GOD TOOK ADAM SMITH WITH HIM:

Europe's '70s Show: The Continent's economic death spiral. (BRIAN M. CARNEY, May 15, 2005, Opinion Journal)

Is the European "social model" doomed? It's a question that comes up with increasing frequency as unemployment across Western Europe has climbed into the double digits and economic growth has ground to a virtual halt across much of the Continent.

Updated GDP figures for the euro zone came out last week, and growth in the first quarter was a disappointing 0.5%. Last month both the European Commission and the European Central Bank cut their annual growth forecasts for the euro zone to 1.6% from 2%, and that ugly word recession is in the air.

The European Union's much-ballyhooed "Lisbon Agenda"--which was supposed to revive growth in Europe--was really not an agenda for reform at all. It was, instead, simply a statement of nice things the EU would like to see happen to the European economy to help it compete with the U.S.--such as raising employment levels, increasing R&D spending, and so on.

Unfortunately, but not surprisingly, almost none of those things have happened, and halfway through the 10-year timetable of "Lisbon," the European economy is in at least as bad a shape as it was when Lisbon was announced in 2000.

Given that Europe's streak of economic underperformance can now be measured in decades, perhaps a better question to ask is: Why does anyone think that a system of generous welfare benefits, high taxes and harsh restrictions on hiring and firing would ever produce anything like a dynamic, growing economy?

Why Does Capitalism Get Such A Bum Rap? (Clive Crook, May 13, 2005, National Journal)

It is as though the 20th century never happened. Capitalism has delivered hitherto-unimaginable advances in living standards across the developed world. And this is not just measured in dollars and cents. Broader social progress has been made too, again at historically unprecedented rates. Life expectancy, infant mortality, access to health care and education -- regardless of which of these measures you take, capitalism has achieved stunning results.

The 20th century even went to the trouble of testing the alternative -- socialism -- to memorable effect. So it is hardly as if some better economic paradigm is out there waiting to be tried. The one we have has succeeded, in every way, beyond all plausible expectations. Its only rival was a correspondingly egregious failure, ethically and in material terms as well. Given all that, what sustains this steady anti-capitalist sentiment?

Partly, of course, it is that hundreds of millions of people still endure lives, often brief lives, of grinding poverty. Even so, you might think that capitalism would still be recognized -- more than it is, at least -- as the poor's best hope, rather than as the system that holds them back. Poverty is retreating faster than ever before in many developing countries. You can't help but notice that the countries that are opening themselves up to trade and foreign investment -- in effect, to global capitalism -- are advancing the fastest. China is the most conspicuous example. Is capitalism holding China back, keeping its people in poverty? Obviously, just the opposite. [...]

In the face of the world's recent economic experience, retaining the idea that capitalism is the enemy of social progress, except for those with the power to manipulate the system to their own advantage, calls for an impressive resistance to some large and pretty obvious facts. So the puzzle remains: What is the source of this anti-capitalist sentiment?

My guess is that it is the failure to grasp an idea that was famously advanced more than two centuries ago by Adam Smith, the intellectual patron of this column: the idea of the invisible hand.

This is by no means an instantly appealing concept. After all, that capitalism works as well as it does is, in principle, utterly implausible. How can a fathomlessly complicated system of voluntary exchange, without collective deliberation, with nobody in charge, steered by nobody's good intentions -- a kind of anarchy -- yield social advance, as if by accident? The notion seems ridiculous. That is why Smith's insight was so remarkable. Good intentions are not required for market forces to produce socially good results. Enlightened self-interest suffices. The result will look as though it had been designed -- as though guided by an invisible hand -- but the reality is otherwise.

To acknowledge the power of Smith's insight is not to favor laissez-faire, though this is a very common misunderstanding (on the right as well as on the left). Smith was no advocate of laissez-faire. And to recognize the inadvertent collective power of enlightened self-interest is not to believe that "greed is good," which popular culture appears to have enshrined as the organizing principle of capitalist enterprise.

Smith, a moral philosopher, would have found that completely perplexing. Greed is an irrational passion that blinds people and leads them to ruin. It is almost the opposite of enlightened self-interest -- which, among other things, is a socializing and civilizing influence, since it seeks opportunities for cooperation with others, makes people careful of their reputation for honesty and fair dealing, and so on.

The problem that both these fellas are getting at traces to a singular source: the Enlightenment killed enlightenment. Capitalism requires a strong moral basis in order to flourish, but morality can only be grounded in God. So people who are become anti-religious are correct in rejecting a capitalism which must be unworkable.

Posted by Orrin Judd at May 15, 2005 9:39 AM