Hey Folks, Capitalism is a Good Guy!

Here’s a very good read on the virtues of capitalism in today’s Wall Street Journal from Charles Murray. A snippet:

From the dawn of history until the 18th century, every society in the world was impoverished, with only the thinnest film of wealth on top. Then came capitalism and the Industrial Revolution. Everywhere that capitalism subsequently took hold, national wealth began to increase and poverty began to fall. Everywhere that capitalism didn’t take hold, people remained impoverished. Everywhere that capitalism has been rejected since then, poverty has increased.

What happened to turn the mood of the country so far from our historic celebration of economic success?

Murray goes on to answer that question. First, he blames it on collusive capitalism — which he breaks into two parts: crony capitalism and government collusion.

He also assigns blame to those with earned success who are unwilling to defend themselves because they have a liberal mindset and seem embarrassed by their good fortune.

I’ll add to those thoughts.

People often mistake collusive capitalism for capitalism. They cannot separate the crony and collusive parts from capitalism itself. I think it would be clearer if we take the word capitalism out of the description and simply call it cronyism and collusion.

As Milton Friedman pointed out in this video, all societies have greed. Greed is not unique in capitalism. It is human nature. If all we had was capitalism and greed, we’d be okay. Capitalism directs greed into productive pursuits that benefit others. That results in earned success. As Murray points out, that is embodied by Steve Jobs, Thomas Edison and even Mitt Romney.

But greed also leads to cronyism and collusion. That is toxic. Rather than earned success, that leads to bending the rules (i.e. reducing the our freedoms) to gain unfair advantages. Those are embodied by the fat-cat, cigar-smoking, well-connected folks that feed our images of capitalism gone awry. This means that it was illegal for me to willingly assemble bikes for a local bike shop owner when I was a kid. I was underage and made less than minimum wage. The third parties who passed those laws might say that bike shop owner was evil, or that I was taking away job opportunities for others. But for those involved — myself, the bike shop owner and my parents — the arrangement worked out well.

But the key insight is that real capitalism is the best check against those rent-seekers, it’s not the cause. Neither is greed by itself. Cronyism and collusion are the causes.

Capitalism is the conjured, tabloid and propagandized evil. The way our society treats it reminds me of the fictional propaganda war waged against Harry Potter in the final book of J.K. Rowling’s popular series. The evil folks were in charge and spun everything they could to make Harry Potter look like the bad guy. They even had the media on their side, as the magic community newspaper, The Daily Prophet, wrote regular and unbalanced screeds against the evils of Potter. With J.K. Rowling’s brilliance, she made those screeds remarkably similar to the reporting we see here in the muggle world.

Personal Preference Bias in the Bubble

In a recent blog post on EconLog, economist Bryan Caplan articulates an excellent example of the personal preference bias that keeps many people from accepting that government redistribution and welfare programs can have negative outcomes (and outcomes exactly opposite of what is intended).

In the blog post, he ties together the three books Charles Murray has written on poverty, Losing Ground, The Bell Curve and Coming Apart.

Murray doesn’t just explain poverty; he explains elites’ failure to understand poverty.  Elites live in a high-IQ, low-impulsiveness Bubble.  When they introspect, they correctly conclude that the welfare state has little effect on theirbehavior.  They then incorrectly infer that the welfare state has little effect on anyone‘s behavior.  If elites understood the world outside their Bubble a little better, they would have foreseen – and largely avoided – the welfare state’s negative effects on work and family.

The productive and dependent “tribes”

David Brooks takes a leap in this New York Times column.  Brooks writes about the  disparities Charles Murray explores in his book, Coming Apart, between what I’ll call the productive class and the dependent class.  For example:

Today, Murray demonstrates, there is an archipelago of affluent enclaves clustered around the coastal cities, Chicago, Dallas and so on. If you’re born into one of them, you will probably go to college with people from one of the enclaves; you’ll marry someone from one of the enclaves; you’ll go off and live in one of the enclaves.

Roughly 7 percent of the white kids in the upper tribe are born out of wedlock, compared with roughly 45 percent of the kids in the lower tribe. In the upper tribe, nearly every man aged 30 to 49 is in the labor force. In the lower tribe, men in their prime working ages have been steadily dropping out of the labor force, in good times and bad.

People in the lower tribe are much less likely to get married, less likely to go to church, less likely to be active in their communities, more likely to watch TV excessively, more likely to be obese.

And then Brooks makes his leap by recommending…

…a program that would force members of the upper tribe and the lower tribe to live together, if only for a few years. We need a program in which people from both tribes work together to spread out the values, practices and institutions that lead to achievement.

Stuart Anderson, writing on Forbes.com, suggests that Brooks and his New York Times elites…

…give up their jobs for two years and invite members of the “lower tribe” to live in their homes “if only for a few years”…

Nice suggestion, Stuart.  I have more.

There are number of problems with Brooks’ suggestion.

For starters, we already tried an experiment of forcing the two “tribes” together so the values of the productive class could rub off on the dependent class.  It’s called public education.  It hasn’t worked out so well.   In fact, the public education experiment has had the opposite effect.  It has reinforced the enclaves that Murray writes about by encouraging folks with similar values to cluster geographically into public school districts.  The school districts serving the productive class seem to be doing fine.  The districts serving the dependent class are miserable.

It doesn’t take much imagination to believe that something similar would happen with Brooks’ National Service program.

Next, a reminder to Brooks: This is a free country.  That’s sort of a basic principle.

By the way, Brooks, have you considered that the previous slapdash social engineering projects have contributed to the formation of the productive and dependent tribes?

If not, I would like to introduce you to a new subject.  It’s called systems thinking, but some also refer to it as economics.  In systems thinking, you consider that many things, such as behavior, are shaped by feedback.

Try this experiment: intentionally fart in a business meeting.  I’m sure you’d expect your co-workers to give you stares of indignity.  Those stares are feedback that shapes your behavior and cause you to try to refrain from rudely farting again.

But, sometimes problems develop in the feedback that may cause you to continue the rude farting.

One problem might be that you’re the boss, and a mean one at that, and your subordinates restrain themselves from giving you honest feedback.

Another problem in the feedback might be that you have social elites who believe you have the right to fart.  They reason, studies show it’s healthy to pass gas rather than restrain it.  After all, it’s a natural body function.

This is the first interference with the feedback.  The social elites convince you that you should be able to fart whenever and you do.  A group forms who buy into the social elites’ B.S. and they fart whenever.  After all, the smart social elite got good grades, didn’t they?

But the polite farters remain unconvinced.  They were raised not to fart in professional settings, they think excusing yourself when you need to fart is easy enough and they really don’t like the noisy and odorous distractions of the newly empowered farters, so what do you think happens?

The polite farters begin to segregate themselves from the rude farters.  The rude farters are first left out of meetings, then passed over for promotions and then not even hired in the first place.  Rude farters obviously give themselves away in interviews, after all.

What are the rude farters to do?  They can’t get jobs or keep spouses.

The social elites, never backing down from engineering a social problem (even ones they helped create) come to the rescue.  Well, if rude farters can’t get jobs, we will just tax the polite farters and give the proceeds to the rude farters, after taking our cut, of course.  That way, rude farters can continue their farting practices indefinitely without having to adhere to the unenlightened values of the polite farters.

This is the second interference with the feedback.  Rude farters were starting to get a valuable signal: to be productive they needed to be able to work with others without intentionally farting, despite what the social elite said.

But, the social elites interrupted that feedback signal and made it possible for the rude farters to continue their socially unacceptable behavior.  They no longer needed to be productive to get by.  They could just be dependent on others and continue farting whenever.

Now, decades later a new crop of social elites come along.  One writes a book about how the rude and polite farters don’t mix much and that the polite farters appear to be productive and proficient, while the rude farters are dependent.

Then another social elite columnist comes along, reads his book and suggests that maybe if we just forced members of the rude and polite farting tribes together for a few years in a National Service, maybe, just maybe, the values (although the social elite has a problem identifying exactly what those values are) of the polite farters will rub off on the rude farters — as long, of course, as the rude farters don’t have to stop farting rudely.

The smart social elite never realize:

  • that farting politely is THE value that distinguishes the two groups.
  • they they interfered with the feedback signals that would have minimized that anti-social behavior.
  • that their initial feedback interference caused the formation of the two groups.
  • that their second feedback interference insulated the rude farters from having to modify their behavior to get by.
  • that all they should do is stop interfering with these feedback signals and tell the rude farters that, perhaps, politely excusing yourself when you need to stink it up is okay after all and that whatever is gained by being rude isn’t worth the social costs you impose on yourself.

And, unfortunately, the smart social elite write about the poor rude farters as if they are incapable sad sacks that have no bearing on their position in life, even though generations of immigrants have demonstrated that you can come to this country, start on the lower rungs and work yourself up the ladder rather quickly by adopting productive behaviors and social norms, like not farting in meetings.

(Thanks to Don Boudreaux of Cafe Hayek for the link to Stuart Anderson’s article.)