The Sophistries of Capitalism

CAPITALISM IS GOOD; this much we know. But there are a number of sophistries being sold to the public under the label of capitalism that deserve exposure. "If you believe in capitalism, then you must believe in X, and any criticism of X is socialistic," goes the tacit and sometimes not so tacit argument. But in fact, all these ideas are wrong.

The first sophistry that we should just get out of the way is the idea that America is a "capitalist" country in an ideologically pure sense. Most people realize, if they stop to think about it, that it is not, but one still often hears it referred to as if it were, as when people tell you that something (usually something that involves destroying traditional values, like immigration, suburban sprawl or having the mothers of young children work outside the home) is the American Way because it is "capitalist" or a product of "the free market." But in fact, ours is a capitalist society only in a limited sense. For a start, as the great Peter F. Drucker has pointed out, "capitalism" means an economic system dominated by capital, and ours has long been dominated by management rather than ownership. For a second, government, i.e. socialism, is 30 percent of our GDP (Source). For a third, most of the remainder of the economy is heavily regulated. All three of these things are different from the way they were under the close approximation to laissezfaire capitalism that existed 150 years ago. The American Way in practice is not capitalism, but a highly compromised mix of capitalism with other things.

The next sophistry that has to go is the idea that our society is getting more capitalistic. This is absolute nonsense; we are a less capitalistic society, by any objective measure, than we were in 1970. We have more government, as percentage of GDP, than we had then, and we have a Republican in the White House who campaigned on a promise to expand it even further by adding a prescription drug benefit. Furthermore, despite deregulating a few industries like airlines, the net amount of government regulation of the economy has gone up and up. We have a huge and everramifying body of environmental regulations that didn’t exist in 1970. We have a huge amount of affirmativeaction and "diversity" regulation, all of which has economic consequences. We have a vastlyexpanded system of extortionbytriallawyer. The reason we have avoided Europeanstyle socialism is largely that our political class has grasped the same insight that made the fascists eschew socialism: it doesn’t matter if you allow private ownership so long as you have political control.

The myth that we are living in an increasingly capitalist society has been heavily promoted by cheerleaders of the Internet. (See my article on Internet sophistry.) Now while the markets for goods that transpire on the web may indeed be close models of perfect competition, the companies that participate in them are still just as heavily regulated as other companies and exist in the same heavily socialized society. The ability to comparisonshop for books or kitchenware online is not about to reduce the percentage of GDP taken by government, nor is it about to undo the web of regulation. If the Internet has been exempted from some taxes, that is a political decision (which just expired, by the way) and nothing to do with the Internet as such.

The next sophistry that has to go is the fetish for aggregate GDP as the decisive measure of national material wellbeing. For a start, it is not aggregate but percapita GDP that determines our quality of life. India has a larger aggregate GDP than Switzerland, but its smaller percapita GDP makes it the poorer country by far. Furthermore, even percapita GDP ignores large aspects of our material quality of life, like home production. Back in 1960, when families ate dinners cooked at home, the labor of preparing these meals was not reflected in GDP. Now that they guzzle McDonalds’s monotonous and unhealthy meals, the corresponding labor is counted and GDP is higher. But which represents a higher material quality of life? The key is to understand that this is not hippiecriticism that asserts nonmaterialistic values against material ones: we are talking about a difference in actual material quality of life. I once posed this question to an economist and he told me things don’t count if they can’t be quantified. Are you really willing to tell me that chickens don’t exist if it’s too dark to count them? Our intellectual mania for quantification, which produces a spurious rigor, has led us to ignore huge facts.

The fetish of aggregate GDP leads us to various dumb conclusions, like the idea that mass immigration is good for the economy. Obviously, if you add labor, like any other factor of production, to the economy, it will grow. But this is just aggregate GDP, not percapita. If Switzerland were to import the entire population of India as workers, its GDP would go up. Its percapita GDP would plummet, since poor people have little productivity and therefore add little to percapita GDP. Therefore the importation of poor people is not of economic benefit.

Another problem with aggregate GDP is that it does not include appropriate subtractions for environmental harm done. The fact that this criticism is usually associated with the Left should not blind us to its validity; as I have argued in another article, there is a distinctive kind of conservative environmentalism and we should support it.

Conservatives are supposed to be foes of intellectual extremism of any kind, be it of the Left or the Right. And yet in the recent boom many selfstyled conservatives signed onto a peculiar kind of hypercapitalist pseudointellectualism that has no one particular name but which is instantly recognizable. The New Economy was its keynote idea and its propaganda arm was magazines like Wired, The Industry Standard, Red Herring, Fast Company and, since its purchase by George Gilder, The American Spectator. This ideology claimed that we had entered a new phase in economic history in which the traditional rules no longer applied, except for the 200yearold invisible hand, which was intensified. This ideology was notable principally for its outrageous promises and its wild generalizations. My favorite blooper was that the Internet would make physical space irrelevant (presumably after the realestate boom in Silicon Valley had cooled.)

Conservatives are supposed to be foes of the tendency of abstract ideology to run roughshod over empirical reality. But in the recent sophistries, the abstract idea of the market has been used to prove all sorts of things without any empirical basis. These people seem to have forgotten that at the source of their ideology, the famed University of Chicago Economics Department, the scholarship was relentlessly empirical. All the work on which the modern freemarkets renaissance was based, was based on forming hypotheses according to freemarket theories and then testing them against real data. The mere abstract ideology of free markets was never endorsed, but ideas have a way of getting degraded – sometimes willfully – in the passage from their originators to their popularizers.

The next sophistry that must go is that "the era of big government is over." This nation has sunk to new depths of selfindulgent cynicism in that Bill Clinton could announce this lie to universal cheering in the same presidential term in which government spending as a percentage of GDP reached a high not seen since the depths of WWII. (Nondefense government spending reached an absolute alltime high.) But the essential fault was not Clinton’s, who only told us, with the perfect pitch of the perfectly corrupt, what we wanted to hear. The essential fault is our own for wanting to tell ourselves that we live according to the purist rules of strict capitalism and rugged individualism while glutting ourselves on the fat of the welfare state. We are a nation of lazy selfindulgent phonies who rely on the magicians of the media to furnish the comforting illusion that we are rugged laissezfaire individualists.

It is time to be baldly honest about the fact that 90 percent of welfare state spending goes to the middle class. It has become fashionable to engage in the moral onanism of decrying the welfare state as if most of it consisted in welfare checks to slumdwellers so as to work up a head of intellectual steam against "government spending" when in fact most of the money is spent on middleclass entitlement programs that noone has any serious intention of cutting. Conservatives congratulate themselves on their opposition to government spending, but in office they go on expanding it just like Democrats. Reagan expanded the size of government. Bush I expanded the size of government. Now Bush II is doing the same thing, even before the effects of September 11 are taken into account. Republicans are simply liars about what their own fiscal policies are. We are usually more honest than the opposition and this nonsense must stop.

Another sophistry is the idea that only Americanstyle capitalism works. People have just got to accept the fact that nations that practice a more paternalistic, statist, form of capitalism like Germany and Japan are still economically successful countries. Japan and Germany are not as rich as we are, but they are still rich countries by world standards. They have had their problems, but so have we. I don’t advocate their model for ourselves because we are a different society and conservatives are supposed to recognize that different things are good for different societies, but it is time to stop telling the world that the American model is the only effective one. And by the way, that this model consists in pure laissezfaire, as noted above. While we’re at it, we might as well admit one of the hardest facts for any capitalist to admit: the average standard of living in the Soviet Union was higher under Brezhnev’s communist government than it was under Yeltsin’s capitalist one. (I realize this statement will make me a lot of enemies, but I am on firm factual ground here.) Laissezfaire ideologues in the United States like Prof. Jeffrey Sachs of Harvard must accept some measure of responsibility for the ten years of chaos Russia suffered due to their intellectual promotion of a sudden lurch from communism to capitalism. When conservatives like Burke warned us 200 years ago that all sudden social changes are problematic and that gradual change is better, they should have listened.

The ultimate economic sophistry is globalism. Globalism the ideology masquerades as globalization the fact in order to gain sympathy by feigning inevitability. Globalism is the liquidation of nationhood, an ideologicallymotivated political agenda. Globalization is just the growth of communications and trade, as has been happening since 1492 or so. The key question that has to be asked of people who claim globalism is inevitable is, "if it is inevitable, why are you defending it?" The reason is, it isn’t. The world is quite capable of having globalization without globalism. For example, world trade as a percentage of world GDP was roughly as high in the pre1914 heyday of the gold standard and European imperialism as it is today, (again, these are hard facts and you can check) but then the world was staunchly nationalist. The antinationalist spin that is put on trade today is not an intrinsic part of the act of exchanging goods and services with foreigners. The act of making a widget and shipping it to someone on the other side of the world doesn’t oblige one to destroy one’s national identity. Japan has based its economy on exports for 50 years without ceasing to be one of the most nationalistic and culturally distinctive nations on earth. We could make the corresponding political choice to preserve our nationhood if we wanted to. The gantrycranes of Long Beach Harbor have nothing to do with it.

So why do otherwise intelligent people believe in the sophistries of capitalism? Partly, it is obviously due to the fact that most capitalist reasoning is valid, which confers a spurious seal of approval on all reasoning that is superficially similar. Partly it must be a holdover from the days of the Cold War, when there was a worthwhile global purpose in advancing capitalism by any possible intellectual means, including exaggerations and lies. Partly it is the desire of a new class of technology entrepreneurs and their wannabes to have a distinctive mythos to assert their existence to the world. There also seems to be an association in some people’s minds between extreme capitalist ideas and personally getting rich. If only it were so easy.

Note: Just to make clear that I really do like free markets when we are talking about the real thing in its rightful place, let me register my objection to the recent airlineindustry bailout. This just shows that the current regime isn’t capitalist but corporatist: government takes care of everybody, even big business. How do you expect to get the poor off welfare when corporations are getting on it? This country needs a few dead airlines to clear the glut of overcapacity that has made this business structurally unprofitable since deregulation in 1979.

I really wanted to post this as a response to the "Lou Dobbs takes a hard turn left" post but I thought some of you all might enjoy reading this also.

Oh my gosh, Lou Dobbs considers it a shame that companies ship their jobs overseas....therefore he is the equivalent of the rock throwing brain donors protesting globalization? This is shallow and lazy thinking.

I think every glass is half-empty for this guy. Some of what he says is self-evidently valid, such as government expansion or GDP stats (although I assume any logical person already understands this.) However, he is highly selective in his fact selection. One that particularly struck me was the bit about the standard of living in Russia being higher under Communist Brezhnev than under "Capitalist" Yeltsin. He conveniently leaves out the fact that just between 2000 and October 2003, per capita GDP in Russia has gone up over 72 percent, so that in fact it is now higher than it has ever been. I work with people who invest their own money in Russian projects and this issue just came up yesterday. I'm not even so sure that we are more highly regulated than we were 30 years ago. Some areas, like environment, yes. Others, like transportation, telecommunications, media, less so. There have always been thousands of annoying regulations on the books. Only their natures change. Thirty years ago (or not much more, anyway) there were still miscegenation laws in some states.

He conveniently leaves out the fact that just between 2000 and October 2003, per capita GDP in Russia has gone up over 72 percent, so that in fact it is now higher than it has ever been. I don't need to defend this guy but considering he wrote this in January of 2002, he probably went with the numbers available to him at the time which were probably 2000 or mid 2001 numbers. It's just a thought.

Back in 1960, when families ate dinners cooked at home, the labor of preparing these meals was not reflected in GDP. Now that they guzzle McDonalds?s monotonous and unhealthy meals, the corresponding labor is counted and GDP is higher.

Interesting point. However it isn't as dire as it sounds: the family in the 60's had to buy the food from the supermarket. However the family's one hour spent cooking the food wasn't counted, but now the fry cook's is.

Also it should be noted that GDP doesn't accurately account for the shift in finished products being made up of a larger percentage of foreign goods than before. Granted that would be hard to calculate -- you can't go ask a car manufacturer how much of their car is made up of parts made in India or China. Perhaps adding in various trade deficits would make the GDP a more accurate number.

"...products being made up of a larger percentage of foreign goods than before. Granted that would be hard to calculate -- you can't go ask a car manufacturer how much of their car is made up of parts made in India or China. Perhaps adding in various trade deficits would make the GDP a more accurate number."

Apparently we can ask them....

FROM: http://www.nhtsa.dot.gov/cars/rules/regrev/evaluate/809208.html

NHTSA Report Number DOT HS 809 208 January 2001

Evaluation of the American Automobile Labeling Act

Juanita S. Kavalauskas and Charles J. Kahane, Ph.D.

Abstract Congress passed the American Automobile Labeling Act (AALA) to help consumers in the selection of new vehicles by providing information about the country of origin of vehicles and their parts. Passenger vehicles manufactured after October 1, 1994 must have labels specifying their percentage value of U.S./Canadian parts content, the country of assembly, and countries of origin of the engine and transmission.

"...expanded the size of government. Now Bush II is doing the same thing, even before the effects of September 11 are taken into account. Republicans are simply liars about what their own fiscal policies are. We are usually more honest than the opposition and this nonsense must stop..."

What a great sentence! "Must Stop"! I think the expansion of our Gov't (w/ the exception of defense spending) is horribly wrong and they really let the cat out of the bag back in 1931.

Quoting Stephen Moore of CATO: "1931...Pork-barrel spending began in earnest. In the same year, for instance, Congress introduced an act to provide flood relief to farmers in six affected states. By the time the bill made its way through Congress, farmers in fifteen states became its beneficiaries. One Oklahoma congressman succinctly summarized the new beggar-thy-neighbor spending ethic that had overtaken Capitol Hill: "I do not believe in this pie business, but 9 we are making a great big pie here ... then I want to cut it into enough pieces so that Oklahoma will have its piece."

So once they opened up that trough of public money,(especially w/ the RATS in control of Congress for those 40 years,thank you very much) it made people dependent on them, and that may very well have been the opening of the demise of America. Think about this,who on earth are the downtrodden most likely going to vote into office, a Politician who tells them to get up off their feet and get a job or the Politician who tells you how much money/benefits he can give you,hmmm?

Anyone who hasn't read Stephen Moore's brilliant essay "The Unconstitutional Congress" , you can do so here:

http://www.policyreview.org/spring95/moorth.html

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