American farm products. He hailed work-sharing without seeing that it perpetuated unemployment, and spoke proudly of the artificial expansion by business of construction “beyond present needs” at his request in 1929-30, without seeing the resulting malinvestment and business losses.

While claiming to defend the gold standard, Hoover greatly shook public confidence in the dollar and helped foster the ensuing monetary crisis by revealing in his opening campaign speech that the government had almost decided to go off the gold standard in the crisis of November, 1931—an assertion heatedly denied by conservative Democratic Senator Carter Glass.

The spirit of the Hoover policy was perhaps best summed up in a public statement made in May, before the campaign began, when he sounded a note that was to become all too familiar to Americans in later years—the military metaphor:

The battle to set our economic machine in motion in this emergency takes new forms and requires new tactics from time to time. We used such emergency powers to win the war; we can use them to fight the depression (321-323).

Warren Harding’s Fiscal Cliff

The economy is in rough shape right now but suppose it were even worse: unemployment at 12% rather than 8%; GDP falling at a 17% annual rate rather than rising slowly.  A close advisor to the President counsels an array of interventions to stimulate the economy but is ignored.  Instead, the President cuts Federal spending in half and engineers drastic reductions in income  tax rates for all groups.  Meanwhile the Federal Reserve, rather than cranking up the printing presses for a round of monetary stimulus, snoozes through the whole year.

Now there’s a fiscal cliff for you.  If today’s thinking about the fiscal cliff of Jan. 1, 2013 held true, surely such policies would tank the economy big-time.

The foregoing scenario actually happened.  The year was 1920, the President was Warren G. Harding and his close advisor was none other than Herbert Hoover, who as President from 1929 to 1933 would have his way – raising taxes, jawboning wages, and slapping a killer tariff on the economy, thereby doing a great deal to turn the rather mild downturn of 1929-30 into the Great Depression which, with lots of help from Franklin Roosevelt, would plague the nation for another decade.

So what happened in Harding’s time?  Things were pretty rough for a while but by the summer of 1921, signs of recovery were already visible.  The following year, unemployment was back down to 6.7% and hit 2.4% by 1923 (source: Thomas Woods, “The Forgotten Depression of 1920″).  A budget surplus arose resulting in a noticeable decline in the national debt.  Business confidence soared and the 1920’s boom was off and running.

President Harding has gotten a bad rap from history because of the scandals that erupted during his administration as well as his chronic womanizing and his passion for the bottle.  But in the countdown of 20th century Presidents that I might do for this blog should I ever get ambitious, I will start with Harding as the least bad President of that sad century and work my way down from there.  I’ll let you  guess who I will honor as the Worst President of the Century.

How does the looming fiscal cliff compare with the policies of 1920?  In case you’ve been hiding under a rock lately (not a bad way to ride out the election campaign!), the fiscal cliff is the set of automatic tax increases and spending cuts that were agreed to when the debt ceiling was raised in 2011.  Congress decided to force its future self to act by lighting a time bomb that it would surely – surely! – defuse before it could go off.  The fuse has now burned to within 1/8 inch of the bomb.

The bomb’s tax increases and spending cuts would reduce the deficit by an estimated $600 billion in one year.  That may be the most accurate estimate but it’s only an estimate.  Congress can set tax rates but tax revenues depend on the size of the tax base.  If highly productive people, those who would take the biggest hit, decide to Go Galt, the tax base could shrink.  And as Jeff Hummel likes to point out, tax rates, particularly the top marginal rates, have varied drastically over the years and yet tax receipts have not varied much from 20% of GDP, excepting the World War II years.

Not only might tax receipts fall short, but expenditures could rise if additional welfare payments such as unemployment benefits or food stamps were to rise.

But let’s assume the fiscal cliff happens and the deficit is indeed reduced by $600 billion. Using figures for the fiscal year just ended, we would still have a $400 billion deficit which would have to be financed by borrowing.  As always, this would be new borrowing, on top of the borrowing needed to roll over the daily stream of maturing debt.  And we mustn’t forget the Social Security Trust Fund which until last year has mitigated the deficit by “investing” its surpluses (FICA tax revenues minus benefit payments) in Treasury securities.  Those FICA surpluses have now turned to deficits which for the present are offset by interest payments on Trust Fund holdings but will eventually require the Trust Fund to stop rolling over maturing securities and, should the trend continue, to deplete its holdings entirely.  All of these developments exacerbate the main federal deficit.  The same applies to the much smaller Medicare Trust Fund.

So I say, with a glance over my shoulder at 1920, bring on the fiscal cliff!  Let the cuts happen, thereby ending a lot of wasteful and harmful spending – particularly “defense” spending.  Let tax rates rise; people will work around them.

But it won’t happen because too many special interests will rise up to prevent it:

  • There are enough military personnel, military contractors, their suppliers, relatives and hangers-on to prevent significant cuts in defense spending.
  • The 27% cut in Medicare physician fees will lead doctors to brush away their Medicare patients like flies, sending those patients hobbling off to howl at their their Congressmen.
  • Millions of middle class people will gasp when their tax preparer tells them they’ve been caught in the dreaded Alternative Minimum Tax trap.  Others will escape the trap only to find that their ordinary income tax rates have risen substantially.
  • Still more millions will see their FICA (Social Security) tax rate revert to the 2010 rate of 6.2% from the current 4.2% “stimulus” figure.

The fiscal cliff won’t happen, at least not all of it, except perhaps for a brief period in January which will be fixed retroactively.  And so, though I hate to say it, I think the longer-term odds of pulling out of our fiscal death spiral are pretty slim.  Many think the government will resort to the time-honored remedy of the printing press, but Jeff Hummel has made a solid argument as to why this option won’t work and why there will be a default on Treasury securities instead.

Hummel also urges economists to do whatever they can to warn people not to count on government largess.  Most young people have written off Social Security for their future and that’s a good thing.  (Not so good for Social Security recipients like me who are increasingly unemployable yet hope to live another 25 years.)  We must take responsibility for our own health care, first by watching our health habits and second by cultivating a personal relationship with a physician, perhaps offering him or her cash payments.  We should be leery of Treasury Securities or of banks, mutual funds, etc. that rely heavily on these securities.  Sock away a few gold and silver coins.

We’re in for a rough ride, I fear, over the next few years.  But the sun will still rise and tangible assets will remain.  Provided enough of us have taken precautions, social unrest will be manageable and maybe, just maybe, the cancer that is called Social Democracy will be shaken off once and for all.

Some Mistakes Have Been Made

I just finished up the readings for a class on the history of the modern Middle East. The main book issued is one conveniently written by the professor of the course (James Gelvin) and is aptly titled The Modern Middle East: A History. Below is an excerpt that I think sums up the problems facing the Middle East today:

American policy towards the Middle East [after World War 2] was instrumental in promoting both development and the civic order development was to sustain […] To promote development, the United States adopted a multifaceted approach derived, in good measure, from its own Depression-era wartime experiences.

Ooops.

Here is Murray Rothbard’s America’s Great Depression. Now, I know libertarians are infamous for condescending suggestions to “go read a book”, but I don’t think we can really help it sometimes. Hoover’s interventionist policies and Roosevelt’s New Deal were disastrous for the American economy. Most, if not all, of the Middle East’s problems today can be traced to the institutions currently in place, and these institutions in their turn were created and codified based upon models that had entirely failed the West.

For the record, the developmentalist approach led directly to, you guessed it, economic nationalism and political despotism. You can find a convenient ranking of the world’s states based off of GDP (PPP) per capita here. According to the IMF, the US ($48,387) is ranked 6th in the world (the US also repealed or rebuked many of the Depression-era policies of the Hoover and Roosevelt administrations; the few that remain are among the most pressing problems American society faces today). The world average is $11,489. Egypt is ranked 104th, Iraq is 128th, Iran is 69th (coming in slightly above the world average at $13,053), and Syria is 118th.