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Friday, August 19, 2011

Capitalism Run Amock

19 comments:

  1. The author's description of "a U.S. corporate, political and media elite weaned on the shibboleths of free-market capitalism" must be a joke.

    Since when has the American corporate/political establishment supported "free-market" capitalism? Free-market rhetoric, maybe. But capitalists, in practice, tend to be the most strident enemies of free-market capitalism. What they truly favor is privatized profits and socialized losses.

    Everyone from Adam Smith on has recognized this. I think it was Thomas Sowell who used to tell his students that whoever could cite a single favorable reference to businessmen in Smith's Wealth of Nations would receive an A in his class and an exemption from the exams.

    The irony is that "progressive" state interventions like the ones the author favors often contribute to the very inequities that are then blamed on the market. Antitrust law is a fantastic example of this (see Kolko's Triumph of Conservatism).

    Mises and Keynes were equally correct, contra Marx, in saying that ideas rule the world. And the zeitgeist of the day sure ain't laissez-faire!

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  2. Mike, you think you can establish your own private definition of "free market capitalism," and then use that to criticize others who use the term in the more common meaning.

    That is what the joke is!

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  3. I would add: Had the author simply said "capitalism," as opposed to specifically invoking its free market variant, he would have made a reasonable description. I agree with you that anyone who insists that "capitalism = free market" (as many Randians do) is guilty of the error which you incorrectly accused me of. But so is anyone who claims that corporate elites love "free market capitalism." (I did neither).

    Also, none of this addresses my point that many of the problems which are blamed on "market logic" actually flow from the types of "interventions" which the author favors. Here I am using the author's own terminology, and he distinguishes between the two, so they are clearly different at least to him. But he's analytically wrong about cause and effect and it's his private definitions -- not mine -- that are IMO obscuring the issues.

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  4. My apologies if this creates a duplicate post. But the comment posted above was actually a follow-up. My original reply didn't seem to post properly. I had said:

    ---

    Gene, I believe that my use of the term "free market capitalism" IS in fact the more common meaning and not merely an idiosyncratic one! A few pieces of evidence for this:

    1.) If you type "free-market capitalism" into Wikipedia, it redirects you to the article on "laissez-faire," which it defines as follows:

    "In economics, laissez-faire (English pronunciation: /ˌlɛseɪˈfɛər/ ( listen), French: [lesefɛʁ] ( listen)) describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies."

    2.) If you type in "free market" into Wikipedia, the definitions given are as follows:

    "A free market is a market free from state intervention. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts."

    and

    "A free-market economy is one within which all markets are unregulated by any parties other than market participants."

    3.) If you type "free market capitalism definition" into Google, the very first hits are the wiki quotes above.

    If meaning is indeed determined by a community of users, you will be hard pressed to find larger communities than Google and Wikipedia. This also happens to be how people regularly speak of the free market, at least in my own experience of reading and discussions. I rarely encounter anyone who uses "free market" to describe the status quo in the U.S. Most call it a mixed economy or something similar; certainly, every econ professor I've spoken to has done so.

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  5. Mike, there are two ideal constructions, called by Mises the imaginary construction of the socialist commonwealth and the imaginary construction of the pure free market. They are both imaginary. Never has either existed anywhere, and never will either. It is quite true that the US is not identical to the imaginary construction of the free market economy, any more than is a hockey rink a frictionless plane.

    In the real world, the US is referred to as a free market economy all the time. That is everyday usage. It is also the case that the US has become much more free market since the 1950s, when its economy was much more stable. Thus, it is totally sensible for Roubini to blame the recent instability for free market ideology.

    Look at it this way: suppose you support the "zero calorie diet" for human beings: "all we need is water!" you tell the world. Someone believes your ideology, and tries to live by it. But he continually gets so hungry and weak that he winds up binging once a week.

    Roubini comes along and says, "You're zero-calorie ideology is killing the man!"

    You respond, "Ha! Zero-calorie! Did you see how much he ate last Saturday! That must be a joke."

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  6. Of course the free market is an ideal construction. But the u.s. does not approximate that ideal nearly enough to justify such sweeping conclusions about causality! I'm also curious about what method and metric you use to conclude that the present economy is more free market than it was in the 1950s.

    Anyway, I believe the real issue being discussed was what the *elites* believe. Do you disagree with my and Sowell's belief that capitalists tend to be the enemies of free market capitalism?

    If you want a clearer picture of what the corporate power thinks, just take a look, for example, at what David Rockefeller has said about Mao Zedong. This is the type of figure they are more likely to idolize. Not smith or ricardo, say or bastiat, mises or Hayek. Not even keynes or samuelson. Mao.

    So, the notion that corporate and political bigwigs are ideologically committed to laissez-faire is an interesting hypothesis, and one that is often advanced as indubitable fact by people like Naomi Klein, but turns out to be disconnected from reality once you pay close attention to what they actually believe, say, and do.

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  7. 'It is also the case that the US has become much more free market since the 1950s, when its economy was much more stable.'

    I'm not sure I understand this. How has it principally become 'more free?' By coming off the gold standard, such that it is easier to 'freely produce money?' Not being sarcastic at all here, but it does seem that monetary instability is the principle cause of recent economic instability, and being something of a disciple of Thorstein Veblen, I somewhat understand the limitations of a regime based purely on freedom of contract -- which is what the present money system pretty much is. Also, the centralization (and therefore the un-diversification) of activities is also exacerbated by the dynamics which he describes -- unmitigated freedom of contract and property rights.

    Is that more-or-less-something-along-the-lines-of what you mean?

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  8. Which of the article's arguments do you find persuasive?

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  9. Prof. Callahan, when you read this Time article, don't you find Nouriel Roubini's prescriptions and suggestions to be rather...unimpactful?

    After giving his diagnosis of the problem, he says that the solution is progressive taxation, stimulus investment in infrastructure, central banking protection of banks, antitrust laws, and mortgage relief. That's it?

    So he doesn't really recommend anything that governments already haven't been doing for 100 years? And he perhaps merely disagrees with the extent to which they do it? That is all?

    Wall Street pundits act like they are experts for saying things that laymen keep talking about all the time.

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  10. Prateek, the recommendations are a bit trite, if perhaps not *exactly* what we've been doing. This bit is really bad:

    "Marx, to put it more simply than he himself ever did, saw capitalism's market logic as producing recurring, ever more dangerous crises, precisely because of its tendency to channel most of the wealth produced in society into the pockets of a wealthy elite — and seeking to increase profits by cutting costs, i.e., the wage bill — leaving growing numbers of people no longer able to afford what was being produced."

    Marx and Engels explicitly rejected that explanation of crises!

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  11. I get the feeling that Roubini might not have read Marx, but is repeating from second-hand sources whatever he may have heard about him.

    Whatever little I have read of Marx and Engels is old articles from their newspaper on marxists.org, but all of them are a reminder that their position on any issue was a little more nuanced than we expect.

    Anders Behring Breivik used "cultural Marxism" to describe cosmopolitan, anti-nationalist trends, but I was surprised to find a strong, patriotic, pro-German solidarity in his Neue Rheinische Zeitung pieces. The pieces on 1848 revolutions especially reflect his and Engel's preference for German unity against its enemies.

    Marx apparently believed whatever we like to think he believed.

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  12. PSH, I think there is an inherent instability, not so much in markets per se, but in markets dominated by huge multinational firms and vast and swift capital flows.

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  13. "It is also the case that the US has become much more free market since the 1950s, when its economy was much more stable. Thus, it is totally sensible for Roubini to blame the recent instability for free market ideology."

    The US has fallen to an all time low on the economic freedom index published by the Heritage Foundation. I believe we are ranked 9th now.

    Government spending as a percentage of GDP has also grown. Most interestingly in the decade you chose, 1950s it averaged roughly 25% while now it is at 40%.

    Government itself has grown too in measures other than spending. The amount of government employees, the amount of new agencies, the amount of new regulations, etc.

    I am curious as to your reasoning for declaring that the "US has become much more free market."

    The metrics I have mentioned seem to indicate the opposite and instead show that the sphere of government has grown in all areas, while necessarily the sphere of free market has shrunk.

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  14. Gene, I have to disagree with you that it's useful to call the United States a "free market economy." That is inconsistent with the way history and political science texts used to (at least when I was growing up) describe how great "our" system was. David R. Henderson reminds us of this, that the term used to be "mixed economy" and then that fell out of favor.

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  15. "that the term used to be "mixed economy" and then that fell out of favor."

    Well, OK, but then all economies that have ever existed are mixed economies! That seems a rather useless category.

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  16. "The US has fallen to an all time low on the economic freedom index published by the Heritage Foundation. I believe we are ranked 9th now."

    I found it, Robert!

    1) This index has been published for the last 10 years. You are using it to try to gauge whether we are more free market than in the 50s!

    2) Wow, we've fallen to 9th -- in the top 5%. That's still very free market in terms of the world's economies. And nothing says that's because we've become less market oriented -- could just be that those who have passed us have become more so.

    As far as government percentage of GDP goes, that is meaningless here: Government accounted for maybe 1% of GDP in Medieval England, which was not a particularly free market society.

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  17. Thanks for replying Gene. Could you elaborate more on your claim that the "US is much more free market than it was in the 1950s."

    I offered those bits of evidence to show why I found your above statement odd. I agree with your critiques that they are not meaningful enough to necessarily disprove your claim, still I was hoping more for you to elaborate on your claim and substantiate it.

    I'm not trying to my pro free market bias into the debate, I just genuinely found your statement surprising. One very real reason for my surprise could be my understanding is wrong and/or lacking. I'd appreciate it if you could point me in the direction of information to support your claim.

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  18. Also to be clear, the confusion is not that I don't think the US would be classified as a "free-market" or "mixed economy". I'm asking what occurred and is occurring that makes the us significantly more free market today than say 50 years or so ago?

    And because you are referencing where we are today, I think the Heritage index (going back 16 years!) that reveals we are becoming less, not more, economically free has some degree of relevance.

    So I am curious as to what specifically I am unaware of that during this (earlier half apparently) last 50 years or so occured that made us so much more free market than we were in the 50s, that even with the recent downslide we are still comfortably "way more free market than we were in the 50s"?

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  19. This is ridicolous, why are you posting this ? Nouriel Roubini is totally crazy and claims the FED is the savior and cure of the free market. Why even give this guy views ?

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