Rarely does a day pass when I don’t hear multiple complaints blaming capitalism for maladies ranging from war and hunger to mass inequality and social injustice. Many of these tirades come from otherwise nice and informed people, but they just don’t seem to understand economic realities. I am always searching for simple ways to explain concepts like capitalism, so I thought I would try to create categorize for all of these complaints. As it turns out, all of them seem to fall into one of three groups.
The first group consists of problems instigated by government interference with capitalism. Complaints in this category often come from well-educated analysts who either have not thought through a particular problem or refuse to do so. The housing market collapse is a great example. Blame the greedy bankers all you want, but without an intricate government-established infrastructure including the Fed, Fannie & Freddy, and a healthy dose of social engineering (e.g., the Community Reinvestment Act), the downturn simply would not have happened.
The second group consists of problems associated with ethics, not capitalism. Enron is a classic example. Our founders understood humanity’s proclivity for power so well that they devised a system of checks and balances designed to keep maximum power in the hands of individuals. They also recognized the responsibility of government to establish and maintain a sound legal infrastructure so that victims can recover damages from wrongdoers. When an executive commits a crime, the problem is not one of capitalism, but of human nature. Pick up any newspaper and you’ll read about fraud and deceit in all walks of life, including business, education, and government. Besides, the marketplace does a better job than government when it comes to rooting out scoundrels. Corporations must deliver value to survive, but Washington has access to the printing press. This is why Enron has been dissolved but Washington continues to drive us deeper into debt.
The third group is comprised of problems that have nothing to do with capitalism. Wal-Mart, for example, is often denigrated for not providing comprehensive medical coverage to all of its workers. Wal-Mart is just greedy, we are told, and greed is synonymous with capitalism. However, firms have no moral obligation to pay for health insurance simply because they hire workers. It’s nice to do and helps many companies attract and retain good workers, but it’s not required. Ironically, today’s confused expectations of company-supplied medical insurance can be traced to government intervention. During World War II, wage and price controls prohibited companies from raising salaries to attract and retain the best workers, so companies added and expanded health insurance instead. Add tax breaks and rising payroll and income tax rates, and you have a system that discourages individuals from buying their own insurance. Much of the inefficiency in this system can be attributed to the fact that consumers rarely pay directly for their own healthcare, which is why many providers seem to be working more for the insurance companies than for their patients. All of this, of course, has nothing to do with Wal-Mart or greedy capitalists.
Perhaps this three-category explanation can help in your next debate with your socialist coworker or the neighbor who just watches too much network news and doesn’t stop to analyze what he hears. At any rate, our challenge is to educate others about how markets function. As Reagan put it, “the trouble with our liberal friends is not that they are ignorant, but that they know so much that isn’t so.”
I think most of the whining is falls into the third group. Some people expect an economic system to solve all of our problems. Capitalism is about freedom and the opportunity to choose what you want, not have everything at someone else’s expense. Reagan was right.
Good post. It is also worthwhile looking at all the beneficial things capitalism has created. Freedom and economic opportunity have lead to incredible discoveries that have advanced humanity beyond what we could once even imagine.