Tag Archives: capitalism

The End Of Free Markets?

Last month, Time Magazine published an article asserting that the “free market” was effectively dead. The author then went on to speculate over what might replace.it. (For the record, I’m pretty skeptical of definitive pronouncements of this sort–as I used to tell my students, the real world is considerably more complicated than that.)

Time’s conclusion was evidently prompted by a recent meeting in the White House between President Biden and the CEOs of some of America’s largest companies, attended by the head of the U.S. Chamber of Commerce (whose “presence was enough to rock the political landscape” according to the article.)

“Washington’s most powerful trade group is having a political identity crisis,” wrote Politico. Two weeks later, a group of 150 CEOs, unaffiliated with the Chamber, followed suit, throwing their weight behind Biden’s COVID relief bill, which sailed through Congress. They have been similarly supportive of the additional $2 trillion the administration has now proposed for infrastructure spending – but they unsurprisingly don’t want corporate tax rates to be the means for paying for it.

The article went on to say that corporate America’s support for public investment is not a new or temporary phenomenon–rather, it’s evidence of the “most profound realignment in American political economy in nearly forty years,” and it cites the rise of ethno-nationalism on the right and democratic socialism on the left as evidence of a widespread disillusionment with conventional economic wisdom.

For the record, the “conventional economic wisdom” being undermined has only been conventional for some 40 years.

The article traces the evolution of free market absolutism, and acknowledges that prior to the 1970s, most economists had advocated fairly robust government action—countercyclical fiscal spending, management of the currency, tactical protectionism—to create long-term prosperity. The emergence and influence of what the article calls “free market apostles” changed that, and led to what we now call Reaganomics–the notion that virtually any government regulation of the market is unhelpful, if not illegitimate. (This required some cherrypicking of Adam Smith, but hey…)

Interestingly, in what may be the most insightful portion of the article, it connected this shift to an anti-government “free market” philosophy to racial politics. The need for government to take a “hands off” approach coincided with federal efforts to ameliorate some of the most egregious economic effects of state-sanctioned racism.

In any event, while the article argues that public and expert opinion have swung against what it labels “free-market orthodoxy,” what is actually happening–at least among people who are concerned with such things– is a return to a much more nuanced understanding of market economics.

Virtually all rich countries today have mixed economies, in which certain services are “socialized”–i.e., provided communally by government–and others are left to a market subject to reasonable regulation. Americans love “either/or” politics–it’s either capitalism or socialism, freedom or tyranny. That makes for great sloganeering, but bad politics.

The issue isn’t free markets versus socialism. The actual issues confronting policymakers are much more nuanced, and fall into two broad categories: 1) which services ought to be provided by government, and which should be left to the market? and 2) what regulations are needed to ensure the proper operation of that market and which are counterproductive? Just how “free” should markets be?

People of good will will have different answers to those questions, and it would be nice if the ensuing arguments were evidence based–although I’m not holding my breath.

I do know that those evidence-based conversations are not encouraged by headlines suggesting that a new emphasis on anti-trust enforcement or other regulatory activity is tantamount to the end of the free market.

Their War Is With Modernity

The Guardian recently reviewed David Frum’s forthcoming book, “Trumpocalypse.” Frum, as most of you will recall, was the speechwriter who penned George W. Bush’s “Axis of Evil” accusation; whatever lingering concerns I may have had about his judgment, however, have waned, thanks to his work as a “Never Trumper.”

In “Trumpocalypse,” Frum makes the case that Trump has gutted the rule of law and institutionalized “white ethnic chauvinism.” The article notes that Frum’s journey is emblematic of an ongoing political realignment, in which the GOP has increasingly embraced white rural voters and steadily lost college graduates and suburbanites.

One of the points Frum emphasizes has reinforced my own belief that America–and for that matter, the rest of the world to varying degrees–is undergoing a paradigm shift.

The concept of paradigm shift originated with Thomas Kuhn, an American physicist and philosopher, to explain why people working within a particular worldview or scientific framework cannot understand explanations of works produced under a preceding or different framework. Fundamental changes in basic concepts make genuine communication impossible.

Frum’s book quotes the late Senator Daniel Patrick Moynihan for the proposition that it is “culture, not politics, that determines the success of a society,” and he identifies specific aspects of the culture Trump’s base believes it is defending–especially, as he says,  the belief that by supporting Trump, they are defending a “distinct way of life”, one challenged by modernity.

I think this is the key to understanding what is otherwise inexplicable: how any rational individual could look at the operation of Trump’s administration, with its massive corruption and overwhelming incompetence, and still support him.

Support for Trump is how people who are profoundly threatened by modernity say “Stop the world, I want to get off.”

That reaction against modernity, which is characterized by increasing secularism, explains why religious fundamentalists make up so large a part of Trump’s base. Secularism, in this sense, isn’t necessarily the absence of religious belief, but it is the absence of a certain type of religious belief. It refers to the ability of science to explain phenomena that biblical literalists attribute to God (remember when Bill O’Reilly defended religious belief by saying “the tide goes in, the tide goes out–who knows why?” We do know why.)

In my 2007 book “God and Country: America in Red and Blue,” I examined differences between religious folks I dubbed “Puritans” and those I identified as “modernist.” Among other things, Puritans tended to believe that Christianity requires capitalism–that in a sense, God was Adam Smith’s “Hidden Hand”– and that poverty was evidence of moral defect.

Modernity is also undermining economic fundamentalism. Rutger Bregman was the  historian who told the zillionaires at Davos a couple of years ago that they would be more effective at fighting poverty if they paid their taxes. Time had an interview with him, focused on his new book, “Humankind.” Bregman argues that the core beliefs about human nature that justify exploitative capitalism are simply wrong, and that we are coming to recognize that fact.

The old fashioned “realist” position has been to assume that civilization is only a thin veneer, and that the moment there’s a crisis we reveal our true selves, and it turns out that we’re all selfish animals.

Bregman disagrees, asserting that, over thousands of years, people have actually evolved to be far more collaborative and kind. He also points out a central lesson of the pandemic: as governments make lists of so-called vital professions, those lists don’t include hedge fund managers or captains of industry. It’s the (underpaid) garbage collectors and the teachers and the nurses who turn out to be people we can’t live without.

Our assumptions about human nature matter, because those assumptions guide the design of our institutions, and the design of our institutions encourages behavior that is consistent with the assumptions.

One of the big differences between religious and economic fundamentalists on the one hand, and modernists on the other, is the inability of the fundamentalists to tolerate ambiguity. As both Frum and Bregman make clear, however, modernity absolutely requires the ability to reject “either/or” “black/white” versions of reality.

As Bregman says,

I don’t live in that binary world. Sometimes markets work best, sometimes the state has the best solution. During the Enlightenment, there were brilliant thinkers who realized that, if you assume most people are naturally selfish and you construct the market around that, sometimes it can actually work for the common good. I just think that in many cases, it went too far. What many economists forget is that this view of humanity, the so-called “homo economicus,” can become a self-fulfilling prophecy.

Or, as Frum notes, “politics can change a culture and save it from itself”.

That’s the politics of change–the politics that Trump’s base hysterically rejects.

 

 

 

 

A Broken Record: Socialism and Capitalism

As I often tell my students, we Americans tend to be bipolar in our approach to the world. Events, policies and people are either all good or all bad, other nations are either “evil-doers” (in George W. Bush’s awkward formulation) or “good guys,” regulation is either killing jobs or protecting children.

Everything is either/or.

Unfortunately for our ability to communicate with each other,  life and reality aren’t so neatly divided.

The recurrent hysteria (on the Right) over “socialism” and the ferocious attacks (from the Left) on capitalism are part and parcel of that unrealistic (albeit comfortingly simple) dichotomy. In the messy real world, the pertinent questions are very different–even when the people making the arguments actually are able to define their terms, which they so often can’t.

Much of the current hostility to capitalism, for example, mistakes America’s current economic reality for capitalism. In some localities, it still may be, but nationally– thanks to money in politics, lobbying by powerful interests, outright corruption and a number of other unfortunate systemic fails– what we have is mostly corporatismor crony capitalism, not the idealized market system to which conservatives and ad agencies genuflect.

Genuine market competition has considerable merits: it encourages innovation and tends to keep consumer prices affordable. If I make a better mousetrap for a better price, my business grows, I hire more workers, and consumers catch more mice for the same money.

Similarly, “socialism” isn’t a dirty word, nor does it imply totalitarian communism. It is simply the communal delivery of services. We socialize police and fire protection, public schools, parks and highways and garbage collection, among other things, because it makes practical and economic sense to provide those things communally.

The question isn’t “should we have socialism or capitalism?” The question is: what sorts of things should a society provide communally–i.e., what services should be socialized–and what goods and services should be provided by the private market?

The question also isn’t: regulation versus no regulation. The question is: what regulations?

We want rules that ensure a level playing field–that prevent a manufacturer from dumping his waste in our rivers in order to keep his costs below those of his competitors, or that prevent a group of businesses from colluding to keep prices artificially high. We don’t want rules that are poorly conceived or unnecessarily onerous–but determining which rules are appropriate and which ones aren’t requires knowing something about the activities being regulated, and making informed judgments.

It requires the sort of expertise that Trump types sneer at as “elitist.”

Too many Americans want bumper-sticker solutions to complicated problems that don’t lend themselves to simplistic approaches. They want black-and-white answers to issues that require recognizing and working within several shades of gray. Too many of America’s loudest voices use terms they can’t define (or often, spell) and fling them as epithets rather than employing them to communicate.

We may disagree about the proper way to deliver certain services–whether we should “socialize” this or that economic or social activity or leave a particular service or function to a properly and deliberately regulated market. Those debates can be productive.

Labelling everything that offends us as “socialism” or “capitalism”–depending upon which intemperate and uninformed end of the political fringe you inhabit– gets us exactly nowhere. It may make the labeler feel superior and self-satisfied, but it doesn’t help solve our complicated problems, and it pisses off the folks at the other end of the ideological spectrum.

More About Economic Systems

A comment posted to yesterday’s blog noted that I had not defined capitalism. Fair point.

The following description is from my last book, Talking Politics? What You Need To Know Before Opening Your Mouth, in which I included the following descriptions/comparison of capitalism and socialism.

Capitalism is defined as an economic and political system in which a country’s trade and industry are controlled by private owners for profit. It is characterized by free markets, where the prices of goods and services are determined by supply and demand, rather than set by government. Economists often define the ideal of free trade as a transaction between a willing buyer and a willing seller, both of whom are in possession of all information relevant to that transaction.

Understanding the importance of free trade to capitalism is important, because it defines the proper role of government in a capitalist system—as an “umpire” or referee, ensuring that everyone plays by the rules. For example, Teddy Roosevelt reminded us that monopolies distort markets; if one company can dominate a market, that company can dictate prices and other terms with the result that those transactions will no longer be truly voluntary. If Manufacturer A can avoid the cost of disposing of the waste produced by his factory, by dumping it into the nearest river, he will be able to compete unfairly with Manufacturer B, who is following the rules governing proper waste disposal. If Chicken Farmer A is able to control his costs and gain market share by failing to keep his coops clean and his chickens free of disease, unwary consumers will become ill. Most economists agree that in order for markets to operate properly, government must act as an “umpire,” assuring a level playing field.

This need for government is a response to what economists call “market failure.” There are three situations in which Adam Smith’s “invisible hand” doesn’t work: when monopolies or corrupt practices replace competition; when so-called “externalities” like pollution harm people who aren’t party to the transaction (who are neither buyer nor seller); and when there are “information asymmetries,” that is, when buyers don’t have access to information they need to bargain in their own interest. Since markets don’t have built-in mechanisms for dealing with these situations, most economists argue that regulation is needed.

Economists and others often disagree about the need for particular regulations, but most do agree that an absence of all regulatory activity undermines capitalism. Unregulated markets can lead to a different system, sometimes called corporatism. In corporatist systems, government regulations favoring powerful corporate interests are the result of lobbying by corporate and monied special interests that stand to benefit from them. You might think of it as a football game where one side has paid the umpire to make calls favorable to that team.

Socialism is the collective provision of goods and services. The decision whether to pay for certain services collectively rather than leaving their production and consumption to the free market can be based upon a number of factors. First, there are some goods that free markets cannot or will not produce. Economists call them public goods, and define them as both “non-excludable” –meaning that individuals who haven’t paid for them cannot be effectively kept from using them—and “non-rivalrous,” meaning that use by one person does not reduce the availability of that good to others. Examples of public goods include fresh air, knowledge, lighthouses, national defense, flood control systems and street lighting. If we are to have these goods, they must be supplied by the whole society, usually through government, and paid for with tax dollars.

Not all goods and services that we provide collectively are public goods. Policymakers have often based decisions to socialize services on other considerations: we socialize police and fire protection because doing so is generally more efficient and cost-effective, and because most of us believe that limiting such services only to people who can afford to pay for them would be immoral. We socialize garbage collection in more densely populated urban areas in order to enhance the livability of our cities and to prevent disease transmission.

Getting the “mix” right between goods that we provide collectively and those we leave to the free market is important, because too much socialism hampers economic health. Just as unrestrained capitalism can become corporatism, socializing the provision of goods that the market can supply reduces innovation and incentives to produce. During the 20th Century, many countries experimented with efforts to socialize major areas of their economies, and even implement  socialism’s extreme, communism, with uniformly poor results. Not only did economic productivity suffer, so did political freedom. (When governments have too much control over the means of production and distribution, they can easily become authoritarian.)

Virtually all countries today have mixed economies. The challenge is getting the right balance between socialized and free market provision of goods and services.

 

 

Labels Versus Definitions

Yesterday morning, I was on the treadmill listening to “Morning Joe.” Scarborough was interviewing the Governor of Colorado, John Hickenlooper, who is one of the thousands of Democrats running for President. (Okay, maybe thousands is an exaggeration…) Hickenlooper was a successful entrepreneur before becoming Mayor of Denver and then Governor, and Scarborough asked him if he considered himself a capitalist.

When Hickenlooper responded that he didn’t like labels–that he focused on solving problems–both Joe and one of his panelists repeatedly pressed Hickenlooper on the issue, since they both said– falling neatly into a semantic trap being set by Republicans–the Democratic Party is split between good old American capitalism and a “socialist” flank.

I wish Hickenlooper had been more artful in his response. He might have pointed out that all western democracies are what we call “mixed” economies. (He did note that Social Security was originally opposed for being “socialist,” which of course it is.) We need capitalism in those areas of the economy where it clearly works well, and state-sponsored systems in areas where markets fail.

He also might have made the point that Elizabeth Warren has repeatedly made: as a capitalist, she wants to rescue capitalism by reinstating the regulatory rules that mandate the level playing field that is essential if markets are to work. (As I have noted in previous posts, America no longer has a genuine market system–capitalism has devolved into corporatism.)

In our highly polarized politics today, words like Socialism, Fascism and Communism are used more as insults than descriptions. So let me offer a few definitions.

Socialism may be the least precise of these terms. It is generally applied to mixed economies where the social safety net is much broader and the tax burden is correspondingly higher than in the U.S.—Scandinavian countries are an example.

Communism begins with the belief that equality is defined by equal results; this is summed up in the well-known adage “From each according to his ability; to each according to his needs.” All property is owned communally, by everyone (hence the term “communism”). In practice, this meant that all property was owned by the government, ostensibly on behalf of the people. In theory, communism erases all class distinctions, and wealth is redistributed so that everyone gets the same share.  In practice, the government controls the means of production and most individual decisions are made by the state. Since the quality and quantity of work is divorced from reward, there is less incentive to innovate or produce, and ultimately, countries that have tried to create a communist system have collapsed (the USSR) or moved toward a more mixed economy (China).

When pundits take to the fainting couch over leftists who call themselves Democratic Socialists, they are (intentionally?) confusing socialism with communism. That doesn’t necessarily mean that we shouldn’t analyze and debate proposals to “socialize” added areas of the economy–but that analysis ought to rest on accurate definitions of the terms being used.

What about the other end of the political spectrum?

Fascism is sometimes called “national Socialism,” but it differs significantly from socialism. The most striking aspect of fascist systems is the elevation of the nation—a fervent nationalism is central to fascist philosophy. There is a union between business and the state; although there is nominally private property, government controls business decisions. Fascist regimes tend to be focused upon a (glorious) past, and to uphold traditional class structures and gender roles as necessary to maintain the social order.

Three elements commonly identified with Fascism are 1) a national identity fused with racial/ethnic identity and concepts of racial superiority; 2) rejection of civil liberties and democracy in favor of authoritarian government; and 3) aggressive militarism. (Sound familiar?)

If Hickenlooper’s appearance on Morning Joe is any indication, Americans are in for two years of empty posturing over economic terminology bullshit.

Maybe I can just hide under my bed until 2020 is over…..