Capitalism
Righty: Any system that rewards individual initiative, inventiveness, character, hard work and dedication is the kind of system we need to bring out the best in our people. Capitalism is like a magical machine that takes raw materials and transforms them into wealth. Into the machine we load oil, iron ore, cotton, lumber and ideas; out the other end emerge handsome homes, stores, cities, universities and a life of comfort. Capitalism is the essence of freedom and the springboard to self-fulfillment. No system has been more effective at transforming us from wretched barbarians into affluent and civilized men and women. If God had money, you can bet He’d be a capitalist, too.
Lefty: Righty offers us a predictably starry-eyed (read “deluded”) view of a corrupt economic system that thrives on greed, opportunism and exploitation. The essence of capitalism is a cheat: you obtain your goods at a bargain price and fob them off on your gullible customers at a significantly fatter price. Very noble, that. Even worse, the capitalist reaps a profit off the labor of his underpaid underlings. They sweat for a pittance, like beasts of burden, stripped of their dignity and security; the capitalist collects the rewards. Where’s the justice in that? The people who do the work are entitled to share equally in the proceeds, and only government ownership of the means of production will restore some semblance of justice to this outrageously exploitative system. We need an economy that acknowledges our interdependence and sense of community. Marx had it right: “From each according to his ability; to each according to his need.”
The New Moderate:
As Winston Churchill might have put it (to paraphrase his famous remark about democracy), capitalism is the worst economic system except for all the others. There is nothing especially praiseworthy about buying low and selling high, other than the fact that it helps build fortunes for those doing the buying and selling.
Capitalism rewards an extremely narrow range of human skills: the ability to spot opportunities and exploit them. Nothing especially praiseworthy about that, either. What if our skills lie more in the direction of creating vivid art, diagramming sentences or amassing a vast internal storehouse of general knowledge? Then we’re free to join the underclass. There’s your “freedom” for you, Righty.
I like capitalism’s respect for individual effort; I’m all in favor of private property; I think hard work should be rewarded. It’s just that within the confines of pure free-market capitalism, the rewards generally go to the most avaricious rather than the best, brightest or most virtuous. Much like Darwinian natural selection, pure capitalism is an amoral system that shows no regard for beauty, kindness or other intrinsic values; all that seems to matter is one’s ability to find a suitable niche and dominate it. (For this reason rats and MBAs are more successful than pandas and poets.)
We need to reshape capitalism so that robber-baron CEOs and investment bankers can no longer earn a thousand times the salaries of their hardworking secretaries. We need to restore some sense of proportion to our current “winner-take-all” economy, or eventually the peasants will revolt. What’s more, I think they’ll be justified.
What we have now isn’t pure capitalism, anyway. It’s corporatism: the domination of the markets by a handful of gargantuan (and frequently unethical) players, to the detriment of real competition. It’s plutocracy, too: the near-absolute control of the nation’s wealth by a tiny, self-perpetuating economic elite.
The New Moderate would favor a modified capitalist economy as defined by the two Roosevelts: combine TR’s trustbusting fervor with FDR’s reliance on inspired federal programs to supplement the private sector, and we’d be well on our way to a more just economy that, unlike socialism or communism, still respects and rewards the individual.
Summary: Capitalism may be the least evil of economic systems, but it’s far from perfect. We need to tweak it so more people can share in the rewards.
Your Churchill paraphrase is extremely apt. So should move forward with modified democracy ? Capitolism is the worst economic system – except for all the others. That would include “modified capitolism”. The rewards of capitolism are actually extremely broad rather than narrow. The fallacy of too many shallow adherents is that it rewards merit. Capitolism rewards providing people with what they want. The better you are at that the wealthier you will get. The fallacy of its detractors, is that it is about money. The wealth of a nation is the extent to which it produces what it wants. If we want oil, we get oil, if we want poetry that is what we get. In fact it is extremely good at meeting our desires to exactly the extent that we value them. If you beleive there is insufficient art – the fault is in ourselves not the system. Rock Stars, Super Athletes, Celebrities are rewarded exactly in proportion to our values. The initial criticism of Adam Smith was that capitalism would empower the lower tier of the pyramid. One of the reasons for some of the things you see as skewed values, is because the power is actually concentrated at the bottom not the top. Entertainers earn princely wages rather than artists and poets because the aggregate ability of the bottom of the pyramid to reward is much greater than that of the top. You are correct in noting that what we have now is corporatism more than capitalism, but corporatism is dependent on government. Without government competition arises naturally. There are fundamentally only two barriers to entry into a market. The real cost of competing – so long as some megalithic monster monopoly ensures the market price of its product is sufficiently low no one can afford to compete – the purpose of competition is served. That rarely happens and monopolies tend to die naturally. The other is artificial barriers created in collusion with power and the only power great enough to restrict a market is government. In the most recent economic debacle look what happened – government is propping up the largest corporations in the country. Why are these institutions “too big to fail” ? Either we need their services – and their destruction would result in the birth of smaller businesses to meet that need, or we don’t and it is corporate welfare pure and simple. Regardless it is not capitolism.
Dave: Thanks for the honest, thought-provoking post. You raised some important points: the fallacies of arguments about capitalism on the right and the left, the key to capitalist success (giving people the goods and services they want), the populist nature of capitalism, and the corruptive “too big to fail” mentality.
I’d quibble with only one point: that the outlandish incomes of pro athletes and other celebrities reflect their true market value. American celebrities benefit from a huge publicity machine (the tabloids, TV shows like “Entertainment Tonight,” Internet portals with their celeb news, and especially sports news.) This publicity machine keeps their names in the public eye (for free, mind you!) and artificially enhances their fame and status. The result: even higher salaries.
I feel a real conflict over the populism issue. On the one hand, I have to agree that minor poets, for example, contribute very little to our culture and probably don’t deserve big monetary rewards. But it’s always easy to appeal to the worst human instincts and tastes, especially in a society that has lost all respect for virtue. By promoting hardcore rappers, slutty teen role models and other junk culture, capitalism isn’t simply responding to demand; it’s shaping tastes by bombarding us with the images it wants us to embrace as “cool.” Of course, we fall for the bait (at least the more vulnerable among us do). I’m not sure if that’s honest capitalism so much as crass manipulation.
Anyway, as a moderate I’m fascinated by the pull between my own populism and elitism, like two angels sitting on my shoulders and whispering into my ears. The problem is that neither angel is entirely good or entirely bad, and there’s the rub.
Thanks for making me think.
Capialism = greed not bad, a little greed and self interest drives progress, but the rampant form present in America oday leaves out all but a few supergreedy/rich. But Socialism depends on Human goodwill and work ethic. Can you say idealist? How about naive? Humans require a drive, and some people fall down. But instead of the current system of trampling them further, Moderation demands a mix of both, social democracy, limited capitalism, with regulations and oversight that mean something, and a safety net for the unlucky, but a way to keep out the lazy and stop it from turing into the ridiculous European system. “You don’t want to work? OK! have some welfare, on us” with almost no oversight fo the safety net. Should anybody find a way to this, write your congressman/lobbyist.
Wow, I agree with you completely. I love the “idea” of capitalism but, as we have seen, the application of it has not worked out ideally. If all people were following the Golden Rule of Human Goodwill, then capitalism would work. But greed has made it a monster that needs to be killed. Socialism also requires Human Goodwill to work. I believe modified capitalism or controlled capitalism may be the way for us to go. And some “socialism” or what appears to be, will be necessary (such as health care, retirement, disability, etc) but can remain limited. We want to learn from other countries and not make their mistakes. And also take what they have done that works.
to those critical of what we have – quit confusing it with capitalism. We have an increasingly corporatist system. Everyone should note that in the recent health care debacle, The health insurance industry, the pharmaceutical industry, and to a lessor extent the medical industry were generally supportive – so long as reform was crafted to suit them. Progressives in particular should note that whenever the government legislates – even to serve some great public purpose, that the rules are crafted primarily by large corporations that will be subject to them, that market dominating corporations rarely object to even the most heinous rules – so long as those burdens apply to potential competitors. As we are seeing with financial reform, the cost of government regulation is passed on to the consumer in one way or another, and for a dominant corporation regulatory burden has another name – barriers to entry. There is nothing that most market cominating businesses would prefer more than the become public utilities, the free market is volatile and even the largest businesses do not typically survive that long, life as a public utility is easy, meet minimal regulatory standards and have permanent protection from competition.
Those complaining about the disparity between the top and the bottom need to grasp that wealth is not money, and that income is neither. The top 1% of wage earners are far from the richest people in this country – these are the people aspiring to riches not those already rich. Money is not wealth, Wealth is goods and sevices, it is what we want – whatever that is. After you have purchased your GulfStream and half a dozen mansions you have pretty much hit the top of the wealth curve. No matter how much richer you might get, significant changes in consumption are not possible. In reality, the accumulation of real wealth tapers off fairly rapidly beyond that it is all money and unless you burry it in the back yard the vast majority of the money of the rich is engaged in investment that produces jobs and wealth for the rest of us. All this is basic Adam Smith, it has been known for 300 years (outside of government atleast). Bill Gates has millions of times more money than I do, but it is unlikely that he has 100 times the wealth I do. How many Cell Phones, cars, homes, sumptuous meals, can you actually consume ?
For those advocating some form of socilism lite I would point out that europe is slowly moving away from socialism towards free markets. Full equality can only be acheived in abject poverty, free and fair are mutually exclusive. Conditions for the bottom tier are best where freedom is greatest. Look arround you are everything that you have – of that what has government given you ? What part of the government safety net has not left those ensnared in it worse off than they started ? Capitolism is about three centuries old – three centuries during which life expectancies have doubled, and human progress on virtually every level has dwarfed that of the rest of recorded history many times over. Government is atleast 6 thousand years old, democracy atleast three.
At its very best the proposition that marketting shapes culture is a chicken-egg argument. Whether it is super atheletes, Rap Stars, or McDonald’s, and whether it is conscious or not celebrity, success and notoriety are acheived by giving us what we desire. I would prefer more poets and good plumbers, but I am a niche market. The values that sell best are those that appeal to the largest majority. Advertisers may seek to tap into needs we did not realize we had, but they do not succeed unless we respond.
I am self-employed. The past years has been abysmal. My personal income is probably below the poverty line. I have only had about a months work all year. I have paid myriads of taxes my entire life, yet I am prohibited by law from the benefits of most of the so called safety net. I can not collect two weeks of unemployment much less ninety-nine.
But I am doing fine. I am free. I am happy. I live and work as I choose. My aspiration is sufficient success to be able to hire others. I will have accomplished something that no one in government can honestly claim – I will have created a job. While the person I hire might well have taken a job elsewhere, it is still indisputable that my efforts have created one more job than existed before. In doing so I will likely make myself richer (and wealthier) but I will also have done more to improve the world than if I gave 10% of my income to charity. Even if I prove god forbid to be an abusive, obnoxious and nasty boss, I will still have done something good that is beyond my representative, senator or president.
The New Deal initiated by President Roosevelt in the 1930′s in the United States followed yet another ‘unfettered Capitalism is wonderful… just get out of the way and let us be free!” lead the US and the world into a miserable Depression. The truth is that the New Deal “regulated” Capitalism, and sought to limit Corporatism through tough regulation and tax policy.
“Pure” Capitalism is a wondrous wealth builder … for the Capitalists and corporate hired hands. But it does precious little for the majority of workers. In addition, as we have seen, too much wealth in a limited segment of society produces a form of “entitlement” significantly more dangerous to Democracy than “handing out money” to the lower classes!
The Plutocracy in America hate regulation because than know that the New Deal was a successful regulation program of wealth, greed, and monetary excess. The very rich in American have lied to the American people for more than 30 years, and created a propaganda machine slicker than the old Soviet system, or even Goebbels Nazi scheme in the 1930′s.
The very rich must be taxed at a high rate to inhibit the “buying” of politicians; to redirect that wealth into necessary public projects (that also employ thousands), and to limit the wealthy from profiting from the US war machine around the world.
Presidents Reagan, H.W. Bush, and G.W. Bush rang up an astounding 12 trillion in debts in a combined total of 20 years in the White House. The Republicans sure are experts in debt … not reducing the debt, but in blaming others and using the issue as an excuse to dismantle the social safety net system initiated, mostly, by President Roosevelt.
Only two presidents of the last 5 have reduced the US debt at all … Presidents Carter and Clinton. Not a lot, mind you, but reductions. Hmmm…..
There are many theories on the causes of the great depression. Though our public schools still teach the unfettered capitalism meme, no one else does. Nor does any credible school of though accept that FDR had anything to do with ending it.
Confusing Capitolism with corporatism is the same mistake that Michael Moore makes.
If you wish to rail against corporatism – they mutually parasitic relationship between business and politicians – I am with you. But corporatism is an artifact of broad government powers not capitalism.
If you think Capitalism is so bad for workers look around you ! Adam Smith grasped that the benefits of the free market would be primarily to those at the bottom – because Wealth and Money are not the same. Wealth is what we produce, it is also what we consume. Money is the vehicle to transform the Wealth we produce into the Wealth we consume nothing more.
Most of the poor in this country today live better than all but the richest throughout the world. In many ways they live better than even the middle class in Europe. they have larger homes and apartments, more Flat Screen TV’s more dishwashers, more microwaves, more Cell Phones, more computers, …… They live better than the US middle class as little as 30 years ago, and the poor of 30 years ago live better than the middle class 30 years before and so on back all the way to the time of Adam Smith. But for most of human existence, and for every other political and economic system that has not been true.
The greatest accumulation of Wealth in a capitalist system is and must be at the bottom. The Rich accumulate money because they have essentially become sated with the consumption of Wealth. More than two hundred years ago Smith noted that there are just some many opulent homes, gourmet dinners, and fancy carriages that the rich can make use of. After which further accumulation is mostly in money. Today there are even more toys available to the rich, but the rich still consume a far smaller proportion of their income, and the rest is money not wealth.
The New Deal not only did not end the Great Depression, but FDR’s policies caused another Recession in the middle of the Depression.
There is only one effective means to prevent someone or some organisation from “buying” politicians – and that is restrain government sufficiently that it is not worth their while.
Confiscatory taxation will not work – if for no other reason than because the rich will buy enough political power to ensure that it does not.
The great harm of the “entitlement” system – whether it is corporate entitlements or to the less fortunate is the damage it does to the recipients. The immigrant working illegally for less than minimum wages has more pride and opportunity than the one on the dole. His lot can and likely will get better. Whatever he has, it came from his own efforts, and his children will do better than he will. There are myriads of people today who will tell that their families were working class poor when they were kids. But they did not feel poor. They had to leave home, go to college or elsewhere, achieve more than their parents to realise that they came from poor families. That is far less true of those on the dole. Government aide is a trap, not only of one generation but of their children. With very few exceptions the poor 30 years ago are not poor today – and today’s poor will not be poor in 30 years. The exception are those who live off the largess of the government.
The national debt was slightly over $10T at the end of the Bush administration – far too large, but still not $12T. Regardless, do not presume I am defending Pres. Bush or Republicans. Nor am I attacking Carter or Clinton. Carter was responsible for far more successful deregulation than Reagan was. Carter (and Ford, and even Nixon) inherited an economic mess caused by the failure of Keynesian economic policies. The “Carter” recession, was deliberately caused by Fed Chairman Volker in order to bring inflation under control. Just as FDR followed essentially Hoovers policies (and Obama is essentially doubling down on Bush’s mistakes), Reagan continued and reaped the eventual benefits of Carter’s fiscal policies.
Corporatism and debt are games played by both parties – though I would corporate donations to Democrats are far larger than republicans. Despite the ranting of the left, Citizen’s United benefited Democrats more than Republicans.
The national debt will be almost $16T at the end of 2011, and atleast $17.5T at the end of 2012. In 4 years we will almost doubled the debt.
We are in the death throes of progressivism. Not because of the propaganda of the rich or the machinations of congressional Republicans – but because it does not work.
It matters little to me which part wins the next election. The current system is unsustainable. Tax increases no matter who they are applied to can not fix it – this country has never achieved sustain federal revenue above 20% of GDP – but hey tax the crap out of the rich – it has been tried before. The GOP can’t even manage to get $65B in cuts – not really cuts but reductions in the increase, when the federal budget has increased by $1T since 2008. The left and right are playing chicken right now over the national debt – but no matter who wins the fiscal restraint being discussed is barely more than rounding error on the problem.
“A republican stands up in congress and says ‘I GOT A REALLY BAD IDEA!!’and the democrat stands up after him and says ‘AND I CAN MAKE IT SHITTIER!!”
— Lewis Black
“I don’t know if you’ve noticed, but our two-party system is a bowl of shit looking at itself in the mirror.”
— Lewis Black
I know even from my Communist life back in Romania that there is NO economy without politics. We even had school books called “Economie-Politica” (Political-Economics).
It is stupid to even think that somebody can separate political power from money power. Whoever has money power want to get also political power (see the candidates for US Presidency and California Governors), and whoever has political power wants also money power (See Fidel Castro and Communist leaders in general)
We cannot separate Religion from State Politics. Why? Because nowadays religious leaders have money but no political power. However, religious leaders wants Vatican back all over the world… get in line! Protestants religious fundies are in front of you Catholics!
Oh… and not to forget the best of Capitalism from Lewis Black:
All I heard through the course of the campaign was that everything was going to be all right because capitalism is the most wonderful economic system ever developed, because it was developed by god himself for us.
There’s nothing more splendid than capitalism. It is a beautiful garden, a garden that irrigates itself and fertilized itself, and it needs no sunlight, because it basks in the glory of its own reflection. There’s nothing more wondrous than the garden that is capitalism.
And if it is left entirely unregulated, that garden will grow and grow and grow until all of us share in its beautiful fruit.
And so I went to bed every night dreaming about my beautiful fruit.
And then I woke up one morning, and there was the secretary of the treasury standing behind the white house, at the back door, as if he was trying to get away.
“Holy f**k!
We’re f**ed!” he said.
“We’re completely f***ed!
Son of a b*tch!
I don’t know what happened to the garden, but it’s a piece of sh*t now.
Watch that hand coming up your a$s; it’s looking for quarters.
Put straws in your nose.
The river of shit is rising.
Start pulling out your gold fillings and put ‘em on ebay.
I’m getting the f*ck out of it”
…then he ran around the white house three times with his hair on fire….
I find it almost unbelievable that this is coming from the World Bank.
The results speak for themselves – if you actually care about the least well off, they will benefit far more from freedom than from handouts, in fact the later often leaves them worse off. I have repeated this refrain over and over on this and other blogs – getting myself labeled as some corporate shill or lunatic in the process. But whether progressives – or moderates accept it or not, the benefits of liberty are greatest for the least. This has been well known since atleast the time of Adam Smith. While command economics and entitlement systems harm everyone – particularly those they are intended to benefit.
This was true two centuries ago, and it is true today. The argument that individual liberty does not work in the modern world is and has always been a fallacy. Freedom has many flaws. Many of the arguments against more individual freedom, and less government are true – atleast in the sense that net positive is not the same as only positive. But despite every possible valid argument against liberty, the benefits in comparison to any other system, outweight the losses, and they are greatest for those with the least.
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The World Bank’s Jean-Pierre Chauffour has a nifty new working paper “On the Relevance of Freedom and Entitlement in Development”.
Reviewing the economic performance—good and bad— of more than 100 countries over the past 30 years, this paper finds new empirical evidence supporting the idea that economic freedom and civil and political liberties are the root causes of why some countries achieve and sustain better economic outcomes. For instance, a one unit change in the initial level of economic freedom between two countries (on a scale of 1 to 10) is associated with an almost 1 percentage point differential in their average long-run economic growth rates. In the case of civil and political liberties, the long-term effect is also positive and significant with a differential of 0.3 percentage point. In addition to the initial conditions, the expansion of freedom conditions over time (economic, civil, and political) also positively influences long-run economic growth. In contrast, no evidence was found that the initial level of entitlement rights or their change over time had any significant effects on long-term per capita income, except for a negative effect in some specifications of the model. These results tend to support earlier findings that beyond core functions of government responsibility—including the protection of liberty itself—the expansion of the state to provide for various entitlements, including so-called economic, social, and cultural rights, may not make people richer in the long run and may even make them poorer.
http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2011/05/16/000158349_20110516090121/Rendered/PDF/WPS5660.pdf
I wonder from where these guys are getting money to write something like that…
Occupy Wall Street may resolve the whole issue for us. If you rathole your money at home instead of putting it in the bank, that would be less for them to use. I would rather have little money than a ton of it earning tons of interest somewhere, feeding into banks/corporations and their ability to exploit whoever. Now they look like even bigger scumbags….since I had the common sense to join a credit union three months ago.
“since I had the common sense to join a credit union three months ago.”
Which of course, are working to earn a “profit!”
BTW-the banks don’t need your money. They have the Fed!