I think a lot of people are attracted to socialism because they believe it means capitalism without the parts they don’t like. How to get there from here is left unspecified.
I think that this critique needs to be made more often. When Marx says “from each according to his abilities, to each according to his needs,” how does that play out? Who becomes a sanitation worker and who becomes a movie actress? If we all take turns doing everything, not much will get done. Without specialization, economic activity will collapse. But if we choose our specialties voluntarily, based on our preferences without regard to market forces, we will have a surplus of movie actresses and a shortage of sanitation workers.
Capitalism will never be perfect. In Three Problems with Capitalism, I wrote,
Capitalist societies have three problems:
They elevate material values over others.
They create winners and losers.
They undermine communities.
You can always criticize capitalist societies on these grounds. But getting rid of these problems without creating worse problems is a lot trickier.
Distributing goods and services “from each according to his ability, to each according to his need” creates incentives to display minimum ability and maximum need.
I’ve never bought into the belief that capitalism creates winners and losers. I’m no genius but, thanks to capitalism, I benefit by others who are. I’m not Thomas Edison, but his light bulbs mean that my day doesn’t end when the sun goes down. I’m not Henry Ford but I’ve got a couple of cars to get me where I need to go. I’m not Bill Gates, but I’m using Word to write this. I’m not Arnold Kling, but I can read his thoughts every morning. When an entrepreneur wins in the marketplace, I win.
Yes, an innovation could cost me my job. But in a free market, as long as any needs or desires exist, jobs exist to meet those needs and desires. Government is the only thing that keeps me from finding a new job. Minimum wage laws, employee mandates, hiring quotas, occupational licensing, monopoly grants all artificially limit my employment opportunities.
And the business cycle? That should be renamed the inflationary boom and bust cycle – yet another government-created disaster.
The oft forgotten, though fundamental economic concept, of consumer and producer surplus. Voluntary market transactions generate both consumer and producer surplus. One might be able to make the argument that the businessman, by creating both consumer and producer surplus, is at least as morally upright as government or those in “non-profit” sectors.
I think of them first as tendencies of capitalism, not “problems” per se. Capitalism can promote intangible values over material ones (“We don’t sell lipsticks, we sell dreams.” —Charles Revlon). It creates winners and losers surely, but those positions can change quickly with market conditions (as we are witnessing during the pandemic with restaurant owners and makers of paper products). Those residing in small, rural towns practice and realize communal living to a far greater degree than urban environments, but even there, neighborhoods arise to counter the undermining (see Elinor Ostrom’s study of capitalistic, independent lobster fishing villages). Not always, but often the answer to the negatives resulting from the practice of free speech is not censorship, but more free inquiry and discussion. The same may be said of the drawbacks of capitalism.
Agreed. Further, capitalism and the wealth it creates allows us to pursue immaterial values more easily. Anyone who doesn’t like material stuff much can live really easily on a minimum wage job, probably even part time. I like my stuff a lot, but if I want to pursue any number of other values I can do so without much sacrifice of material comforts. If I wanted to make a pilgrimage to my ancestral homelands, I wouldn’t even have to break my lease, and could get it done in very little time. Compare to taking a pilgrimage to Mecca before air travel, etc.
Speaking of opportunity costs, what economic system doesn’t create winners and losers? Someone will always have more or better than someone else, if only by luck, and any attempt at people to better their circumstances is going to create differences. So long as your decisions matter, there are going to be better and worse decisions, and so people will have different outcomes.
I am also not 100% on the “undermine communities” part. On the one hand, compared to what? Communist countries are not known for their warm, inviting communities. Are other systems noted for being great for community?
On the other, is undermining communities always bad? I am assuming communities are undermined because members don’t need each other for support as much, being able to turn to arms length capitalist trade for goods and services. If that is the case, doesn’t that simply mean that people have an option they can take if they want? Not all communities are good, after all.
I’m not sure that we can assert these three things:
“Capitalist societies have three problems:
They elevate material values over others.
They create winners and losers.
They undermine communities.”
for the same reason that you object to the advocates of communism.
That is, you can’t critique capitalism without a real alternative. A utopian vision isn’t an alternative.
So – what systems have no winners and losers? Or when is win and loss determined, on what scale, and how unexpectedly? That is, how much mobility is available, and how much security? What is the basis of wins and losses?
Then ‘undermine communities.’ Certain communities, perhaps, maybe not others. There are certainly thought systems that reduce everything to the individual, alone, but capitalism isn’t reducible to those. Now, it may be that capitalism ends up focusing on shorter and shorter time scales, for instance, which undermines long lived communities… but that is a more detailed statement.
Finally, elevates material values. Well, it tends to force values to be expressed in a common currency; which makes them one-dimensional and rival. But this isn’t necessarily ‘material.’ Perhaps a better description is that capitalism tries to constrain conflict to the market, forcing all disagreements into a one dimensional mold, and when conflict does burst those banks, it does so very violently.
Recently I heard someone I know proclaim that 2020 has shown everything wrong with the US (no healthcare for anyone, businesses getting bailed out, Trump, etc), in 10 years of knowing him I can’t remember a single instance of him saying something he liked about the US. Considering his reasonably pleasant lifestyle this makes it hard not to jump to the conclusion that he believes such a lifestyle is the default and the US just drags that default down.
Really I think this is the crux of the mindset of the current left, their baseline expectations are so high that they can only see the margin. Marx had this issue as well, he walked around cities teeming with the lower class and bemoaned their lives and assumed this was the baseline. He never spent years investigating the conditions that these people fled or understood that the explosion in population had to do with the sudden drop in mortality for all people, thanks largely to capitalism. If you assume the conditions you see are a baseline and not the emergent properties of the system you are in then you start to imagine that they will continue to exist after you implement your desired changes.
“A capitalist economy does lead to winners and losers. But does that mean that government should try to change the outcomes, or merely mitigate them through tax-and-transfer mechanisms? “
In the USA, the government has as much to do with picking winners and losers as does the market. The real decision is whether to pursue state capitalism or democratic socialism. Communism and laissez faire are off the table.
Roberts lazily cites just education, health care, and housing as highly distorted, ignoring the highly distorted markets in art, banking, corporate control, daycare, energy, food, domestic labor which is not only punitively subjected to payroll taxes but also bears the incidence of a large portion of corporate income tax – there is a huge literature on this), finance as regular readers of this blog will recognize Dr. Kling’s frequent Chomsky-ist critiques of too big to fail, banking, legal services, publishing, I research, transportation etc. etc.) . Tellingly, Roberts actually gets the housing market wrong. There is no evidence that housing prices are solely determined by scarcity. Indeed, serious research points to a host of other relevant factors beyond mere zoning (see: https://institute.global/policy/tackling-uk-housing-crisis-supply-answer-summary examining the UK housing market). How can one not recognize the broader distortions in the real estate markets generally in a country in which the federal government owns 640 million acres of land? In which which the Bureau of Land Management alone owns 248.3 million acres or 11% of the total acreage of the USA. BLM owns 45.3 percent of California. Roberts would instead sweep away all the local democratic decisions involved in establishing local zoning patterns, and all the investments made by the little people in reliance upon those zoning rules, in the name of the “love letter to big business” restoration of latifundia.
I will return to the movement to restore latifundia in a moment, but first need to back up a bit. Over the past few weeks, the good Dr. has posted several times on efforts to understand the fractured nature of conservatism. The failed establishment conservatives to a man proclaimed themselves proud disciples of Edmund Burke. And at the heart of Burkeanism is snobbery best summarized in Burkes’ infamous insult of the hairdresser Thomas Paine: “The occupation of a hairdresser cannot be a matter of honor to any person.” We may refer to these establishment conservatives as “hairdresser conservatives” since to a large extent their activity consists in demeaning and denouncing the lower classes, fussily decrying their taste in country music, their failure to attend the right schools, their populist questioning of the standing social order. Economic losers deserved their fate, the hairdresser conservative dictum went, because they lack the drive and initiative of Chinese peasants whom we like because they are far away and whose enrichment will not lead to any of the common sense reforms we see in countries with health middle classes like Switzerland, Canada, the Netherlands, and the Scandinavian states.
But it was not just the hairdresser Republican establishment, but the self-styled libertarians and nominal liberals who boosted their egos by buying into this slop. Back around the beginning of the century, Tyler Cowen was doing work near or around the Sánchez Navarro latifundio in Mexico that would lead to his book , his paean to the “redemptive power of worldwide market forces and development schemes to ameliorate conditions for traditional cultures” as one review put it. Cowen no doubt observed that the inhabitants of the latifundio produced greater GDP per capita than the outsiders. Combining this with his religious devotion to globalism, we get his love letter to the latifundia of today: Apple, Google, Facebook, Amazon. The welfare of these behemoth estates should be the overriding concern of public policy and if local zoning needs to be abolished in the interest of saving them labor costs, by all means, abolish local zoning so high density housing can be built to the oligarch’s wishes and the labor force suitably controlled and directed in echoes of Columella. And this contempt for the citizenry appears in every avenue of public life, not just housing.
Capitalism will not be rescued by the hairdressers or the apologists for the latifundia. A Pliny the Elder populism will. The puny and stunted democracy of the USA must be reformed to empower the great wisdom of the ticket-splitting, undecided, politically independent middle class of the midwest USA. The opportunity is coming. The installation of the demented demagogue cronyist Biden will afford the social democrats an opportunity to learn as they get what they asked for good and hard except with the usual self-dealing corruption we saw in the Obama administration. The Scandinavians went through this bit of learning process before they moved back to a less distortionary capitalist social democracy. The shambles Biden leaves behind should be the ashes from which a modern democracy arises.
There are market failures and government failures. There are a few rare cases of market failures in which corrective state interventions usually produce a clear benefit despite the problem of government failure in implementing those policies.
There are also plenty of cases of government failure in which markets, if allowed to, would do a better job and increase social welfare.
The difference, however, is that in both situations is it only the state which maintains the power of discretion. If markets fail, the state can choose to step in, and market participants can’t do much about it. If the state fails, it can likewise prevent market participants from doing anything about it. All systems fail, so all systems need corrections. But when it fails, the state is the hardest entity to correct.
A market failure is a market opportunity.
Alas, it is also a political opportunity.
Nicely put.
The ethicist, essayist, and pundit Dennis Prager asserts that it’s Socialism that makes people more selfish, not Capitalism.
An alternative, more robust statement could be that “human nature is rotten to the core.” That is Saint Augustine as he argues in the anecdote about the time he and his playmates trespassed simply to steal some fruit from an orchard–later throwing it away uneaten.
Prager is here. Augustine is only a shadowy name to me, with second-hand reports.
To be more specific, Prager blames entitlements and the possibility of maximizing one’s yield while minimizing effort.
https://www.dennisprager.com/column/the-welfare-state-and-the-selfish-society/?doing_wp_cron=1596820893.5122139453887939453125
As Arnold Kling has indicated, “Economics” is moving toward incorporation into scientific sociology.
The nature and conduct of relationships among the members of a society (and with their surroundings) determine the resulting economic condition of that society (or groups of societies).
What is commonly referred to as “Capitalism” is such a resulting condition; it is NOT a definable “system.”
Social orders (forming societies) may develop, accept or have imposed upon them (for ideological, political, environmental and other reasons) particular systems that have determining effects upon the nature and conduct of relationships of their members, which, in turn, generate particular resulting economic conditions.
The “systems” are basically “sociological,” but academic trends have been to observe them in terms of economic effects and to imply “economic systems” that generate sociological conditions, reversing the roles of causes and effects.
For what is called “our Capitalism,” there is no system. There are interventions, intrusions and intermediations in relationships, derived from objectives of establishing systems (“managed society,” e.g.) for sociological objectives (usually of a political nature).
The “problems” of capitalism are largely problems of size, or scale. Capitalist prosperity goes together with a society of such large size that the comfortable personal relations for which we are fitted by Natural Selection are largely impossible.
That might be true when much of consumer production is geared to necessities. As societies become wealthier, however, people begin to want more customized goods and services rather than commodities. Before COVID, we were on a path toward radical customization, which relies on much smaller scale businesses.
I think Philo has a point, although I am thinking of it in terms of organizational size. Pre-modernity societies were by necessity smaller, decisions made at lower levels of groups, because it was just too difficult to get a few million people in one place, and too difficult to coordinate if they were spread out.
Jump ahead 200 years, and we have cities that have populations greater than the entirety of the UK or France in 1800. Combine that with how much we move around and so break up local family/neighbor communities, and sure, it is going to be tougher.
My hypothesis is that hierarchical groups like governments and corporations start to get really inefficient at a size much below where we are now. Corporations that get too big generally spin off parts or just die (if they can’t get help from government). Governments… have revolutions? Secession movements? Federalization seems to ameliorate many of the problems, but we seem to be moving in the opposite direction. It seems to me that sooner or later there will be too many different people living under the same rules they don’t like, and we are going to find out how governments can transition from “too big and inefficient” to “smaller and more efficient/customized.” I hope there is a smooth method of transition instead of a USSR style collapse.
Relationships in an “Open Access” (see, Douglas North, et al.) expanding society do become less personal and more and more impersonal, supplemented (if not requiring) “intermediaries,” thus opening opportunities for interventions to the extent of intrusions for objectives of intervenors; often with diminution or disruption of the object of the relationship..
Just like democracy is the worst form of government except all others, so capitalism is the worst system for price discovery and market clearing except all others. Or you could say that anything a capitalist society does, a socialist society can do worse.
Of the three stated problems, only the first is inherent in a capitalist society and you haven’t given any arguments that the status difference will automatically rise to a problematic level.
Capitalism certainly creates winners and losers, but is unique in that for the first time in history the biggest health challenge facing the losers is obesity. Ukrainian and Chinese farmers from fairly recent history would consider themselves extraordinarily blessed to live in such a society.
Unless you want to argue that an ossified society is optimal a capitalist society is best able to adjust to changing circumstances, as well as to provide the necessary surpluses to aid the losers.
Likewise loss of community isn’t necessarily a direct result of capitalism, although probably linked with the increased productivity and prosperity brought by capitalist innovation.
They elevate material values over others.
Capitalism doesn’t do that. We do that. Capitalism says that when I want to buy something, I’m free to use my own discretion to decide from whom to buy. I might buy the cheapest product. I might buy the most expensive to signal that I can afford to spend a lot of money. Or I might buy from a company whose policies I want to support. But I get to decide.
Unfortunately, cheap crap seems to be the stuff the most people want to buy. But that’s on us, not on Capitalism.
I imagine most people who oppose capitalism and markets generally aren’t willing to listen.
Plenty of people, do already understand the importance and benefits of capitalism and markets, and this is old news. I imagine almost every reader here falls in this group.
I am particularly enjoying the prospects of a socialist economy as run by the woke-ists. Add in foreign-military-trade policies as operated by globalist interventionists.
Free exchanges never go away. Any simple system that can measure differences in socialist and capitalist will rely on some assumption of free exchanges. There is a huge set of classes from pure corruption to black market that permit some limited free choice in the context. Without some form of free exchange there are no markers in the economy to measure.
It is like Churchill’s comment on Democracy.
It is a bad system, but it is still much better
than any alternative we have tried.
Consider: “Democracy” (the manner in which the powers of the members of a society are made manifest) is a PROCESS (actually a label for the numerous processes) for generating those manifestations. It is not a singular “system.” To examine that denial, simply try to define the “system.”
1. Capitalism does not favor materialism. This is an Eastern European growing at the tail end of Communism speaking. I can guarantee you people in socialism are more materialistic to the extent they are more desperate to satisfy the basic material needs. You should not be extolling moral superiority of poverty and opression.
2. Capitalism does not create winners and losers. It creates winners. Take a look at the GDP hockey stick. Wanna tell that Industrial Revolution created losers?
3. “Undermining communities.” You now sound like a Southern agrarian.