Saturday, July 11, 2015

When You See the Problem as Capitalism Instead of Corruption You Seek to Solve the Wrong Problem.

Capitalism has huge benefits and some issues. I am frustrated that we are allowing anti-capitalist ideas to be called capitalist. Those ideas are predominately about allowing huge businesses to subvert markets and corrupt the political process. That is not capitalism, that is corporatism.

Corruption in our political system which then allows corruption of free markets as favors to those giving politicians cash is not "Capitalism." It is corruption.

Free trade is good. The secret TPP and other corporate-welfare/copywrong-cartel bill is not.

What we need to do as a society is stop the corruption. If we allow corrupt people buying politicians to undermine capitalism we all suffer. If we allow those corrupt people to claim what they are doing is capitalism, we all suffer.

Throwing out the best economic model because some corrupt people bring harm society through corruption and try to paint that as capitalism we lose. The problem is with the corruption. We can't accept the talking heads supporting the corporate welfare policies that are anti-capitalism from claiming anti-capitalist policies as capitalist or we will make very bad economic decisions.

Because when we let people that think capitalism is the problem, we start with a bad problem statement and won't find good solutions. We would find solutions based on misstating what the problem is.

A fundamental tenant of capitalism is free markets (based on the idea of perfect competition) in which no actor has the power to subvert the market. This was foreseen from the very beginning (in Wealth on Nations by Adam Smith) as an important criteria without which society would not benefit from capitalism as powerful interests would collude to prevent markets from functioning.

Calling some setup capitalist that fails to make sure markets are not subverted in exactly the way Adam Smith said they would be if powerful interests were allowed to is pointless. I suppose you still the ability for private parties to own the means of production (which is also an important tenant). But properly functioning markets are essential to what capitalism has meant since Adam Smith. While some people have tried to eliminate that so that they can do exactly what Adam Smith warned would destroy the benefits provided by capitalism that isn't something we should do.

If they want to defend a new model of behavior where those with the power to subvert markets can, that is their right. We shouldn't allow that to be seen as capitalism though. If we do then we see the problem as a problem with the fundamental principles of capitalism. When instead it is a problem of allowing the corruption of the political system to throw away the benefits our society can gain from capitalism.

"Unfettered capitalism" isn't actually captialism. From the very beginning Adam Smith talked about the dangers of allowing markets to be manipulated by powerful businessmen/companies and businesses colluding to manipulate the markets.

The problem is people talk about things as if capitalism is the problem, when in fact it is our failure to enforce capitalist free markets (for example). I am not talking about the talking-head "free markets" which are in fact allowing businesses to disrupt the market because they have the ability to get away with monopolistic pricing. That is the very anti-thesis of capitalist system.

Adam Smith in the Wealth of Nations:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise the prices

Today, they often short circuit the need for this by having so subverted the political process that one company can subvert the market all by themselves. They have subverted the protection that should prevent monopolistic power (anti-trust enforcement, requiring competitive markets, etc.) so that they don't even need to conspire with competitors (or need to do so in very small ways because they already have collected what are suppose to be competitors in a capitalist system into on monolithic entity that only needs to conspire against the public all by itself).

There is some part of the benefits of capitalism that Adam Smith saw and many people believe today (like me) that by encouraging prosperity in the economy everyone can be made richer. And in such a manner more good can be created for those in need than directly giving aid to those in need. Now I understand similar words to that have been distorted to mean let the modern day robber barons plunder the economy to enrich themselves.

That isn't what Adam Smith or I have in mind. The end is a better society with benefits to everyone. The means is capitalism. Just because today many plundering the wealth of society are senior executives instead of nobility Adam Smith would not see their actions in any more noble a light (hmm. noble - oh well).

It damages our society to allow those who seek to extract economic rents and gains from preventing free markets from functioning to define what they do as capitalism. If we accept that view we seek to dismantle useful economic measures.

What we need to do is recognize when capitalism is being subverted by those in powerful positions for their own benefit. They damage society and if we think what they are doing is acceptable capitalism we will not seek the appropriate solutions within how capitalism is suppose to function to address them.

Essentially we need to the extent possible prevent market dominating forces from acting. So boring things like trust busting, dismantling too-big-to-fail banks, regulating natural monopolies, regulating pricing power when the market is not filled with many competitors...

There are some issues that are not about making sure capitalism works but just about how we want our society to work. To maximize the benefits to society we want free markets (actually competitive markets not the let companies be free to subvert markets that Fox News and others talk of as if that is somehow capitalist).

But capitalism doesn't have an answer for how much health care we want to provide everyone, how much education... Those are political decisions and Adam Smith and sensible capitalist understand the difference between social decision and the economic model. That is however another thing that the talking heads have convinced a whole lot of those in the USA differently. They have sold the notion that capitalism means ethics and morals don't apply. That isn't the case.

Adam Smith was a moral philosopher, he would not see as acceptable the crazy notions many people today espouse as capitalism. It wouldn't matter if these people were tarnishing the reputation of a useless idea. But instead they are tarnishing the name of an extremely important idea. And we all lose if they win in their attempts to conflate capitalism and with cronyism and market domination by businesses that have monopolistic pricing power.

Related: We Need to be More Capitalist and Less Cronyist - Anti-Market Policies from Our Talking Head and Political Class - Failing to understand capitalism - Economic Freedom - Ignorance about Capitalism