Why capitalism is worth conserving (and its new populist critics on the right are wrong)

"Whether the critiques come from politicians like Josh Hawley or pundits like Tucker Carlson, free-market conservatives are increasingly scolded for being overly committed to economic freedom. To no surprise, the Left continues its own critiques as it always has, spurring a strange, unspoken alliance among otherwise ideological foes." - Acton

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josh p's picture

Very good article. The virtue/individual freedom correlation is extremely important. Free virtuous individuals are the best thing for a flourishing society. In a wicked culture such as ours freedoms can sometimes be abused. The problem is not the freedom however and restricting it only makes things worse. This is something that I believe conservatives have largely lost sight of. They are so focused on the outcome that they fail to make consistent and principled policy. The Road to Serfdom should be required reading. 

Mark_Smith's picture

The problem is, right now, most of the wealth in the US is held by people with little concern for "virtue." Capitalism in the US is sick because the wealthy are not virtuous. They get themselves richer while arguing over paying an employee another $0.15 an hour. They sell out to foreign companies. They move plants overseas. They raid retirement funds. They scream about paying a fair tax rate. On and on.

Capitalism has worked for a good long while in the US because, on balance, there was virtue. I suspect that has gone away.

josh p's picture

Mark_Smith wrote:

The problem is, right now, most of the wealth in the US is held by people with little concern for "virtue." Capitalism in the US is sick because the wealthy are not virtuous. They get themselves richer while arguing over paying an employee another $0.15 an hour. They sell out to foreign companies. They move plants overseas. They raid retirement funds. They scream about paying a fair tax rate. On and on.

Capitalism has worked for a good long while in the US because, on balance, there was virtue. I suspect that has gone away.

A lot there but most of the problem with capitalism is crony-capitalism. Also, some of what you mention I have no problem with personally. 

Dan Miller's picture

I have been thinking about writing a couple papers on the Biblical imperative of capitalism. To me it's explicit in passages like the Ten Commandments and Amos. Contrary to how it has been famously used, the "righteous and justice" that Amos compared with water are capitalism. 

Mark_Smith's picture

Dan Miller wrote:

I have been thinking about writing a couple papers on the Biblical imperative of capitalism. To me it's explicit in passages like the Ten Commandments and Amos. Contrary to how it has been famously used, the "righteous and justice" that Amos compared with water are capitalism. 

There are many sides and implications to capitalism. Our present situation is fairly sick, imho. And by that I am not referring to the pressure of socialism from the left. The reason that pressure is working is due to the selfishness of business "leaders."

Dan Miller's picture

Certainly capitalism can be sick. And selfishness is at it's core, because humans are. I'm not sure you can blame it on the leaders, though.

eg, my wife's old MacBook Air broke (it doesn't like a glass of water poured into the keyboard!). So I want an enclosure for it's hard drive and a Torx-5 screwdriver to disassemble it. Last night I went to Best Buy. They only have the proper enclosures by order and the only T-5 they had was in a overpriced multi-tip set ($65), which duplicates a bunch of what I already have. So instead of supporting my local store (never mind that this was a national chain, not a true local store) I'll order online. We all order online because it's cheaper. 

This is certainly a problem of capitalism in the digital age. The ability to oversee a HUGE amount of work (eg, Amazon delivers an incredible amount of merchandise) is made possible by computers. This allows the oversight of greater numbers of workers. The result is a reduction in the ratio of overseers:workers. There will not be as many owners/bosses.

On this basis, one could make the argument that communism is practically more suited to the digital age. And China may be offer some evidence that at least the digital age makes communism work better than it did in the last century. But it still causes and depends upon human suffering.

I'm not as interested in the practical as in what is Biblical.

dcbii's picture

EditorModerator

Mark_Smith wrote:

There are many sides and implications to capitalism. Our present situation is fairly sick, imho. And by that I am not referring to the pressure of socialism from the left. The reason that pressure is working is due to the selfishness of business "leaders."

Seeing as any system is limited by the sinfulness of man, I'm reminded of an old joke/saying that goes like this:

"In capitalism, man exploits man.  In communism, it's the other way around."

If you are basing your judgment of a system on its whether it can be abused by man, you will likely come to the wrong conclusion as to its relative merits.  The selfishness of leaders will exist in any system, so it's not really all that useful to use that as your main criteria, especially for Christians who understand the sinfulness of man.  Everyone looking with longing at other systems always thinks that socialism and/or communism are only seen as bad because "they haven't been done right yet."  I'd argue that the weaknesses inherent in those systems make it nearly impossible to "do them right."

We have at times in history seen capitalism work well, with less exploitation of the helpless than seen in other systems, since they can, in many cases, use the system to work themselves out of their condition.  While capitalism can certainly also be abused by corruption like any man-made system, it's also easier to mitigate or sometimes even fix some of the weaknesses than it would be in the others.

I won't try to argue that American capitalism always gets it right.  I would argue that an American version of socialism or communism would be worse, and in most cases, dramatically so.

Dave Barnhart

Dan Miller's picture

I won't try to argue that American capitalism always gets it right.  I would argue that an American version of socialism or communism would will be worse, and in most cases, dramatically so.

Sadly...

dcbii's picture

EditorModerator

Dan Miller wrote:

I won't try to argue that American capitalism always gets it right.  I would argue that an American version of socialism or communism would will be worse, and in most cases, dramatically so.

Sadly...

I don't really disagree with you.  I only said "would" instead of "will" because at this point I don't think America completely switching to socialism/communism is inevitable, even though our system is not pure capitalism and already has some elements of the others.  Maybe I'm not quite cynical enough yet...

Dave Barnhart

Dan Miller's picture

https://en.wikipedia.org/wiki/Loss_aversion

The idea is that if people are given something they will view it as moderately nice. So, government health care. People who previously didn't have access to health care are pretty happy that there is Obamacare. When it came, they didn't know it was going to be, so the reaction is, "Well, how good is it gonna be?...This is okaaay, but it really could be better..." However, if it were to be taken away, or even suggested to be taken away, those who would propose to take it away would basically be the devil. 

So, we can go back and forth between electing liberal (big government) and conservative (smaller government), but even if they have equal time in office, because of loss aversion the conservatives will never be able to undo as much as the liberals do. And the more that happens, the more people become dependent on government and liberals gain voters. And so it might be two steps 'forward', one step back, but the country is inexorably marching towards either revolt or socialism/communism. 

dcbii's picture

EditorModerator

Dan Miller wrote:

And so it might be two steps 'forward', one step back, but the country is inexorably marching towards either revolt or socialism/communism. 

I hope you are wrong, but perhaps January 6th was a preliminary indicator of what a "revolt" might start to look like.

Dave Barnhart

Mark_Smith's picture

is that the average adult has the exact same buying power today he had 30 years ago, and actually a little less. He has benefited in no way from all the increased productivity. The "bosses" took the profit for themselves. The employees work longer and harder for less of the piece of the pie. That is sustainable for only so long. Eventually someone will decide they don't like it and revolt one way or the other.

It is absurd that a person can work 40 hours a week and not make enough to live in many places due to high rent/housing costs,  and high healthcare costs.

It is absurd that in many areas house ownership is unachievable even for working married couples.

The cost of healthcare is absurd.

It is ridiculous that many employees never get raises, they only get COLAs.

None of this will continue to work for the long term. There is a flash point.

Larry's picture

Moderator

"In capitalism, man exploits man.  In communism, it's the other way around."

Cute and often quoted, but not really true. As has been pointed out, capitalism requires you to produce something that someone is willing to part with their money over. It is virtually the only way to get money. If you can't produce that product, you work for someone who does. So there is an inherent outward focus as well. A capitalist has to serve his fellowman by providing something that said fellow man considers valuable enough to give him money for. For the most part, it's not exploitation because it is voluntary.

Larry's picture

Moderator

is that the average adult has the exact same buying power today he had 30 years ago

Try buying a smart phone 30 years ago. Or getting high speed internet. Or a flat screen TV. Or any number of other things. The truth is that the buying power is greater because what you can buy with the same amount of money is better stuff. 30 years ago, a good laptop computer was available. It was expensive. It was large. And it wasn't very good. 

So this type of nostalgia is a bit misleading because we aren't buying the same things. 

The economy is complex. Thinking it can be explained in a few short paragraphs is a symptom of the lightness of our age. 

Dan Miller's picture

The problem is the disconnect between consumer and seller. It has driven health care costs up, and it is the reason for the housing bubble collapse from 13 years ago. I could go on and on about health care (I'm a surgeon). When I started practice I joined a honest, burned out, great surgeon who set his own prices reasonably. His fees for surgery were lower than all the competitors. Why? He set them there. My other partner and I raised them (just as every other surgeon has done). Why? Because some insurance companies had higher pay for those same surgeries. Each insurance company and each doctor sets their "fee schedule." And when you submit to the insurance company, they pay the lower of your fee and their fee. So why not? In all of this (this is the key) the patient does not care at all about whether the fee is high or low. 

And Larry,

As has been pointed out,
...capitalism requires you to produce something that someone is willing to part
with their money over. It is virtually the only way to get money.

But also, caveat emptor.  The other way to get money is to trick people into thinking your product or service is more valuable than it is. The gullibility of people is sometimes unbelievable. For instance, if you said to me, come up with the most ridiculous "health care" product you can and let's see if people believe in it enough to pay for it. I would say Let's do massage without touching - I'm gonna wave my hands over people and tell them that they're going to get better. Well, guess what - it exists!

Larry's picture

Moderator

In all of this (this is the key) the patient does not care at all about whether the fee is high or low. 

Yes, but isn't this because of 3rd party payers. When I first got (and still have) a high deductible plan, I used my healthcare differently because I was paying for it. An office visit was no longer $15 co pay. It was now $75. Health care is a problem but I don't think the solutions being offered are the right ones.

The other way to get money is to trick people into thinking your product or service is more valuable than it is.

Two things: First, it is still a free exchange. There is a price for stupidity. We have yet to know how high that price can go, but we know it is a voluntary price.

Second, value is almost entirely relative. You could offer me the best eye equipment surgery in the world for $1000 and it is of no value to me. I would pass. You, on the other hand, would find $1000 to be quite a bargain, I imagine. By the same token, something that is valuable to me might not be valuable to you. My house would be of no value to you. There is almost no price low enough to make it worth anything because it is in the wrong place. (Of course you could resell it but that's a slightly different discussion.)

You mention the housing market. The bubble collapse was a great deal more complex than just a disconnect. I think it was the relatively easy availability of money, the number of two income families which drives up the price. In fact, I would say the housing market is a good indication (perhaps the best) of how the free market works. A house is only worth what someone is willing to pay for it. There is no real "inherent value" in the house. It is all individual. As above, a 3000 square foot house that is a six hours away from me has no value to me. On the other hand, a 2000 square foot house five minutes away had great value for me. So I paid a lot more for the latter than I would for the former. 

 

Dan Miller's picture

Mark_Smith wrote:

The problem is, right now, most of the wealth in the US is held by people with little concern for "virtue." Capitalism in the US is sick because the wealthy are not virtuous. They get themselves richer while arguing over paying an employee another $0.15 an hour. They sell out to foreign companies. They move plants overseas. They raid retirement funds. They scream about paying a fair tax rate. On and on.

Capitalism has worked for a good long while in the US because, on balance, there was virtue. I suspect that has gone away.

Yeah, I agree with some of this... If I am made king, I will require foreign companies to either follow all the regulations we put on our businesses (OSHA, FMLA, etc. etc. etc.) or pay a fee on imports equivalent to it's cost. 

On the other hand, you cannot lay the accusation of greed solely on the bosses. The consumers have decided that they want the LOWEST price, regardless of origin (and working conditions in those locations). What's the result? We have a big family gathering every Christmas (about 20 of us with everybody, especially kids, opening presents). One time near the end I said, ok, try to find a gift opened today that wasn't made in China. It was depressing. 

Dan Miller's picture

...You mention the housing market. The bubble collapse was a great deal more complex than just a disconnect. I think it was the relatively easy availability of money, the number of two income families which drives up the price. In fact, I would say the housing market is a good indication (perhaps the best) of how the free market works. A house is only worth what someone is willing to pay for it. There is no real "inherent value" in the house. It is all individual. As above, a 3000 square foot house that is a six hours away from me has no value to me. On the other hand, a 2000 square foot house five minutes away had great value for me. So I paid a lot more for the latter than I would for the former. 

You're right it's complicated. But, as I understand it, here's how the housing bubble happened.

First the local bank gives you a loan to buy a house. Presumably, the bank wants to make sure the house is worth what it's loaning you. So due diligence (limiting loan amount to real value, independent assessment, down-payment, etc.) In this simple scenario, the local bank gets a return for their investment and risk in the form of interest. The interest has to be low to be competitive, so they really want to make sure they do due diligence, because foreclosures that aren't covered by home value will kill them.

Then along comes a Guy with a huge amount of funds he wants to invest. He buys a bunch these loans from the local banks. His return is a little less than what the bank would have had, but he didn't have to do the due diligence. He assumes that the banks were diligent. After all, they were risking their own money, so. Now two things happen in a cart-horse fashion: Banks realize that whatever risk they take on will be taken off their hands pretty quick by the Guy. So they get less worried about the risk side and start allowing higher loan amounts for houses. This drives up prices, and thus, local housing values. Meanwhile individual investors see housing values going up and they want to invest, which further drives the banks to extend higher loans.

EDIT: This is why I say there's a disconnect. The bank doing the due diligence knows he won't actually be bearing the risk of the investment because he is going to sell the loan. 

Larry's picture

Moderator

This is why I say there's a disconnect.

Yes, I think that is largely correct as I understand it. I think the other side is government mandates regarding loans being made available to people who probably couldn't afford them and the economic collapse in general which, I think, was wider than the housing bubble. So the net result is that people bought bigger houses with bigger monthly payments than they could afford because money was cheap and government and lenders lowered the bar. Then, many of them lost their jobs which meant they could no longer make the payments. Then the market crashed which led to some people actually "moving up" to a bigger house in a better neighborhood and walking away from their old house which then flooded the market with more houses that were dirt cheap.

So it is quite a story most of which I don't grasp the details. 

josh p's picture

Dan Miller wrote:

 

Mark_Smith wrote:

 

The problem is, right now, most of the wealth in the US is held by people with little concern for "virtue." Capitalism in the US is sick because the wealthy are not virtuous. They get themselves richer while arguing over paying an employee another $0.15 an hour. They sell out to foreign companies. They move plants overseas. They raid retirement funds. They scream about paying a fair tax rate. On and on.

Capitalism has worked for a good long while in the US because, on balance, there was virtue. I suspect that has gone away.

 

 

Yeah, I agree with some of this... If I am made king, I will require foreign companies to either follow all the regulations we put on our businesses (OSHA, FMLA, etc. etc. etc.) or pay a fee on imports equivalent to it's cost. 

On the other hand, you cannot lay the accusation of greed solely on the bosses. The consumers have decided that they want the LOWEST price, regardless of origin (and working conditions in those locations). What's the result? We have a big family gathering every Christmas (about 20 of us with everybody, especially kids, opening presents). One time near the end I said, ok, try to find a gift opened today that wasn't made in China. It was depressing. 

 

The problem with this discussion is what is the alternative? Should the single mother trying to make ends meet have to pay more for a product so that the US can compete for her business? I say let everyone buy the product they want at the best price they can and that is the beauty of capitalism. As Larry said, our quality of life greatly exceeds that of our ancestors. That is in large part due to market forces and ingenuity that, if not substantially rewarded, would not have happened. 

dcbii's picture

EditorModerator

Larry wrote:

"In capitalism, man exploits man.  In communism, it's the other way around."

Cute and often quoted, but not really true. As has been pointed out, capitalism requires you to produce something that someone is willing to part with their money over. It is virtually the only way to get money. If you can't produce that product, you work for someone who does. So there is an inherent outward focus as well. A capitalist has to serve his fellowman by providing something that said fellow man considers valuable enough to give him money for. For the most part, it's not exploitation because it is voluntary.

[My emphasis in bold above]

I generally agree with your assessment of capitalism, except for the case (which you mention in another post) of someone NOT getting what they paid for, which can be, and many times is, due to fraud.  While it is true that the exchange is still voluntary, I don't think you can argue that people unfairly taking advantage of others in a capitalist transaction is NOT exploitation.

As Dan mentioned, people also need to be aware of caveat emptor, which is more necessary in a capitalist system.  Even with buyer knowledge and wisdom being more necessary, I still think capitalism is the superior system.

Dave Barnhart

Dan Miller's picture

josh p wrote:

 

[Dan Miller] ... try to find a gift opened today that wasn't made in China. It was depressing. 

The problem with this discussion is what is the alternative? Should the single mother trying to make ends meet have to pay more for a product so that the US can compete for her business? I say let everyone buy the product they want at the best price they can and that is the beauty of capitalism. As Larry said, our quality of life greatly exceeds that of our ancestors. That is in large part due to market forces and ingenuity that, if not substantially rewarded, would not have happened. 

But a big part of it is wages and working conditions in China and similar countries. So while we think it is immoral to employ people in certain conditions, the bottom line is that it makes corporations more profitable to do so. And we happily accept the "good deals" that these conditions make possible. But the result is that we cannot compete as manufactures, so those jobs go overseas. 

That's why I think that worker's laws should be compensated for by tariffs based on the cost of doing business related to the higher cost of employing Americans in the USA. Then yes, it's a fair playing field, so let them compete in the market.

josh p's picture

How could that work though? Who decides what a "fair wage" is another country? Shouldn't it be the people who want the job? Are you aware that people often bribe up to a years salary to get those supposedly unethically low-paying jobs? 
 

I've discussed my views on tariffs here before so I won't get into it again but basically I believe they are foolish. 

Dan Miller's picture

Yeah - and I'm not gonna be king anyways... Smile

Also, I would like to turn to the Scriptures...

Larry's picture

Moderator

If I am made king, I will require foreign companies to either follow all the regulations we put on our businesses (OSHA, FMLA, etc. etc. etc.) or pay a fee on imports equivalent to it's cost. 

But this assumes that the regulations should be in place. Perhaps we need to rethink that end of it.

Mark_Smith's picture

Larry wrote:

is that the average adult has the exact same buying power today he had 30 years ago

Try buying a smart phone 30 years ago. Or getting high speed internet. Or a flat screen TV. Or any number of other things. The truth is that the buying power is greater because what you can buy with the same amount of money is better stuff. 30 years ago, a good laptop computer was available. It was expensive. It was large. And it wasn't very good. 

So this type of nostalgia is a bit misleading because we aren't buying the same things. 

The economy is complex. Thinking it can be explained in a few short paragraphs is a symptom of the lightness of our age. 

I'm sorry, but this response is silly. 

Dan Miller's picture

Larry wrote:

If I am made king, I will require foreign companies to either follow all the regulations we put on our businesses (OSHA, FMLA, etc. etc. etc.) or pay a fee on imports equivalent to it's cost. 

But this assumes that the regulations should be in place. Perhaps we need to rethink that end of it.

Either is fine. It is telling that some would object to the inhumanity of lessons regulations here, but are not bothered by the lack of any protections abroad. 

M. Osborne's picture

@Mark_Smith: 

In Applied Economics, Thomas Sowell points out that running water is kind of a new thing. If you have running water in your house for pennies a gallon, that's increase buying power. If you lived in ancient Greece, running water would mean owning a slave, which is significantly more expensive.

Michael Osborne
Philadelphia, PA

Mark_Smith's picture

M. Osborne wrote:

@Mark_Smith: 

In Applied Economics, Thomas Sowell points out that running water is kind of a new thing. If you have running water in your house for pennies a gallon, that's increase buying power. If you lived in ancient Greece, running water would mean owning a slave, which is significantly more expensive.

Hah! That's tripe that rich guys tell us so we think our iphones replace real respect. Business people spell respect $$$$$, and they don't give any of that to their employees. A few do of course. I am talking about the vast majority.

Look, if you are happy that you haven't gotten a real raise in 30 years, fine and dandy. Console yourself with cell phones and wireless. I'll take that and a real raise.

josh p's picture

Mark_Smith wrote:

 

M. Osborne wrote:

 

@Mark_Smith: 

In Applied Economics, Thomas Sowell points out that running water is kind of a new thing. If you have running water in your house for pennies a gallon, that's increase buying power. If you lived in ancient Greece, running water would mean owning a slave, which is significantly more expensive.

 

 

Hah! That's tripe that rich guys tell us so we think our iphones replace real respect. Business people spell respect $$$$$, and they don't give any of that to their employees. A few do of course. I am talking about the vast majority.

Look, if you are happy that you haven't gotten a real raise in 30 years, fine and dandy. Console yourself with cell phones and wireless. I'll take that and a real raise.

How much should they give? Who decides? Are their employees indentured servants or free to quit? 

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