It’s almost too easy

Sometimes I wish the Sydney Morning Herald letters page allowed comments, as they do on some articles and opinion pieces. Sure, you can submit a reply, but there’s no guarantee of being published, and the discussion can go no further anyway[1]. So when I saw the letter from Julian Brown of Manly Vale, reproduced in full below, I thought a good fisking was in order. Mr Brown, feel free to respond to my criticisms in comments.

At precisely the point the rest of humanity seems to have realised the destructive failure of capitalism as an economic force via continual empirical evidence, Alwyne Todd launches a celebration of the free market that would make Peter Costello blush (Letters, October 5).

She says, ”It is precisely the extraordinary productivity of the free market system that has made the modern welfare state possible.” Funny, I thought the modern welfare state had just made capitalism possible by giving trillions of dollars in aid to the free market to stop it collapsing – or is it not welfare to donate money to private enterprise?

I was also under the impression the following were true: economic collapses and recessions are regular processes of the free market because of its inherent greed, short-sightedness and inability to function coherently by itself, and massive state protectionism is necessary to protect our free markets from actually being free via trade tariffs, subsidies and rebates.

We now know global capitalism is one of the worst functioning economic systems in history by its continual collapses, the state of the planet, that people are not only worse off in developing nations but developed ones too, and that the gap between rich and poor grows ever wider.

To celebrate the cancer that adversely affects all aspects of our family, societal, environmental and economic lives as our saviour really is putting the cart before the horse.

The overall structure is interesting. Interesting as in, they should teach this in logic classes of how not to construct an argument. If you boil the main points down, it goes like this:
1. The free market needs socialism to exist.
3. The free market needs protectionism to exist.
4. Capitalism is bad because it doesn’t deliver continuous growth; is the same thing as modern industry; everyone is worse off; the rich are better off.
5. Capitalism (or the free market, it’s not clear) “adversely affects [everything]”.

Mr Brown employs the common fallacy of decrying the ‘free market’ by pointing out the non-free-market aspects. You can’t have it both ways – either the market is free, or it’s riddled with socialism for private enterprise and state protection. You can’t say the free market is bad when the market isn’t free!

Alwyne Todd’s original letter quoted by Mr Brown was correct – welfare states arose because societies built enough wealth through capitalism that they could afford them. The modern corollary are the countries that try to provide welfare without capitalism (North Korea), very little capitalism (Cuba), or diminishing capitalism (Venezuela). The first has a starving oppressed people, the second can no longer afford what little welfare they managed to cobble together in the first place, and the last is seeing the consequences of raiding productive capital to pay for improved welfare – things are better for the poor for a while, but eventually you run out of other people’s money, and things go rapidly downhill. Venezuela is having to ration food now, did you know that?

Another fallacious belief held by Mr Brown is that capitalism was saved by the bailouts and stimulus packages (I’ll ignore the laughable contention that banks operate in a free market). He’s obviously never heard of Schumpeter. Businesses usually fail for good reason – they didn’t improve the social good sufficiently, and go broke, and their resources are diverted to something that will. This is a Good Thing. The GFC certainly didn’t mean capitalism was in danger of imploding, just that earlier corrections had been interfered with and so the misallocations of capital grew larger than they otherwise would have. That’s right – earlier bailouts helped create a bigger bubble, with a correspondingly bigger bust.

I love this line: “economic collapses and recessions are regular processes of the free market because of its inherent greed, short-sightedness and inability to function coherently by itself”. While any market will have expansions and contractions (see above), to place blame for “collapses and recessions” on some mythical free market is about as wrong a view on economic history as it’s possible to have. Firstly, almost all markets operate within the constraints imposed by government, so to ignore those constraints and their constantly shifting nature is the same as trying to puzzle out the origins of geographical features by considering plate tectonics while ignoring volcanoes, glaciers and the effect of wind and rain. Secondly, markets are justifiably famous for their ability to use people’s desire to improve their lot (slanderously described as ‘greed’) and the astonishingly effective medium of price variations to coordinate the most complex interactions of human activity ever known.

There is a famous essay called ‘I, Pencil’ by Leonard E. Read (well worth reading, see here) that traces the lineage of just one product of these complex interactions. The amount of economic cooperation[2] required to place a pencil in your hand is mind-boggling to behold, and yet the market does it effortlessly, without recourse to a coordinator to make sure it “functions coherently”. I shall quote a key part:

I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding!

In fact, we can see what happens when societies do decide that having an overall coordinator is better than millions of individual decisions – you get poor-quality goods, which are in short supply if they are available at all. See the “continual empirical evidence”[3] offered by the communist experiments.

I suppose the most egregious fault in Mr Brown’s letter is this: “people are not only worse off in developing nations but developed ones too”. I simply can’t comprehend how this statement could be made without sarcasm. Capitalism has brought more people out of poverty than anything, ever. The vast majority of people are better off on just about every measure you can think of, almost regardless of what time period you choose[4], wherever capitalism has taken hold.

[1] – I hope someone more succinct than I does reply. Mr Brown needs to all the encouragement he can get to join the reality-based community.
[2] – People often forget that most market activity is social and cooperative, not competitive and individualistic.
[3] – LOL. Evidence can’t be ‘continual’!
[4] – Judicious cherry-picking of small timescales in certain places can show movement away from the trend, but if you’re reduced to that, then you’ve lost the argument anyway. The trend is what counts.

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9 Responses to It’s almost too easy

  1. Legal Eagle says:

    Well said, Jarrah! I constantly think about the fact that if I had been born in a developing country, there’s a high likelihood that I wouldn’t be alive. First, I was born very prematurely, secondly, I suffer from chronic and severe asthma. I don’t think the unbridled free market is always a good thing. But I do think that the contributions of the market to the choices and options available to us in this time must be recognised.

  2. john walker says:

    Actually economies and societies are ‘chaotic non linear systems’, a-periodic and radical permutations are a normal and predictable property of chaotic systems. The Idea that there are ‘global’, rational cause and effect explanations is itself irrational.
    Boom and bust is the normal cycle for all things human. Would anybody suggest that the dramatic collapse of Mayan civilization or that of Rome had anything much to do with capitalism or socialism?

  3. Jarrah says:

    “Boom and bust is the normal cycle for all things human.”

    Exactly. Couldn’t have put it better myself.

  4. Kavit Munshi says:

    Good post, Jarrah. I would also like to add that capitalism is the most effective way to increase employment and development in the third/developing world.

    Everyone wants the government to spend the cash. No one wants to be distribute the resources equally out of their own pockets. Charity should begin at home.

  5. john walker says:

    “the cancer that adversely affects all aspects of our family, societal, environmental and economic lives” is a pretty good bit of moral panic. I had not noticed that my local shop keeper had horns. And as for the capitalism lurking under the bed , it is frightening the kiddies.

  6. Jordan Rastrick says:

    I don’t even like the word Capitalism; both the world and economic theory have evolved a lot since Marx wrote Das Kapital, and our vocabulary should reflect that. Governments could tax the holders of capital to the hilt whilst massively deregulating the entire rest of the economy, and we’d still be in a “free markets with some state intervention” system akin to the current one that the letter author is decrying. Discussions of Capitalism – certainly the kind that take place on the letters page of a newspapare – are usually are at their core that most useless class of debate, a semantic misunderstanding masquerading as an argument.

    Having said that, I’m not sold on all the tenents of the Austrian school, so I don’t think I’d be in exact agreement with you Jarrah on either the merits of markets or their failures. Still, your criticism of the incoherence in the letter is sound.

  7. john walker says:

    I might have asked this before , but– what is the history of the term “Capitalism”?
    Did Marx coin it or dos it have a longer history?

  8. john walker says:

    Interesting Quick search suggests that the terms ‘capital’ as in : assets and ‘capitalist’ as in: has a lot of capital, are fairly old, but that the term ‘capitalism’ is not that old.

  9. john walker says:

    merry Christmas Jarrah
    merry Christmas Mr Splatter

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