March 17, 2013


Is capitalism moral? (Steven Pearlstein, March 15, 2013, Washington Post)

Careening from debt-ceiling crisis to sequestration to a looming government shutdown, the nation is caught up in a historic debate over the proper size and role of government.

That's certainly one way to think about it. Another is that we are caught up in a historic debate over free-market capitalism. After all, if markets were making most of us better off, regulating their own excesses, guaranteeing equal opportunity and fairly dividing the economic pie, then we wouldn't need government to take on all the things it does.

For most of the past 30 years, the world has been moving in the direction of markets. The grand experiment with communism has been thoroughly discredited, a billion people have been lifted from poverty through free-market competition, and even European socialists have given up on state ownership and the nanny state.

Here at home, large swaths of the economy have been deregulated, and tax rates have been cut. A good portion of what is left of government has been outsourced, while even education is moving toward school choice. In embracing welfare reform, Americans have acknowledged that numerous programs meant to lift up the poor instead trapped them in permanent dependency and poverty.

But more recently, we've seen another side of free markets: stagnant incomes, gaping inequality, a string of crippling financial crises and 20-somethings still living in their parents' basements. These realities are forcing free-market advocates and their allies in the Republican Party to pursue a new strategy. Instead of arguing that free markets are good for you, they're saying that they're good -- mounting a moral defense of free-market capitalism.

This is, of course, the wrong question and the wrong answer.  Markets exist on a spectrum, with those that are totally closed and those that are totally open being immoral or amoral, but with those in-between not being obviously moral or immoral to any great degree.  Revealingly, morality really only enters the marketplace at the points where governments establish the rules that govern them and where citizens make decisions within them.  

The simple fact of the matter is that markets do not exist to produce morality.  The market (or Capitalism) exists to create wealth. It unquestionably does this more successfully than any other economy Man has yet discovered or can imagine.  [Thus, the End of History.]

The question then that Mr. Pearlstein means to ask and that all of us need to confront : is the way that we distribute the wealth that our chosen economy creates moral?

This, one notes, is not an economic question but a political one.  It has, therefore, political answers.

Sure, both the Right and the Left once hoped that all of the redistribution could occur within the economy, through jobs.  But their hopes were born during an epoch when massive amounts of labor were required to produce wealth.  This is no longer the case and the labor required is dwindling rapidly.  The Labor Theory of Value is dead.

So now that we recognize that employment is not universal, that such employment as exists has rather little value and that the monetary value of the things we create is approaching zero, how can our political system distribute wealth in a manner that most of us will accept achieves moral ends?  

Because the answer, necessarily, does not include (or, at least, does not depend) on traditional employment, it is not something that anyone is eager to articulate.  The political liabilities of doing so are steep and immediate, while the benefits are uncertain and prospective.  The Right and Left, for sometimes differing but sometimes identical reasons, will howl in anger as we start to transition to a system that rewards domestic "work" instead of workplace labor, that rewards involvement in the community, that defines (and makes) the contribution, instead of defining the benefit, that eliminates taxes that impede wealth creation and imposes taxes on consumption, that reduces protections for workers and producers alike, and so on and so forth.  Meanwhile, such a revolution will justifiably make the vast middle extremely uncomfortable.  We are journeying into the unknown and no sensible soul can help but be nervous about that prospect.

On the other hand, refusing to confront the revolution that we are in the midst of will not make the revolutionary conditions disappear.  Nor have political parties that refuse to accept the existence of revolutionary forces tended to fare well in the long run.  The parties of the right that fought the creation of the modern welfare-state spent decades in the wilderness, while the parties of the left, that fight against bringing market forces to bear on those welfare systems tend to cede power to conservatives.  

The successful parties throughout the Anglosphere--and the citizenry consistently demonstrates that it doesn't give a damn which side of the political spectrum they come from--are those that advocate Third Way solutions, eschewing the old arguments of Right (First Way) and Left (Second Way).  Political systems throughout the English-speaking world increasingly seek to liberalize wealth creation (Capitalism) in order that ever greater wealth can finance ever more generous social welfare (personal retirement, HSAs, etc.).  The market, in this vision, is not a moral end in itself, but a means to a moral end : universal affluence.  

This is the vision our politics needs to be, and will be, organized around.  It is this vision that will consistently produce governing majorities.  On the fringes will be a Left that counter-argues that markets ought not be free, which would reduce affluence for everyone, and a Right that counters that the wealth should not be shared, reducing the universal benefit of the economic system we've chosen.   These are the arguments of History's losers.

Behind the historic shift in poverty (Monitor's Editorial Board / March 15, 2013, CS Monitor)

The share of the world's people living in extreme poverty has fallen by half - from 43 percent in 1990 to 21 percent in 2010, according to a new United Nations report, which also forecasts that by 2030 most of the world's middle-class people will be living in countries once considered poor.

"Never in history have the living conditions and prospects of so many people changed so dramatically and so fast," concludes the 2013 Human Development report from the UN Development Program.

A Profession With an Egalitarian Core (TYLER COWEN, 3/17/13, NY Times)

ECONOMICS is sometimes associated with the study and defense of selfishness and material inequality, but it has an egalitarian and civil libertarian core that should be celebrated. And that core may guide us in some surprising directions.

Economic analysis is itself value-free, but in practice it encourages a cosmopolitan interest in natural equality. Many economic models, of course, assume that all individuals are motivated by rational self-interest or some variant thereof; even the so-called behavioral theories tweak only the fringes of a basically common, rational understanding of people. The crucial implication is this: If you treat all individuals as fundamentally the same in your theoretical constructs, it would be odd to insist that the law should suddenly start treating them differently.

At least since the 19th century, the interest of economists in personal liberty can be easily documented. In 1829, all 15 economists who held seats in the British Parliament voted to allow Roman Catholics as members. In 1858, the 13 economists in Parliament voted unanimously to extend full civil rights to Jews. (While both measures were approved, they were controversial among many non-economist members.) For many years leading up to the various abolitions of slavery, economists were generally critics of slavery and advocates of people's natural equality, as documented by David M. Levy, professor of economics at George Mason University, and Sandra J. Peart, dean of the Jepson School of Leadership Studies at the University of Richmond, in "The 'Vanity of the Philosopher': From Equality to Hierarchy in Post-Classical Economics."

Professors Levy and Peart coined the phrase "analytical egalitarianism" to describe the underpinnings of this tradition. For example, Adam Smith cited birth and fortune, as opposed to intrinsically different capabilities, as the primary reasons for differences in social rank. And the classical economists Jeremy Bentham and John Stuart Mill promoted equal legal and institutional rights for women long before such views were fashionable. Their utilitarian moral theories placed individuals on a par in the social calculus by asking about the greatest good for the greatest number. 

Posted by at March 17, 2013 9:26 AM

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