Ridley’s Case For Free Market Capitalism

05 Saturday Aug 2017

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Capitalism, Corporatism, crony capitalism, Invisible Hand, Liberalism, Markets, Matt Ridley, monopoly, Profit Motive

Matt Ridley delivered an excellent lecture in July addressing a generally unappreciated distinction: markets and free enterprise vs. corporatism. Many don’t seem to know the difference. Ridley offers an insightful discussion of the very radical and liberating nature of free markets. The success of the free market system in alleviating poverty and increasing human well-being is glaringly obvious in historical perspective, but it’s become too easy for people to take market processes for granted. It’s also too easy to misinterpret outcomes in a complex society in which producers must navigate markets as well as a plethora of regulatory obstacles and incentives distorted by government.

I agree with almost everything Ridley has to say in this speech, but I think he does the language of economics no favors. I do not like his title: “The Case For Free Market Anti-Capitalism”. Free Markets are great, of course, and they are fundamental to the successful workings of a capitalistic system. Not a corporatist system, but capitalism! Ridley seems to think the latter is a dirty word. As if to anticipate objections like mine, Ridley says:

“‘Capitalism’ and ‘markets’ mean the same thing to most people. And that is very misleading. Commerce, enterprise and markets are – to me – the very opposite of corporatism and even of ‘capitalism’, if by that word you mean capital-intensive organisations with monopolistic ambitions.“

No, that is not what I mean by capitalism. Commerce, free enterprise, markets, capitalism and true liberalism all imply that you are free to make your own production and consumption decisions without interference by the state. Karl Marx coined the word “capitalism” as a derogation, but the word was co-opted long ago to describe a legitimate and highly successful form of social organization. I prefer to go on using “capitalism” as synonymous with free markets and liberalism, though the left is unlikely to abandon the oafish habit of equating liberalism with state domination.

Capital is man-made wealth, like machines and buildings. It can be used more intensively or less in production and commerce. But capitalism is underpinned by the concept of private property. You might own capital as a means of production, or you might operate an enterprise with very little capital, but the rewards of doing so belong to you. Saving those rewards by reinvesting in your business or investing in other assets allows you to accumulate capital. That’s a good way to build or expand a business that is successful in meeting the needs of its customers, and it’s a good way to provide for oneself later in life.

Capitalism does not imply monopolistic ambitions unless you incorrectly equate market success with monopoly power. Market success might mean that you are an innovator or just better at what you do than many of your competitors. It usually means that your customers are pleased. The effort to innovate or do your job well speaks to an ambition rooted in discovery, service and pride. In contrast, the businessperson with monopolistic ambitions is willing to achieve those ends by subverting normal market forces, including attempts to enlist the government in protecting their position. That’s known as corporatism, rent-seeking, and crony capitalism. It is not real capitalism, and Ridley should not confuse these terms. But he also says this:

“Free-market ideas are often the very opposite of business and corporate interests. “

Most fundamental to business interests is to earn a profit, and the profit motive is an essential feature of markets and the operation of the invisible hand that is so beneficial to society. Why Ridley would claim that business interests are inimical to free market ideals is baffling.

I hope and believe that Ridley is merely guilty of imprecision, and that he intended to convey that certain paths to profit are inconsistent with free market ideals. And in fact, he follows that last sentence with the following, which is quite right: capitalism is subverted by corporatism:

“We need to call out not just the worst examples of crony capitalism, but an awful lot of what passes for capitalism today — a creature of subsidy that lobbies governments for regulatory barriers to entry.“

And, of course, crony capitalism is not capitalism!

Now I’ll get off my soapbox and briefly return to the topic of an otherwise beautiful lecture by Ridley. He makes a number of fascinating points, including the following, which is one of the most unfortunate and paradoxical results in the history of economic and social thought:

“Somewhere along the line, we have let the market, that most egalitarian, liberal, disruptive, distributed and co-operative of phenomena, become known as a reactionary thing. It’s not. It is the most radical and liberating idea ever conceived: that people should be free to exchange goods and services with each other as they please, and thereby work for each other to improve each other’s lives.

In the first half of the 19th century this was well understood. To be a follower of Adam Smith was to be radical left-winger, against imperialism, militarism, slavery, autocracy, the established church, corruption and the patriarchy.

Political liberation and economic liberation went hand in hand. Small government was a progressive proposition. Insofar as there was a revolution during the Industrial Revolution, it was the weakening of the power of the aristocracy and the landed interests, and the liberation of the bulk of the people.“

Do read the whole thing!

Rainfall, Individualism and Income

23 Friday Sep 2016

Posted by pnuetz in Capitalism, Collectivism

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Agricultural Risk, Capitalism, Collectivism, Exogenous Risk, Individual Responsibility, Individualism, Instrumental Variables, Lewis Davis, Marginal Revolution, Public goods, Rainfall Variability, Social Risk

Highly variable rainfall in a country is associated with less individualistic attitudes, according to a provocative paper by economist Lewis Davis (HT: Marginal Revolution). He leverages this relationship to estimate a positive impact of individual responsibility on economic development. Both results are potentially important, if somewhat controversial. Davis admits that he confronted a number of measurement issues and methodological complexities.

Davis notes that the variability of rainfall creates agricultural risk. He posits that countries having to deal with such recurrent, exogenous risks tend to develop institutions that might allow risk to be shared more broadly. In other words, such uncontrollable events as droughts, destructive flooding and uneven agricultural output lead to a social tendency toward collectivism, which is also reflected in the attitudes of individual citizens. He first builds a mathematical economic model with that implication:

“… the model predicts the equilibrium level of collective responsibility will be greater where nature is more capricious.“

Davis finds that the relationship holds up empirically using cross-country data on rainfall and surveys of social attitudes. His real interest, however, is to exploit that relationship to obtain estimates of the impact of individual responsibility on economic development. The complication he grapples with is that more favorable survey ratings of individual responsibility are themselves a function of economic development, so causation runs both ways. To tackle this problem, he uses rainfall variability to create an empirical “instrument” based on survey measures of individual responsibility, and in turn uses the exogenous variation in the instrument to explain differences in per capita income. Controls are used in the fitted equations for other social and economic factors. Again, he finds that his instrument for individual responsibility is positively related to income.

Another way to summarize Davis’ results is that natural risks are associated with greater acceptance of collectivism, but collectivist attitudes are associated with lower income levels. The empirical finding of a preference for heavy reliance on the state to insure against common risks is fascinating and it comports with the theory that the government has a legitimate role in the provision of public goods, social risk mitigation being among them. One should not place too much faith in the state as a reliable problem solver, however, or as an engine of economic growth. After all, there is a good reason for the second result: an economy dominated by the public sector is doomed to long-term decline. Individual initiative and capitalism, on the other hand, are more reliable in producing long-term economic gains and ending poverty, even when the rain is spotty. General prosperity might be more difficult to achieve when the weather is fickle, but prosperity is a much better cushion against risk than government.

Willing Exchange With Capitalists

18 Wednesday May 2016

Posted by pnuetz in Capitalism, Marxism

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Capitalism, competition, Free Markets, Gary Galles, Government Monopoly, Karl Marx, Labor Theory of Value, Legitimized Coercion, Leonard Read, Liberalism, Limits on Government, Market Power, Marxism, Misuse of Words, Patrick Barron, Robert Murphy, Social Organization, statism, The Beacon, Voluntary Exchange, Willing Exchange

Now and then I’m inspired to blog on the misshapen language of political discourse. I recently wrote about the misuse of words by the American left, including their use of the term “liberalism”. This time, the particular word in play is “capitalism”, which I use to describe the ideal laissez faire economic order. I have always viewed it as a force for good. Real capitalism means free markets, consumer choice, strong private property rights, rewards to private initiative, and competition among producers. Even under conditions of concentrated market power, capitalism is preferable to government monopoly. Nevertheless, Gary Galles writes at The Beacon that capitalism is an inferior description of the laissez-faire ideal than”willing exchange“, or alternatively, unforced or voluntary exchange. Perhaps he has a point.

Capital and labor are the primary factors of production and both must be compensated. Labor earns a wage and capital earns a profit. Generally, the more capital a worker has available on the job, the greater the worker’s productivity and the greater the worker’s wage. However, any profit or return to capital is viewed by the left as an undeserved rent. The question of compensation is quite aside from the valuable social role profits play in directing resources to their most valued uses. Robert Murphy’s drives this home in an excellent recent essay entitled “There’s No Such Thing As Excessive Profits“. Here, here! In another post related to the crucial social role played by capital and profit, Patrick Barron explains “Why We Need Private Property To Deal With Scarce Resources“.

Again, any return to capital, normal or extra-normal, is seen by the left as a reward that should flow to labor in a just world. That is the upshot of Karl Marx’s labor theory of value. Thus, owners of capital are characterized as “takers”. Galles notes the belief that Marx coined the term “capitalism” in order to:

“…falsely imply that the system benefited capitalists at others’ expense, when, in fact, workers have been the greatest gainers from all the productivity enhancements the system has generated.“

He quotes Leonard Read on the value of “willing versus unwilling exchange” as an effective way to delineate and contrast the positions of adherents of laissez faire and statism:

“Standing for willing exchange, on the one hand, or for unwilling exchange, on the other, more nearly accents our ideological differences than does the employment of the terms in common usage…there is a minimum of verbal facade to hide behind.

Willing exchange…has not yet been saddled with emotional connotations …Further, its antithesis, unwilling exchange…no one, not even a protagonist, proudly acknowledges he favors that; it does offense to his idealism.

If we cut through all the verbiage used to report and analyze political and economic controversy…much of it boils down to a denial of willing and the insistence upon unwilling exchange. …

The concept of willing exchange unseats Napoleonic behavior—all forms of authoritarianism—and enthrones the individual. The consumer becomes king. Individual freedom of choice rules economic affairs… [It] is for me, and a willing seller, to decide; it is no one else’s business!“

The hallmark of the state as an actor is coercion. After all, it derives its power via “legitimized” coercion. Individuals are bound under its authority to participate in involuntary exchanges and to make do with a constrained set of willing exchanges. As much as we might amuse ourselves with the notion that our Constitution keeps the state in check, it grows and grows, and where it stops, nobody knows. One wonders how strongly the demonization of so-called “capitalists” plays into this process.

I often refer to voluntary exchange in one form or another. The term recommends itself by virtue of its implication of mutual benefit among parties. Nevertheless, I would have a difficult time abandoning the term “capitalism” in my writing. Here’s the thing: capitalism and free markets have had tremendous success over the last two centuries in improving material conditions and ending human poverty around the globe. Meanwhile, Marxism as a philosophy, and collectivism as a form of social organization, have done nothing to recommend themselves to humankind. So the joke’s on Marx, though we haven’t heard the last of the efforts to besmirch capitalism.

Will ET Be a Socialist?

19 Wednesday Aug 2015

Posted by pnuetz in Capitalism, Socialism, Space Travel

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B.K. Marcus, Capitalism, Carl Sagan, central planning, Colonizing Mars, Elon Musk, Enrico Fermi, Extraterrestrials, F.A. Hayek, Fermi Paradox, Huffington Post, Interstellar Travel, io9, Large Hadron Collider, NASA, Neil deGrasse Tyson, Planned Society, Private Space Exploration, Public goods, Self-Replicating Machines, SETI, Socialism, SpaceX, The Freeman, The Great Filter, Tim Urban

If we are ever visited or contacted by agents from an extraterrestrial civilization, what kind of society will they come from? The issue is given scant attention, if any, in discussions of extraterrestrial life, at least according to this interesting piece in The Freeman by B.K. Marcus. The popular view, and that of many scientists, seems to be that the alien society will be dominated by an authoritarian central government. Must that be the case? Marcus notes the negative views taken by such scientific authorities as Neil deGrasse Tyson toward laissez faire capitalism, and even Carl Sagan “… could only imagine science funded by government.” Of course, Tyson and Sagan cannot be regarded as authorities on economic affairs. However, I admit that I have fallen into the same trap regarding extraterrestrial visitors: that they will come from a socialist society with strong central command. On reflection, like Marcus, I do not think this view is justified.

One explanation for the default view that extraterrestrial visitors will be socialists is that people uncritically accept the notion that an advanced society is a planned society. This runs counter to mankind’s experience over the past few centuries: individual freedom, unfettered trade, capitalism and a spontaneous social order have created wealth and advancement beyond the wildest dreams of earlier monarchs. Anyone with a passing familiarity with data on world economic growth, or with F.A. Hayek, should know this, but it Is often overlooked. Central planners cannot know the infinitely detailed and dynamic information on technologies, resource availability, costs and preferences needed to plan a society with anything close to the success of one arranged through the voluntary cooperation of individual actors.

Many of us have a strong memory of government domination of space exploration, so we tend to think of such efforts as the natural province of government. Private contractors were heavily involved in those efforts, but the funding and high-level management of space missions (NASA in the U.S.) was dominated by government. Today, private space exploration is a growth industry, and it is likely that some of the greatest innovations and future space endeavors will originate in the private sector.

Another explanation for the popular view is the daunting social challenges that would be faced by crews in interstellar travel (IST). Given a relatively short life span, a colonizing mission would have to involve families and perhaps take multiple generations to reach its destination. There is a view that the mini-society on such a ship would require a command and control structure. Perhaps, but private property rights and a certain level of democratization would be advantageous. In any case, that carries no implication about the society on the home planet nor the eventual structure of a colony.

A better rationale for the default view of socialist ETs involves a public goods argument. The earth and mankind face infrequent but potentially catastrophic hazards, such as rogue asteroids and regions of strong radiation as the sun orbits the center of the Milky Way galaxy. These risks are shared, which implies that technological efforts to avert such hazards, or to perpetuate mankind by colonizing other worlds, are pure public goods. That means government has a classic role in providing for such efforts, as long as the expected benefits outweigh the costs. The standard production tradeoff discussed in introductory economics classes is “guns versus butter”, or national defense (a pure public good) versus private consumption. IST by an alien civilization could well require such a massive diversion of resources to the public sector that only an economically dominant central government could manage it. Or so it might seem.

As already noted, private entrepreneurs have debunked the presumed necessity that government must dominate space exploration. In fact, Elon Musk and his company SpaceX hope to colonize Mars. His motives sound altruistic, and in some sense the project sounds like the private provision of a public good. Here is an interpretation by Tim Urban quoted at the link (where I have inserted a substitute for the small time-scale analog used by the author):

“Now—if you owned a hard drive with an extraordinarily important Excel doc on it, and you knew that the hard drive pretty reliably tended to crash [from time to time] … what’s the very obvious thing you’d do?
You’d copy the document onto a second hard drive.
That’s why Elon Musk wants to put a million people on Mars.”

Musk has other incentives, however. The technology needed to colonize Mars will also pay handsome dividends in space mining applications. Moreover, if they are successful, there will come a time when Mars is a destination commanding a fare. Granted, this is not IST, but as technology advances through inter-planetary travel and colonization, there is a strong likelihood that future Elon Musks will be involved in the first steps outside of our solar system.

While SpaceX has raised its capital from private sources, it receives significant revenue from government contracts, so there is a level of dependence on public space initiatives. However, the argument made by Marcus at the first link above, that IST by ETs is less likely (or impossible) if they live under a socialist regime, is not based primarily on recent experience with private entrepreneurial efforts like Musk’s. Instead, it has to do with the inability of socialist regimes to generate wealth, especially the massive wealth necessary to accomplish IST.

Discussions of ETs (or the lack thereof) often center around a question known as the Fermi Paradox, after the physicist Enrico Fermi. He basically asked: if the billions and billions of star systems, even in our own galaxy, are likely to harbor a respectable number of advanced civilizations, where are they? Why haven’t we heard from them? My friend John Crawford objects that this is no paradox at all, given the vastness of space and the difficulty and likely expense of IST. There may be advanced civilizations in the cosmos that simply have not been able to tackle the problem, at least beyond their own stellar neighborhood. No doubt about it, IST is hard!

I have argued to Crawford that there should be civilizations covering a wide range of development at any point in time. In only the past hundred years, humans have increased the speed at which they travel from less than 50 miles per hour (mph) to at least 9,600 mph. The speed of light is approximately 270,000 times faster that that! At our current top speed, it would take almost 50% longer to reach our nearest neighboring star, Alpha Centauri, than the entire span of human existence to-date. With that kind of limitation, there is no paradox at all! But I would not be surprised if, over the next 1,000 years, advances in propulsion technology bring our top speed to within one-tenth of the speed of light, and perhaps much more, making IST a more reasonable proposition, at least in our “neighborhood”. There may be civilizations that have already done so.

Answers to the Fermi Paradox often involve a concept called the Great Filter. This excellent HuffPo article by Tim Urban on the Fermi Paradox provides a good survey of theories on the Great Filter. The idea is that there are significant factors that prevent civilizations from advancing beyond certain points. Some of these are of natural origin, such as asteroids and radiation exposure. Others might be self-inflicted, such as a thermonuclear catastrophe or some other kind of technology gone bad. Some have suggested that the Large Hadron Collider in Switzerland could be a major hazard to our existence, though physicists insist otherwise. Another example is the singularity, when artificial intelligence overtakes human intelligence, creating a possibility that evil machines will do us in. The point of these examples is that some sudden or gradual development could prevent a civilization from surviving indefinitely. These kinds of filters provide an explanation for the Fermi Paradox.

More broadly, there could be less cataclysmic impediments to development that prevent a society from ever reaching an advanced stage. These would also qualify as filters of a sort. Perhaps the smart ETs lack, or failed to evolve, certain physical characteristics that are crucial for advancement or IST. Or their home planet might be light on certain kinds of resources. Or perhaps an inferior form of social organization has limited development, with inadequate wealth creation and technologies to transcend the physical limitations imposed by their world. On a smaller than planetary scale, we have witnessed such an impediment in action many times over: socialism. The inefficiencies of central planning place limits on economic growth, and while high authorities might dictate a massive dedication of resources toward science, technology and capital-intensive space initiatives, the shift away from personal consumption would come at a greater and greater cost. The end game may involve a collapse of production and a primitive existence. So the effort may be unsustainable and could lead to social upheaval; a more enlightened regime would attempt to move the society toward a more benign allocation of resources. Whether they can ever accomplish IST is at least contingent on their ability to create wealth.

Socialism is a filter on the advancement of societies. ETs capable of interstellar travel could not be spawned by a society dominated by socialism and central planning. While government might play a significant role in a successful ET civilization, one capable of IST, only a heavy reliance on free-market capitalism can improve the odds of advancing beyond a certain primitive state. Capitalism is a relatively easy ticket to the wealth required for an advanced and durable civilization, and conceivably to the reaches of the firmament.

Unfortunately, there is absolutely no guarantee that capitalistic ETs will be friendly toward competing species, or that they will respect our property rights. They might be big, smart cats and find us mouse-like and quite tasty. Their children might make us perform circuses, like fleas. In any case, if ETs get this far, it’s probably because they want our world and our resources. My friend Crawford says that they won’t get here in any case. He believes that the difficulty of IST will force them to focus on their own neighborhood. Maybe, but on long enough time scales, who knows?

I would add a caveat to conclusions about the strength of the filters discussed above. A capitalistic society might reach a point at which it could send artificially intelligent, self-replicating machines into space to harvest resources. Those machines might well survive beyond the end of the civilization that created them. Conceivably, those machines could act autonomously or they could take coordinated action. But we haven’t heard from them either!

For a little more reading, here is SETI‘s description of the Fermi Paradox, and here is a post from io9 on the Great Filter.

Corporatists of the World Unite!

01 Wednesday Jul 2015

Posted by pnuetz in Big Government

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Benito Mussolini, Capitalism, Classical Liberalism, Corporatism, Edmund S. Phelps, Free Markets, Jason Brennan, Liberalism, Max Borders, Neoliberalism, rent seeking, Thayer Watkins, The Freeman

As a classical liberal, I’m fascinated by the ongoing confusion of the Progressive Left over the meaning of the word liberalism. To be “liberal” is to support individual autonomy, self-determination, and freedom from coercion by the state. True liberalism necessarily implies a minimal state apparatus because the state can only derive authority from its power to coerce. Confusion over the meaning of liberalism was covered in “Labels For the Authoritarian Left” on Sacred Cow Chips last year.

A similar confusion surrounds use of the word corporatism and its relationship to progressivism on the one hand, and liberalism on the other. I came across this excellent essay by Max Borders in The Freeman that begins with a discussion of the term neoliberalism. Lately this has been invoked as an derogatory reference to classical liberalism, except that the users don’t really understand the latter. In fact, as Borders points out, one prominent author describes free market advocacy as something more akin to cronyism, complete with state support and bailouts, which is contradictory on its face. But it is consistent with the doctrine of corporatism. Borders offers this quote from Thayer Watkins:

“In the last half of the 19th century people of the working class in Europe were beginning to show interest in the ideas of socialism and syndicalism. Some members of the intelligentsia, particularly the Catholic intelligentsia, decided to formulate an alternative to socialism which would emphasize social justice without the radical solution of the abolition of private property.

The result was called Corporatism. The name had nothing to do with the notion of a business corporation except that both words are derived from the Latin word for body, corpus.“

Sounds like innocent beginnings, but enforcing “social justice” within this framework demands a substantial role for the state and an intricate set of relationships between the state and private parties. That provides opportunities for accumulating economic power and wealth by manipulating any arm of government that legislates, adjudicates, purchases, licenses, regulates or levies taxes. That is, any arm of government! Such rent-seeking activity gives rise to a symbiosis between the state and powerful private economic actors, and that is the essence of modern corporatism as practiced by Mussolini, George W. Bush and Obama and their governments. Borders quotes economics Nobel laureate Edmund Phelps:

“The managerial state has assumed responsibility for looking after everything from the incomes of the middle class to the profitability of large corporations to industrial advancement. This system . . . is . . . an economic order that harks back to Bismarck in the late nineteenth century and Mussolini in the twentieth: corporatism.“

Borders closes with a discussion of Jason Brennan’s admonition: “Dear Left: Corporatism is Your Fault”, which dishes the bald truth.

“When you create complicated tax codes, complicated regulatory regimes, and complicated licensing rules, these regulations naturally select for larger and larger corporations. We told you that would happen. Of course, these increasingly large corporations then capture these rules, codes, and regulations to disadvantage their competitors and exploit the rest of us.“

Corporatism has nothing to do with the corporate form of business organization per se. Granted, limited liability is an artificial construct created by the state, and it is a hallmark of that form, so it’s fair to cite it as an example of corporatism. But corporatism in its systemic sense represents the larger web of non-market dependencies between the state and powerful economic actors, corporate in form or not. Both sides benefit from these relationships and, in many direct and indirect ways, compromise the integrity of the voluntary market mechanism and harm smaller actors who rely on it.

This is not a state of affairs that meets with the approval of classical liberals, free marketeers and fans of real capitalism, the so-called “neoliberals” of Leftist fiction. The Left purports to hate corporatism too, but they don’t understand its genesis and are fully oblivious to the real reasons for its progression. Instead, in their ignorance, they pass the blame onto “neoliberals”.

Francis’ Statist Vision Not Shared By Venezuelan Clergy

16 Friday Jan 2015

Posted by pnuetz in The Road To Serfdom

≈ 1 Comment

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Capitalism, China, Chinese Christians, Freedom of Religion, Investors.com, King vs. Burwell, Pope Francis, Road to Serfdom, Socialism, Thomas Sowell, Venezuela

Some people lament our tolerance in the U.S. for “religious crazies.” Of course, these misgivings might reflect a certain view that religious people are crazy to begin with, as well as an outright hostility to constitutional protections of religious freedom. Do they mean that religious speech should not be protected? That one’s religious beliefs should not inform their political views? That religious freedom should not exempt anyone from rules imposed by government (the dispute in King vs. Burwell)? These possibilities cover a lot of ground, but none of them stands up to scrutiny in a free and liberal society. In fact, the apparent resentment of the Left toward “religious crazies” largely misses the point: the very expansion of government activity, in kind, degree and complexity, often brings the state into conflict with religious imperatives. And regardless of one’s stance on the taxation of religious activity, exemptions necessarily become more controversial in the sort of high-tax environment needed to fund big government.

But it is not just the secular Left that fails to recognize the inherent conflict between big government and religious liberty. Pope Francis himself seems oblivious to the dangerous implications of big government for religious freedom. His apostolic exhortation for greater reliance on the state to care for the poor simultaneously embraces socialism and condemns capitalism. I take no issue in principle with the provision of a social safety net, but the Pope should be more results-oriented in assessing different forms of social organization and their impacts on poverty. Big government typically fails to achieve the kinds of humane objectives usually espoused by the Left. The sad “road to serfdom” has played out many times in the past. In fact, in an apparent rebuff, Pope Francis’ Venezuelan Archbishops just issued a strong condemnation of socialist solutions to poverty. From Investors.com:

“The Venezuelan archbishops make the useful observation that if capitalist economies have problems, socialist alternatives are far worse for the poor and needy. Could it be the pope’s Latin American colleagues on the ground in the cesspool of communism are the ones who can get through to the holy father on economics?”

The Pope would do well to listen to his Venezuelan flock or to this great economic thinker, Thomas Sowell, who emphasizes the inability of government to craft solutions that “do no harm.”

Apart from lousy economic results, basic freedoms are seldom immune to compromise under the grip of big government. These reports from China should give the pontiff pause. The Chinese Communist Party is said to feel “threatened” by the growth of Chinese Christianity, and the government is cracking down, dismantling religious symbols and even destroying some churches. Similar outcomes have followed authoritarian governments many times in the past, and of course this isn’t the first crackdown on “religious crazies” under Chinese communism. No one should be surprised. Capitalism, with its miracle of market self-regulation, is the only economic system that is truly consistent with freedom and diversity of religion.

Vibrant Capitalism Promotes Public Health

15 Wednesday Oct 2014

Posted by pnuetz in Uncategorized

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Bryan Caplan, Capitalism, ebola, Economic Development, economic growth, Government Failure, health care system, liberty, Prosperity, Ron Paul, Shikha Dalmia, Travel Ban, Western Africa

When it comes to “diseases of poverty,” Bryan Caplan knows that the right prescription has nothing to do with redistribution and everything to do with creating conditions that foster capitalism and economic growth. He marvels at the inattention of populist pundits and politicians to the realities of economic history:

“It’s almost like the last two centuries never happened. Quick recap: During the last two hundred years, living standards exploded even though the distribution of income remained quite unequal. How is such a thing possible? Because total production per person drastically increased. During this era, no country escaped dire poverty via redistribution, but many escaped dire poverty via increased production.”

I linked to an article yesterday about prerequisites for prosperity in my post entitled “Ending Terror With Economic Empowerment.” The author of that article, Harry Veryser, might just as well have said that those conditions are prerequisites for enhanced public health, since as Caplan notes, economic development and public health are inextricably connected.

Dr. Ron Paul makes this same general point in “Liberty, Not Government, Key To Containing Ebola.” He gives great emphasis to the destructive effect of war on the ability of any country to develop an effective health care system:

“It is no coincidence that many of those countries suffering from mass Ebola outbreaks have also suffered from the plagues of dictatorship and war. The devastation wrought by years of war has made it impossible for these countries to develop modern healthcare infrastructure. For example, the 14-year civil war in Liberia left that country with almost no trained doctors. Those who could leave the war-torn country were quick to depart. Sadly, American foreign aid props up dictators and encourages militarism in these countries.”

As Paul says, powerful government often inhibits a country’s ability to prosper and improve public health. The ebola epidemic offers a case in point, not simply with respect to controlling the spread of the disease in Western Africa, but in the counterproductive calls for government bans on travel to and from the region. Shikha Dalmia lays out the case against such a ban, which include its questionable efficacy in preventing the disease from traveling, the insurmountable obstacle the ban would present to private relief efforts, and the instability it would create in the region. Dalmia calls out Republicans for their hypocrisy in this regard:

“Republicans would do themselves and everyone else a big favor by suspending their calls for a travel ban and sticking to their alleged opposition to heavy-handed government intervention.“

Ending Terror With Economic Empowerment

14 Tuesday Oct 2014

Posted by pnuetz in Uncategorized

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Capitalism, Ending Terrorism, Harry Veryser, Hernando de Soto, Peru, Poverty and Terror, Properity, Shining Path

Certain institutions are under-appreciated in our society for their ability to foster prosperity. And not just under-appreciated, but often denigrated, attacked and undermined by factions favoring easy economic rents at the expense of others: this is the zero-sum crowd. This list of “10 Prerequisites for Prosperity” is offered by Harry Veryser, and it includes several such important institutions or social arrangements. (He includes a few excellent quotes from the likes of Hayek, Thomas Aquinas and Aristotle.) I find some of the prerequisites on the list to be of greater importance than others. For example, I’m not sure “leisure” deserves a place there, if only because it flows from some of the others. Nevertheless, it is a good list. Several of the pre-conditions have come under great threat in the U.S., and it is no coincidence that these threats have occurred in tandem with our society’s drift toward a collectivist dystopia.

Chronically impoverished societies are prone to instability, violent internal conflict, and even terrorism. Needless to say, these societies usually lack the prerequisites for prosperity enumerated by Veryser. Hernando de Soto writes of how creating such prerequisites can lead to more than a flourishing economy; it can also bring an end to terrorism. He witnessed such a change as a key player in Peru’s successful effort to use economic development to end the threat posed by the Shining Path guerillas in the 1980s and early 1990s. He asserts:

“The people of the “Arab street” want to find a place in the modern capitalist economy. But hundreds of millions of them have been unable to do so because of legal constraints to which both local leaders and Western elites are often blind. They have ended up as economic refugees in their own countries.

To survive, they have cobbled together hundreds of discrete, anarchic arrangements, often called the “informal economy.” Unfortunately, that sector is viewed with contempt by many Arabs and by Western development experts, who prefer well-intended charity projects like providing mosquito nets and nutritional supplements.”

de Soto recommends that governments start by allowing entrepreneurs to build capital from the ground up, enabling them to obtain secure title to property, and by eliminating restraints on economic activity imposed by coercive authorities. Liberty can go a long way toward solving the most intractable social problems.

“As countries from China to Peru to Botswana have proved in recent years, poor people can adapt quickly when given a framework of modern rules for property and capital. The trick is to start. We must remember that, throughout history, capitalism has been created by those who were once poor.“

Gender Wage-Arbitrage Makes Me Happy

27 Saturday Sep 2014

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Alex Tabarrok, Arnold Kling, Capitalism, Gender Wage Gap, Intention heuristic

Should we condemn a man who hires a disproportionate number of women for his tech firm because “they are cheaper”? Or should he be praised for offering those women opportunities in a field in which they are severely under-represented? More likely the latter, and I’m not even sure he deserves criticism for thumping his chest about it in a talk he gave at a startup conference. Alex Tabarrok ponders this employer’s hiring practices, noting that he angered some women in the audience and on Twitter. But Tabarrok objects:

“Women’s wages aren’t pushed down by employers who hire women but by employers who don’t hire women. So why does Thornley [the CEO] get the blame?”

Tabarrok blames the negative reaction on a phenomenon that Arnold Kling calls the “intention heuristic.” This is an often misleading, judgmental rule-of-thumb that gives the benefit of any doubt to good intentions, and casts suspicion on actions taken in self-interest. This presumption is quite common among my friends and certainly in the media. Tabarrok goes on to say (about the CEO):

“…[He] has overcome prejudice (his or his society’s), recognized the truth of equality and taken entrepreneurial action to do well while doing good. It’s Thornley who is broadcasting the fact of equality to the world and encouraging others to do likewise.”

Maybe, but absent the fanfare, Thornly is simply responding to incentives, doing what a good capitalist ought. The response of resources to incentives is a major virtue of capitalism.

Worthy Profits Are The Rule

25 Friday Jul 2014

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Allocation of Resources, Capitalism, Distorted Meaning, Hobby Lobby, Profit, Real Liberals LIke Liberty, Stephen Carter

Subverting language seems to be a preoccupation on the Left, as amply illustrated by the misappropriation of the word “liberal” itself (see here). Another distortion is in the Left’s use of the word “profit,” but with no direct change in its meaning as the excess of business revenue over costs. Rather, there is a peculiar innuendo often attached to “profit” by Leftists. This point is developed more fully in “Liberals Make Profit a Dirty Word.” Too often, profit is characterized as undeserved, motivated by ill-will, evil. The author, Stephen Carter, notes that so many of those opposed to the Supreme Court’s recent Hobby Lobby decision, which struck down certain forms of mandated contraception benefits, were aggrieved by the fact that Hobby Lobby is a “for-profit” enterprise. Could anything be less relevant to the decision? And yet…

So far, the number of e-mails accurately describing the decision is, as my physics professors used to say, arbitrarily close to zero. But there’s one underlying fact they all get right: the justices ruled in favor of a “for-profit” employer. This little hyphenated term appears in e-mail after e-mail, suggesting that it’s the for-profitness that creates the perniciousness.

Profit is simply what a business earns as a return to its capital and entrepreneurship. It is a reward for risks taken, and it actually measures gains from voluntary exchange corresponding to benefits derived by customers. As Carter points out, profits provide a signal directing resources to flow toward their highest-valued uses, a social function that central planners can never replicate. Casting aspersions at “profits” or an enterprise’s for-profit status is no more righteous than a generalization that wages are wicked. Some qualification is needed for either sort of condemnation to have pertinence.