Feeds:
Posts
Comments

Posts Tagged ‘Capitalism’

Over the years, I’ve felt compelled to “debunk” various articles, columns, and speeches that fundamentally misrepresented and/or misunderstood key economic issues.

A partial list includes Keynesian economics, the Laffer Curve, Obama tax propaganda, Elizabeth Warren’s class warfare, sequester hysteria, export subsidies, libertarianism, carried interest, government size, inequality, Scandinavia, and the value-added tax.

It’s time to add to that list. In a column for the Washington Post, Steven Pearlstein claims to have identified “Five myths about capitalism.” He’s not necessarily attacking free enterprise, but he does make several points that rub me the wrong way and/or should be addressed. Here’s his introduction.

Thirty years ago, in the face of a serious economic challenge from Japan and Europe, the United States embraced a form of free-market capitalism that was less regulated, less equal, more prone to booms and busts. Driving that shift was a set of useful myths about motivation, fairness and economic growth that helped restore American competitiveness. …Here are five of the most persistent ones.

Before we get to his myths, I can’t resist questioning his assertion that markets lead to “more booms and busts,” in part because we had very long and strong expansions during the market-oriented Reagan and Clinton years and in part because the big 2008 recession was largely a result of bad government policy.

But let’s set that aside and look at Pearlstein’s myths. Here’s his first assertion.

Adam Smith, the father of economics, first pointed out in his most famous work, “The Wealth of Nations ,” that in vigorously pursuing our own selfish interests in a market system, we are led “as if by an invisible hand” to promote the prosperity of others. …Smith, however, was never the prophet of greed that free-market cheerleaders have made him out to be. In other passages from “The Wealth of Nations,” and in his earlier work, “The Theory of Moral Sentiments,” Smith makes clear that for capitalism to succeed, selfishness must be tempered by an equally powerful inclination toward cooperation, empathy and trust — traits that are hard-wired into our nature and reinforced by our moral instincts. …An economy organized around the cynical presumption that everyone is greedy is likely to be no more successful than one organized around the utopian assumption that everyone will act out of altruism.

This isn’t really a myth as much as a misrepresentation. What “free-market cheerleaders” extol Smith as a “prophet of greed”?

I self-identify as one of those cheerleaders, and I simply point to Smith’s famous observation about how self-interest is what drives merchants to improve our lives.

Do some people go crazy with greed? Of course.

But that’s true in any system (look at how Chavez’s family members lined their pockets).

What makes capitalism a preferable system is that greedy people have to cater to consumers if they want more money.

Here’s Pearlstein’s second myth.

This is an almost universal belief among corporate executives and directors — that it is their principal mission and legal obligation to deliver the highest possible return to their shareholders. The economist Milton Friedman first declared in the 1970s that the “one social responsibility of business [is] . . . to increase its profits,” but the corporate raiders of the 1980s were the ones who forced that view on executives and directors, threatening to take their companies or fire them if they didn’t go along. …“maximizing shareholder value”…is now widely taught by business schools, ruthlessly demanded by Wall Street’s analysts and “activist” investors, and lavishly reinforced by executive pay packages tied to profits and share prices. In fact, corporations are free to balance the interests of shareholders with those of customers, workers or the public… Legally, corporations can be formed for any purpose. …The only time a corporation is obligated to maximize its share price is when it puts itself up for sale.

I’m not sure what point he’s making. Does he think companies shouldn’t try to make profits? Does he not understand the purpose of profits? Does he want to put corporate governance under the control of politicians, like Elizabeth Warren?

For what it’s worth, he’s correct that corporations can be set up for reasons other than profit, though I’m not sure that’s any sort of stunning revelation.

Here’s the third supposed myth.

The theory of “marginal productivity” holds that a worker’s wage or salary reflects the “amount of output the worker can produce,” according to Harvard’s Greg Mankiw, author of a best-selling economics textbook. This idea is useful in constructing economic models, but Mankiw and others have also relied on it to justify widening income inequality and to oppose proposals to redistribute income… In reality, however, the pay set by markets is also subjective, reflecting the laws and social norms under which markets operate. The incomes earned by workers who planted tobacco — and those who owned tobacco plantations — changed considerably after slavery was abolished, and again after laws protecting sharecroppers were enacted, and again when minimum-wage laws were passed… While it is probably better to rely on markets rather than government to set pay levels, that doesn’t mean that the way the markets set pay is a purely objective assessment of economic contribution or that redistribution is theft.

I’m glad he acknowledges that it is “probably better” for markets to set wages, but this section is largely incoherent.

He writes about slavery, but that has nothing to do with capitalism. After all, slavery was government-sanctioned and government-enforced involuntary labor, whereas a defining feature of capitalism is voluntary exchange.

Now for the fourth myth.

The reason Americans tolerate higher levels of income inequality is because of our faith that we all have a fair chance at achieving the American Dream or becoming the next Bill Gates. “In America we stand for equality,” writes Arthur Brooks of the American Enterprise Institute, a leading defender of the morality of capitalism. “But for the large majority of us, this means equality of opportunity, not equality of outcome.” …But while the United States has made great strides in removing legal barriers to equal opportunity, at least half the difference in income between any two people is determined by their parents, either through inherited traits like intelligence, good looks, ambition and reliability (nature), or through the quality and circumstances of their upbringing and education (nurture). …Unless we are prepared to engage in extensive genetic reengineering, or require that all children be brought up in state-run boarding schools, we must acknowledge that we can never achieve full equality of opportunity.

This section actually makes some sense. Some people do have better parents and better genes, and that does put them in a better position to succeed.

In any event, I very much hope that Pearlstein doesn’t think that government-imposed “genetic reengineering” and/or “state-run boarding schools” are good ideas.

Here’s the final myth, and also the one that got me most agitated.

Economists have long believed that there is an unavoidable trade-off between equality and growth — having more of one means having less of the other. Arthur Okun’s book about it, “Equality and Efficiency: The Big Tradeoff,” remains a classic. The implosion of communism and the decisions of socialist countries like Sweden to reduce taxes and welfare are widely seen as acknowledgments of the failure of overly egalitarian systems to produce adequate economic growth. But evidence suggests that there is also a point at which high levels of inequality begin to deliver less economic growth, not more — and that the United States has passed that point, according to research by the International Monetary Fund. …rising income inequality erodes the trust people have in one another and their willingness to cooperate.

I’m glad he cited Okun, and it’s also good that he cited Sweden’s turn in the right direction.

But it’s very disappointing that he called attention to the IMF’s incredibly shoddy research on inequality.

As I’ve repeatedly explained, inequality that results from voluntary exchange is fine and inequality that results from Cronyism is bad. Studies that fail to distinguish between the two are either deliberately dishonest or breathtakingly shoddy.

I’ll close by asking critics of capitalism to give just one accurate answer to my two-question challenge. Or, if that’s too difficult, create the left-wing version of this chart.

I won’t be holding my breath.

Read Full Post »

Over the years, I’ve had fun mocking the silly extremism of the environmental movement.

That being said, protecting the environment is a worthy and important goal.

And that’s why some of us want to give the private sector a bigger role.

John Stossel, for instance, has a must-watch video on how capitalism can save endangered rhinos.

Professor Philip Booth expands on the lesson in the video and urges broad application of market forces to preserve the environment.

Especially well-enforced property rights.

…what is needed for better husbandry of ecological resources is more widespread and deeper establishment of property rights together with their enforcement. The cause of environmentalism is often associated with the Left. This is despite the fact that some of the worst environmental outcomes in the history of our planet have been associated with Communist governments. …a great deal of serious work has been produced by those who believe in market or community-based solutions to environmental problems, and a relatively small role for government. For example, Ronald Coase and Elinor Ostrom are two Nobel Prize winners in economics who have made profound contributions to our understanding of how markets and communities can promote environmental conservation. Indeed, the intellectual and moral high ground when it comes to environmentalism ought to be taken by those who believe in private property, strong community institutions and a free economy.

Philip explains why private ownership produces conservation.

If things are owned, they will tend to be looked after. The owner of a lake will not fish it to near extinction (or even over-fish the lake to a small degree) because the breeding potential of the fish would be reduced.

He then explains the downside of public ownership.

On the other hand, if the lake is not owned by anybody, or if it is owned by the government and fishing is unregulated, the lake will be fished to extinction because nobody has any benefit from holding back. Local businesses may well also pollute the lake if there are no well-defined ownership rights. The much-cited work here is Hardin’s Tragedy of the Commons (1968), though, in fact, Hardin was simply referring back to a pamphlet by William Forster Lloyd which was written in 1833. In that pamphlet, a situation was described whereby common land was open to grazing by all. The land would then be over-grazed because a person would get the benefit of putting additional cattle on the land without the cost that arises from over-grazing which would be shared by all users.

He points out that one advantage of Brexit is that the U.K. can implement a fisheries system based on property rights.

Now that fishing policy has been repatriated, the UK should establish property rights in sea fisheries. Few would seriously question private property when it comes to the land. For example, it is rare these days to find people who would suggest that farms should be nationalised or collectivised or returned to an unregulated commons where anybody can graze their animals without restriction. It would be understood that this would lead to chaos, inefficiency and environmental catastrophe.

And since we have real-world evidence that fisheries based on property rights are very successful, hopefully the U.K. government will implement this reform.

So what’s the bottom line on capitalism and the environment?

If we want sustainable environmental outcomes, the answer almost never lies with government control, but with the establishment and enforcement of property rights over environmental resources. This provides the incentive to nurture and conserve. Where the government does intervene it should try to mimic markets. When it comes to the environment, misguided government intervention can lead to conflict and poor environmental outcomes. The best thing the government can do is put its own house in order and ensure that property rights are enforced through proper policing and courts systems. That is certainly the experience of forested areas in South America.

Let’s close by noting one other reason to give the market a bigger role. Simply stated, environmentalists seem to have no sense of cost-benefit analysis. Instead, we get bizarre policies that seem motivated primarily by virtue signalling.

And don’t forget green energy programs, which impose heavy costs on consumers and also are a combination of virtue signalling and cronyism.

No wonder many of us don’t trust the left on global warming, even if we recognize it may be a real issue.

P.S. There is at least one employee at the Environmental Protection Agency who deserves serious consideration for the Bureaucrat Hall of Fame.

Read Full Post »

There’s a meme on Facebook and Twitter that asks people to “confess your unpopular opinions.”

I suppose I could play that game by saying that I’d rather eat fast food than patronize most fancy restaurants (especially if I have to pay the bill!). And I’ve unintentionally played that game already by admitting that politicians aren’t always sinister and evil.

But I have something even more astounding to confess: My leftist friends are right when they assert that the free market destroys jobs.

Not only are they right, they probably underestimate the number of jobs that are destroyed by capitalism. Over time, millions of jobs vanish because of the greedy pursuit of profits.

Mark Perry of the American Enterprise Institute shares some very sobering data on how almost all of the big companies of the 1950s have faded over the past 60 years.

Comparing the Fortune 500 companies in 1955 to the Fortune 500 in 2014, there are only 61 companies that appear in both lists. In other words, only 12.2% of the Fortune 500 companies in 1955 were still on the list 59 years later in 2014, and almost 88% of the companies from 1955 have either gone bankrupt, merged, or still exist but have fallen from the top Fortune 500 companies (ranked by total revenues). Most of the companies on the list in 1955 are unrecognizable, forgotten companies today (e.g. Armstrong Rubber, Cone Mills, Hines Lumber, Pacific Vegetable Oil, and Riegel Textile). …That’s a lot of churning and creative destruction, and it’s probably safe to say that almost all of today’s Fortune 500 companies will be replaced by new companies in new industries over the next 59 years.

And why did these companies disappear or shrink in size, thus leading to major job losses?

Mostly because capitalists, seeking profits, invested money in ways that displaced old technologies, hurt old competitors, and made old products less attractive.

Sounds terrible, right? Jobs are lost because of greedy rich people trying to increase their wealth.

And if you’re one of the people in the unemployment line, it is terrible.

But keep in mind that this process of creative destruction led to new technologies, new competitors and new products. And the net effect of all these changes is that – on average – we are much richer.

Mark elaborates.

…for that we should be thankful. The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy… In the end, the creative destruction that results in a constantly changing group of Fortune 500 companies is driven by the endless pursuit of sales and profits that can only come from serving customers with low prices, high quality and great service.

Indeed, this system is what has given us the “hockey stick” of human progress.

All this disruption and change is what enables our society, over time, to grow faster and produce more goods and services and lower prices.

At least when the market is allowed to operate with the right set of policies – what I call the recipe for growth and prosperity.

In my speeches, I sometimes make similar points by using historical examples.

  • I ask audiences to think about how personal computers have made our lives more enjoyable and productive, but I then ask them to ponder what happened to the people who had jobs making, selling, and servicing typewriters.
  • I ask audiences to think about how the automobile boosted productivity and increased mobility, but I then ask them to consider the lost jobs of people in the horse and buggy industry.
  • I ask audiences to think about how electrification and the light bulb improved the economy in countless ways, but I then ask them to speculate on the number of jobs that were destroyed in the candle-making sector.

The sad reality is that progress has a price tag. Yes, we are far richer because of great inventions that boosted productivity and improved lives. But that doesn’t change the fact that real workers with real families often experienced genuine anguish when jobs in some sectors disappeared. And that’s still happening today.

And workers are largely blameless when job losses occur. All they did was exchange honest work for honest pay. It was the capitalists who made mistakes by not managing companies effectively and not allocating capital efficiently (or, to be more charitable, they simply failed to anticipate major changes that were about to occur).

By the way, this isn’t an argument for government intervention. We would be much poorer today if politicians tried to save jobs every time there was creative destruction in the economy. Perhaps most important, every job that they “saved” would be offset by the jobs (and prosperity) that weren’t created or didn’t materialize because the clumsy foot of government replaced the invisible hand of the market.

What Bastiat taught the world in the 1800s is still true today. We have to consider both the seen (the jobs that are saved) and the unseen (the greater number of jobs that don’t get created) when contemplating the impact of government.

This is why I want the economy to be as dynamic and innovative as possible so that displaced workers can find new positions as quickly as possible, hopefully earning even more money.

Here’s a short video from Learn Liberty that teaches about this process of creative destruction.

P.S. There’s also another Learn Liberty video that teaches about creative destruction. I’m a big fan of all their videos, including the ones on the Great Depression, central banking, government spending, and the Drug War. And the videos on myths of capitalism, the miracle of modern prosperity, and the legality of Obamacare also should be shared widely. You also should watch their videos on job creation, the price system, public choice, and the Food and Drug Administration.

Read Full Post »

I’m a proud advocate and defender of capitalism for the simple reason that it is a system that is consistent with human freedom while also producing mass prosperity that was unimaginable for much of human history.

Jurisdictions that embrace capitalism enjoy great progress while nations that veer in the other direction suffer economic decline, as vividly demonstrated by comparisons such as the relative performance of Hong Kong and Argentina.

And, for what it’s worth, the Princess of the Levant even says capitalism is “a sexy word.”

But not everybody agrees.

A column by Greg Sargent in the Washington Post has some very depressing poll numbers.

…the Harvard Institute of Politics has released a new poll of young voters… One key finding in the poll, which surveyed over 3,000 people from ages 18-29, is that these young people see a robust role for government in guaranteeing a right to a basic standard of living, and majorities of them see a large or moderate federal role in regulating the economy and access to health care and higher education. …A narrow majority of respondents in Harvard’s poll said they did not support capitalism.

Writing for Mic, Marie Solis looks at these recent poll numbers and wonders if the real issue is whether “capitalism” is simply an unpalatable word.

A new Harvard University survey found 51% of the participants between the ages 18 and 29 said they do not support capitalism. …The university’s results echo recent findings from Republican pollster Frank Luntz, who surveyed 1,000 Americans between the ages of 18 and 26 and found that 58% of respondents believed socialism to be the “more compassionate” political system when compared to capitalism. …the results may be more indicative of a shifting connotation for the word “capitalism” itself. “The word ‘capitalism’ doesn’t mean what it used to,” he said. “You don’t hear people on the right defending their economic policies using that word anymore.”

Not so fast. I still use “that word.”

But should I? James Pethokoukis of the American Enterprise Institute is sympathetic to the notion that there’s a perception problem. He speculates that the real problem is that capitalism now has a negative connotation.

America’s millennials are hardly some fifth column of communist sympathizers. Nor are they idiots. But they are at least a bit skeptical of “capitalism.” …Yet, oddly, many of those same capitalism skeptics also hold views similar to those of any Ayn Rand-loving free marketeer. For example: Less than a third believe government should play a large role in regulating the economy, reducing income inequality, or stimulating economic growth. Likewise, just a third said they supported socialism.

I fear Pethokoukis is being too optimistic in his reading of the polling data. When you review the questions in the poll and add together those who want a “large” role for government with those who favor a “moderate” role for government, they overwhelm the advocates of laissez-faire who say government should play “little to no role.”

Though maybe I’m just being a pessimist since the folks who want a “moderate” role may think the government today already is playing a “large” role and therefore would want to reduce the size and scope of Washington (though the fact that many people actually blame deregulation for the financial crisis, notwithstanding all the evidence to the contrary, makes me think that would be a Pollyannish interpretation of the polling data).

In any event, let’s return to the issue of whether capitalism is akin to a toxic brand.

Maybe one problem here is the word “capitalism” and what it evokes in the aftermath of the Great Recession and Wall Street bailout. Maybe “capitalism” really isn’t the right word for the free enterprise system, the deep magic that has made America the richest, most powerful nation on Earth. Indeed, wherever and whenever there’s been a bit of economic freedom, amazing things have happened — from Europe in the 1800s to China and India in the late 20th century. …Maybe millennials aren’t capitalists as much as they are “innovists” or “innovationists.” They believe the same dynamic economic system that created those amazing panes of internet-connected glass in their pockets will also create a better world.

It galls me that young people blame capitalism for the financial crisis. Have they ever heard of the Federal Reserve? Or Fannie Mae and Freddie Mac?

Blaming capitalism for the recent mess is like blaming the Red Cross for tornadoes. Sounds like millennials don’t know the difference between capitalism and cronyism.

But I’m digressing again. Time to get back to the central topic. Elizabeth Nolan Brown weighs in with a column for Reason.

…this new poll finds young people torn between “capitalism” and “socialism,” with perhaps little—or, to be more charitable, an ahistorical—understanding of what either means.

I definitely agree with her than millennials are confused about what these terms mean.

But grousing about their lack of knowledge doesn’t solve the problem. But maybe we can make progress if we learn why young people think the way they do.

…words—especially big, emotionally-laden words describing controversial or complicated concepts—connote different things to different people. When pollsters probe young people further about socialism and capitalism, they tend to find that respondents don’t have clear concepts of these economic philosophies. To many millennials, “socialism” doesn’t mean a government-managed economy but something like what we have now, only with more subsidized health care, student-loan forgiveness, and mandatory paid parental leave. …”Capitalism,” meanwhile, doesn’t simply mean private, for-profit enterprise. …Capitalism is Big Banks, Wall Street, “income inequality,” greed. It’s wealthy sociopaths screwing over the little guy, Bernie Madoff, and horrifying sweatshops in China. …However incomplete or caricatured, these are the narratives of capitalism that millennials have grown up with.

She basically comes to the same conclusion as Pethokoukis.

We certainly need to consider whether and how the word can be reclaimed, or if we’re better served talking about the “market economy,” “private enterprise,” “free trade,” or “entrepreneurship.” Millennials love the word entrepreneur… Unlike anti-capitalists of yore, young people today don’t seem to see a tension between turning a profit and living righteously. …As John Della Volpe, polling director at Harvard, puts it, millennials aren’t “rejecting the concept” of capitalism. “The way in which capitalism is practiced, in the minds of young people—that’s what they’re rejecting.”

Indeed, she shares some 2014 polling data that shows there is 2-1 support for free markets, which is significantly better than the level of support for capitalism.

This analysis is persuasive. If we can convince more people to support good policy by talking about “free markets” rather than “capitalism,” then I have no objection to using a more effective phrase or word.

For what it’s worth, opponents of economic liberty such as Karl Marx were among the first to use the term “capitalist” and they obviously meant it as a slur. Which is another reasons why advocates of economic liberty shouldn’t feel obliged to use that word.

That being said, I’m not sure whether using a different word or phrase will make a big difference. I remember when Social Security reform was a big issue between 1995-2005. Proponents were repeatedly told that “private” and “privatization” were words to avoid, so we all dutifully said we were for “personal retirement accounts.”

Which was fine, but it didn’t stop leftists from using “privatization.” Moreover, polling data showed considerable support for the idea, notwithstanding demagoguery from advocates of the status quo.

Now that we’ve discussed whether “capitalism” is a bad word, let’s shift gears and look at whether “liberal” should be a good word.

Professor Daniel Klein says the word has been hijacked by statists.

Here I make a plea, addressed to conservatives and libertarians, regarding the word liberal: please do not describe leftists, progressives, social democrats, or Democrats as “liberal.” …Words have deep-seated cognates and connotations; they have character and history. …The term liberal has always had an abundance of positive connotations: generous, open-minded, tolerant, big-hearted. …to oppose “liberals” almost seems tantamount to opposing modern, open civilization.

And “liberal” originally was linked to economic liberty and free markets.

The inception of liberal as a political term should be credited to the Scottish historian William Robertson, who published a book in 1769 that uses the term repeatedly to mean principles of liberty and commercial freedom. Adam Smith…used the term repeatedly in a signal way to refer to the sort of policy he advocated, a system that gives a strong presumption to individual liberty, and hence commercial and market freedom. …The principles of Adam Smith spread throughout Europe, as did the name he used for them, “liberal.” …so “liberal” political movements were born.

But then the statists began to call themselves liberals.

At the end of the nineteenth century, and thereafter, there came a dramatic shift. Collectivism or statism was on the rise. …Especially during the period 1880 to 1940, there came great changes in the meanings of words, changes in semantics. …people started using words in new ways, and often even announced and emphasized the newness of their usage and meaning. …the statists arrogated the term liberal to themselves… The literature of the so-called New Liberals declaimed openly against individual liberty and in favor of state collectivism and socialistic reform.

Interestingly, the bastardization of “liberal” has primarily occurred in the United States and Canada.

…when we step outside North America, we see that, by and large, liberal still means liberal…read and listen to European Parliament member Daniel Hannan, who often uses liberal proudly in its original sense, and who never calls leftists “liberal,” or to read the journal of the Institute of Economic Affairs (London)—Economic Affairs: A Journal of Liberal Political Economy. …In Prague, for example, the leading freedom-oriented organization is called the Liberal Institute. Where liberal still means liberal, such as in Europe and Latin America, leftists have no reluctance in calling their imaginary bogeyman “neoliberalism.”

I can vouch for that. I’m often accused of being a “liberal” or “neo-liberal” when speaking overseas. It took a while to get used to it, but now I smile and say “yup, that’s me.”

And I’ll sometimes use “classical liberal” and “libertarian” interchangeably when speaking in the United States. But given the way the meaning of the word has changed over time, I don’t think it would make sense to the average person if I referred to myself as “liberal.”

That being said, I fully agree with Professor Klein that we shouldn’t let leftists get away with using that term to describe themselves. I prefer to describe them as “statists.”

P.S. Tom Sowell has a more controversial, but technically accurate, term to describe modern leftists.

Read Full Post »

In addition to his side job as Director of Undergraduate Studies for the Economics Department at Harvard University, Jeff Miron is Director of Economic Studies at the Cato Institute.

He’s also the narrator of this video from Learn Liberty that discusses three myths about capitalism.

Unsurprisingly, I think Jeff is right on the mark. Here are some of my thoughts on the three myths, but I’ll take a different approach. I’ll state the truth and then add my two cents to Jeff’s debunking.

1. Capitalism is pro-consumer, not pro-business.

I think the myth about a link between capitalism and big business arises because defenders of free markets often are in the position of opposing taxes, regulations, and mandates that also are opposed by the business community. But for some reason, many people overlook the fact that those same advocates of free markets also oppose cronyist policies that are widely supported by big business, such as Export-Import Bank, the so-called stimulus, TARP, and Obamacare. Part of the problem may be that far too many Republicans actually are pro-business instead of pro-free market.

2. Capitalism rewards those who best serve others.

In a genuine free market, you can only become rich by providing goods and services that are valued by others. But I think the myth that capitalism leads to unfair distribution of wealth exists for two reasons. First, a non-trivial number of people actually think the economy is a fixed pie, so they assume a rich person’s wealth came at the expense of the rest of us. This is obviously wrong. The second reason is that some people do get rich because of government intervention and coercion. This is true, of course, but as discussed in the video and in my remarks above, cronyism, handouts, bailouts, and subsidies are the opposite of capitalism.

3. Capitalism can’t work without failure and bankruptcy.

Regarding the myth that capitalism caused the financial crisis, I’ve already explained that bad monetary policy and corrupt subsidies from Fannie Mae and Freddie Mac deserve the lion’s share of the blame. So I want to focus on the bailouts that occurred once the economy soured. There’s a semi-famous saying that “capitalism without bankruptcy is like religion without hell.” Unfortunately, politicians feel a compulsion to shield people (especially if they’re politically powerful) from the consequences of bad decisions. That’s not capitalism. And I’m not just making an ideological point. For those who think that the financial system needed to be recapitalized, the “FDIC resolution” approach would have achieved everything we got with TARP, but without rewarding people who made bad decisions.

My only complaint about the video is that it was too short and didn’t address some of the other viewpoints that undermine support for capitalism.

I don’t know if these are myths, per se, but they certainly are mental roadblocks we need to overcome to build more support for a free society.

4. Some people crave security.

Capitalism is all about opportunity, but that also means uncertainty. And for those who crave predictability and security, that makes them uncomfortable. And I suspect they would be uncomfortable even if you showed them all the evidence that capitalism leads to far more wealth in the long run. Simply stated, they worry about falling through the cracks. When trying to convince these people, I point to the collapsing welfare state in Europe and argue that there’s far less long-run security in a society where everyone tries to live at the expense of everyone else.

5. Some rich people are jerks.

Whether it’s being obnoxious or ostentatious, people with a lot of money sometimes give capitalism a bad name. And that’s true even if they are genuine capitalists rather than cronyists. It doesn’t help that a lot of what comes out of Hollywood routinely paints rich people and big business as bad guys. By the way, it could very well be the case that there are fewer bad people, per capita, among the rich when compared to the rest of us. But the ones that are jerks get a disproportionate share of attention. And since I mentioned Hollywood, it is a bit of a mystery that becoming uber-rich by acting (or singing or in sports) doesn’t seem to arouse as much envy. Yet I strongly suspect those people are far more likely to engage in unseemly behavior. Go figure.

6. Some businesses try to rip off consumers.

While free markets in the long run reward honesty and punish bad behavior, that doesn’t mean much to a person who has been ripped off, whether by a local contractor or a big multinational. The fact that there are bad people, though, isn’t an argument against capitalism. After all, bad people are quite likely to obtain power in a big-government society. And backed by the coercive power of the state, they’ll have much greater ability to do bad things.

P.S. If you want to know the practical difference between capitalism and socialism, check out this image.

P.P.S. The most free-market place in North America is not in the United States.

P.P.P.S. We live in a strange world when Bono is more pro-market than the Pope.

P.P.P.P.S. Statists like to criticize free markets, but they sure seem to enjoy the fruits of capitalism.

P.P.P.P.P.S. I also suspect statists think free markets are bad because they equate capitalism with rich people and the wealthy folks they know are more likely to have obtained their money dishonestly.

Read Full Post »

Sometimes you find support for capitalism and small government in some rather unexpected places.

I was surprised, for instance, when I found out that Gene Simmons, the lead singer for Kiss, stated that, “Capitalism is the best thing that ever happened to human beings. The welfare state sounds wonderful but it doesn’t work.”

That’s pretty hard core.

Bad news for Denmark’s Lazy Robert?

Or what about the Finance Minister of Denmark’s left-wing government, who admitted that, “We live in a world of global competition for jobs… That requires a modernization of the welfare state.”

That’s not hard core, to be sure, but it certainly suggests that he understands the need to reduce the burden of government spending.

And my jaw hit the floor when I read that former KGB bigwig Vladimir Putin remarked that, “Many European countries are witnessing a rise of [the] dependency mentality when not working is often much more beneficial than working. This type of mentality endangers not only the economy but also the moral basics of the society.”

I’m not about to take lessons in societal morality from a strongman like Putin, but it’s nonetheless surprising that he recognizes that handouts can turn people into supplicants.

So after reading all these examples, perhaps you won’t be overly shocked to learn that Bono, head of the famous U2 band, is a supporter of capitalism. He’s no Milton Friedman, as you’ll see, but check out this quote from an interview in the Guardian.

My father was Labour, classic Dublin Northside household. And I still carry that with me. And though I believe that capitalism has been the most effective ideology we have known in taking people out of extreme poverty, I don’t think it is the only thing that can do it, and in some ways I wish it wasn’t.

Even with his caveats, it’s big news when one of the world’s leading anti-poverty campaigners acknowledges that free markets are the best tool for improving the lives of poor people.

“Please don’t use naughty words like capitalism in my presence”

Bono’s comments sort of remind me of when the former leftist president of Brazil remarked that, “…it was necessary to first build capitalism, then make socialism, we must have something to distribute before doing so.”

Neither Lula nor Bono are libertarians, of course, but at least their views are rooted in reality. Which is more than can be said for many of the people in Washington who have never produced anything and have no idea how markets actually work.

Perhaps even more stunning is the fact that Bono defends tax competition and fiscal sovereignty.

…at the heart of the Irish economy has always been the philosophy of tax competitiveness. Tax competitiveness has taken our country out of poverty. People in the revenue accept that if you engage in that policy then some people are going to go out, and some people are coming in. It has been a successful policy. On the cranky left that is very annoying, I can see that. But tax competitiveness is why Ireland has stayed afloat.

Wow, there’s no ambiguity to that statement. I’d like to think he’s knowledgeable about the benefits of tax competition because he’s watched my videos or read my writings, but the real story is that he lived through and personally experienced the Irish miracle.

He saw his relatively poor country become very successful, in large part because of big improvements in tax policy. And he obviously understands the importance of maintaining Ireland’s low corporate tax rate (which I’ve also argued is very important to keep Ireland from sinking further into statist stagnation).

Let’s close with a couple of additional examples of folks on the left who have confessed some very un-PC thoughts, such as the New York Times columnist who bravely wrote that, “This is painful for a liberal to admit, but conservatives have a point when they suggest that America’s safety net can sometimes entangle people in a soul-crushing dependency. …Most wrenching of all are the parents who think it’s best if a child stays illiterate, because then the family may be able to claim a disability check each month.”

“We’ve learned from you that communism doesn’t work”

Perhaps most amazing is that a high-ranking official from China’s communist government stated that, “If you look at the troubles which happened in European countries, this is purely because of the accumulated troubles of the worn out welfare society. I think the labour laws are outdated. The labour laws induce sloth, indolence, rather than hardworking. The incentive system, is totally out of whack.”

Last but not least, surely it’s big news that even Fidel Casto confessed that, “The Cuban model doesn’t even work for us anymore.”

P.S. Sometimes even Obama says reasonable things, such as the time he remarked that “No business wants to invest in a place where the government skims 20 percent off the top.” Or the time he said that it was best to ““let the market work on its own.” Unfortunately, when you read the fine print and look at the context, there’s no indication that the President actually has learned anything about economics.

P.P.S. My favorite examples of liberals crossing the ideological aisle are Justin Cronin and Jeffrey Goldberg, both of whom wrote very powerful anti-gun control columns.

Read Full Post »

I sometimes wonder whether journalists have the slightest idea of how capitalism works.

In recent weeks, we’ve seen breathless reporting on the $2 billion loss at JP Morgan Chase, and now there’s a big kerfuffle about the falling value of Facebook stock.

In response to these supposed scandals, there are all sorts of articles being written (see here, here, here, and here, for just a few examples) about the need for more regulation to protect the economy.

Underlying these stories seems to be a Lake Wobegon view of financial markets. But instead of Garrison Keillor’s imaginary town where “all children are above average, we have a fantasy economy where “all investments make money.”

I don’t want to burst anyone’s bubble or shatter any childhood illusions, but losses are an inherent part of the free market movement. As the saying goes, “capitalism without bankruptcy is like religion without hell.”

Unlike today’s chattering class, King Canute understood limits to power

Moreover, losses (just like gains) play an important role in that they signal to investors and entrepreneurs that resources should be reallocated in ways that are more productive for the economy.

Legend tells us that King Canute commanded the tides not to advance and learned there are limits to the power of a king when his orders had no effect.

Sadly, modern journalists, regulators, and politicians lack the same wisdom and think that government somehow can prevent losses.

But perhaps that’s unfair. They probably understand that losses sometimes happen, but they want to provide bailouts so that nobody ever learns a lesson about what happens when you touch a hot stove.

Government-subsidized risk, though, is just as foolish as government-subsidized success.

Read Full Post »

Older Posts »

%d bloggers like this: