Browsing the blog archives for March, 2011.

The Morality of Capitalism

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I was discussing the merits of capitalism the other day when my colleague asserted that economic systems—capitalism, socialism, fascism, etc.—are neither moral nor immoral. I had affirmed what I believe to be capitalism’s morality when he stated confidently, “We all know that capitalism is amoral. It’s just an economic system; it has no morality.” His point is that capitalism should simply be evaluated on it what is generates for society. I heartily disagree for three reasons.

First, capitalism is the only economic system based on a respect for individual personal property rights. It starts with the assumption that individuals control their own capital, labor, resources, and purchase decisions. Markets determine the outcomes, not governments. All other systems allow the collective (i.e., government) to exercise some type of control over what should be private property for the presumed betterment of society.

Second, the notion that an economic systems should be judged solely on what it produces for society asserts that what is supposedly good for groups of people is best for society. But who gets to decide what is best for society? For example, is it better for everyone to have universal health insurance at the expense of individual healthcare choice and medical innovation? Someone must make decisions such as these. In the absence of capitalism, this responsibility for doing so typically falls on the shoulders of the government bureaucracy.

Finally, the argument of amorality supports the idea that ends justify the means. If your neighbor has several TVs and you have none, why not steal one? Should the immorality of theft be a concern if it brings about a more “just” society? Contemporary critics of capitalism usually acknowledge that process matters, so identifying this inconsistency is paramount. To keep their argument alive, most will counter by questioning the morality of personal property rights. At this point they have openly acknowledged the right of the collective to determine how much freedom individuals should possess. Checkmate…They’ve shifted from capitalist critic to socialist.

Don’t let your “middle ground” friends try to avoid a discussion of morality when they attack capitalism. Just because many economists prefer not to deal with issues of ethics and morality doesn’t mean that economic systems are amoral. While capitalism outperforms other systems on the basis of what it produces, don’t let them frame the debate along these lines. Doing so opens the doors to the type of capitalism-socialism mix that has contributed to many of our current economic and social problems. Keep process issues and ethics central to the conversation and you can always maintain the upper hand.

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Richard Trumka and Wisconsin

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Earlier this month Richard Trumka—President of the AFL-CIO—penned an op-ed for the Wall Street Journal. Those who have followed Trumka in the past are already well aware of his socialist leanings, but rarely does one piece say so much, especially coming from the left. His work is so revealing that it deserves its own blog post.

It’s one thing to read Karl Marx in his own words, and I recommend that everyone do so. But Marx has long since left this world, and few leftists acknowledge his Communist Manifesto (with Engels) as the roots of modern progressivism. For many, quoting today’s leaders seems more relevant. This is why Trumka’s piece is so important.

For the record, Trumka’s editorial is entitled Scott Walker’s False Choice and can be accessed at http://online.wsj.com/article/SB10001424052748703559604576176601936928690.html. I encourage everyone to read it in full for context. In the interest of brevity, I will focus on 4 of his comments.

1. Commenting on the Wisconsin situation, Trumka contends, “The real question, the one at the heart of our economic debate, is this: Do we continue down a path that delivers virtually all income growth to the richest 1% of Americans, or do we commit to rebuilding a thriving middle class?” The path to which he refers is capitalism. Given the past two years, how can anyone claim that we are “continuing” down capitalism’s path? Quite the opposite is true. And what evidence does he have to support his 1% claim? According to IRS data, the top 1% of wage earners paid 38% of all federal income taxes in 2008, while the bottom 50% paid less than 3% of the total. Like Marx, Trumka plays the class envy card early and often, and his claims simply don’t correspond with the facts.

2. Trumka later adds, “The freedom of workers to come together to bargain for decent living standards, safe workplaces, and dignity on the job has been a cornerstone of building our middle class. It’s also recognized in Article 23 of the Universal Declaration of Human Rights.” Why does Trumka find it necessary to cite a United Nations document to support his case? Why not base his argument in the US Constitution?

3. Trumka laments that “a group of radical Republican governors is working overtime to export the most short-sighted private-sector labor practices into the public sector.” In the private sector, labor practices are based on supply and demand. Employers and employees voluntarily agree on the terms and workers are paid based on their economic contribution to the organization. What part of this is short-sighted? In fact, Wisconsin’s public sector’s approach is economically short-sighted and has contributed to the very crisis the Republicans there are trying to solve.

4. In closing, Trumka refers to Governor Walker and others and states, “Their claim is that public workers have become parasites, busting state budgets with bloated wages and benefits at a terrible cost to taxpayers.” Perhaps I missed it, but I haven’t heard anyone in the Republican leadership refer to public workers as parasites. The rest of this statement is spot on.

Admittedly, I am surprised that Trumka’s handlers didn’t do a better job of editing out the overtly Marxist overtones in the piece. Perhaps Trumka didn’t write it anyway.

It’s interesting that Trumka did not offer any specific suggestions to resolve the budget problem, not even the handy “tax the rich” argument. But then again, he has no interest in balancing the budget. In classic union parlance, that’s a management problem.

My point here is simple. Union members as a group may lean left of center, but some are conservative and it’s my guess that only a minority would qualify as full-fledged socialists. But union leadership is a different story, as Trumka’s op-ed reveals. The Wisconsin situation is about balancing the budget and PUBLIC sector unions, not class warfare, wealth redistribution, and UN mandates. Until now, many Americans have failed to see the connection between union leaders and the far left wing of the Democrat party. Perhaps Richard Trumka has set the record straight.

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Crony Capitalism

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When we discuss politics, my moderate and liberal friends often address me as the defender of business interests. As they see it, liberals represent “the people” and conservatives represent “big business,” while the government weighs both sides and develops policy. But this interpretation is both misleading and harmful. It certainly sounds better to side with the people than with big business. Framed this way, it’s easy for liberals/Democrats to elicit support from the less informed among us.

Unfortunately, some Republicans have not contributed to this misunderstanding in recent years. Rather than seek to reduce the influence of government, many have been content to counter each big government anti-business policy with a big-government pro-business response. When liberals raise taxes, conservatives call for tax breaks. When liberals pass more regulations, conservatives call for exceptions. Instead of arguing for limited government, many conservatives today make the case for balanced government.

Whereas a limited government allows individuals to retain their liberties, a balanced approach empowers Washington to weigh the arguments of the special interests and make decisions for us. Relinquishing that power to the federal government gives CEOs the incentive to focus more on government policy than on their products and competitors. In such a system, profitable companies are the ones that successfully navigate the maze and complexity of government intrusion, not the ones that produce the best products and services at the lowest cost. The extreme case of this arrangement is called fascism. The less extreme but equally odious version is called crony capitalism.

Neo-Marxists like crony capitalism because it allows government to exert great influence over business activity without actually having to accept responsibility for production. Many CEOs like it as well, because only big business gets a seat at the table. Small companies and would-be upstarts are excluded from the negotiations. In exchange for their support of government intrusion—higher taxes, healthcare mandates, regulation, and so on—big business gets favorable treatment from their government partners. The government policy that follows tends to crush small and growing companies the most.

Crony capitalism has been around for a long time, but it’s become much more pronounced since Obama was elected President. Just last week Obama formed a new economic advisory panel, the “Council on Jobs and Competitiveness,” ostensibly to give big business a voice in economic policy. The chair of the panel, GE’s CEO Jeff Immelt, is a long time supporter of the President. But Immelt is more of an opportunist than a capitalist. Indeed, his company is arguably the greatest beneficiary of the government bailout. Recall that TARP was originally designed to assist a specific group of financial institutions, but was expanded for GE’s benefit. To date, GE Capital has issued about one-fourth of the $340 billion in debt backed by the government’s TLGP (Temporary Liquidity Guarantee Program).

I haven’t heard anyone in the administration answer several important questions. Why is this new panel necessary? Is this an admission that Obama did not consider the unintended but easily predictable effects of his past economic policies on U.S. business interests? Why won’t the President just pursue a hands-off pro-market economic policy that alleviates the need for special representation of any kind? In the end, it’s all about centralized authority. It’s time we address this head on. Crony capitalism is not really capitalism at all.

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