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June 2017 posts

Enjoy Capitalism

By John Morton


As I write this, I’m wearing a t-shirt, a gift from my daughter.  It says “Enjoy Capitalism” written in the style of the cursive Coco-Cola logo. IMG_1083 Every day I enjoy what’s left of an economic system that is responsible for improving billions of lives around the world.  As Milton Friedman put it: “There is no alternative way so far discovered of improving the lot of ordinary people that can hold a candle in the productive activities that are unleashed by a free enterprise system.”


Yet young people are not feeling the joy.  Their contempt for capitalism is just behind their contempt for President Trump.  Bernie Sanders, a declared Socialist, almost defeated Hillary Clinton in the Democratic primaries.  In Great Britain, voters age 18-34 cast 63 percent of their votes for Labour party leader Jeremy Corbyn, who promised to take the country back to the disastrous policies of the 1960s.  The Institute of Politics at Harvard released a survey showing more than half of respondents between 18 and 29 do not support capitalism.  Young people have legitimate grievances such as low economic growth, high unemployment and underemployment, stagnant wages, and income inequality.  The question is whether the rejection of capitalism would make things better or worse.


Capitalism Rocks the World


Using the World Bank’s definition of extreme poverty as living on less than $1.90 a day, since 1990, over one billion people have escaped extreme poverty.  In 1990, 35 percent of the world’s population lived in poverty.  By 2013, the percentage of the world’s population living in poverty had been cut to 10.7 percent.  The reason for this improvement is not foreign aid but a rise in the number of countries embracing capitalism and an expansion of economic freedom.  U-2 frontman Bono, a passionate advocate for aid to underdeveloped nations, gets it.  He said, “Aid is just a stop-gap.  Commerce and entrepreneurial capitalism take more people out of poverty than aid.”


The world is getting more economically free.  Two indexes of economic freedom attempt to quantify how capitalistic countries and territories are.  The Fraser Institute’s Economic Freedom of the World Index measures the degree to which “the policies and institutions of countries are supportive of economic freedom.  The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property.”  Forty-two data points are used to construct the index.  Since 1985, the economic-freedom rating for advanced countries has increased from 6.9 to 7.7.  The economic freedom rating for developing countries with ratings since 1985 has increased from 5.0 to 6.7.  The world economies are getting freer.


Capitalism Works


Nations that are economically free outperform non-free nations in indicators of well-being.


  • Nations in the top quartile of economic freedom had an average per-capita GDP of $41,228 in 2014, compared to $5,471 for bottom-quartile nations (PPP constant 2011 US$).

  • In the top quartile, the average income of the poorest 10 percent was $11,283, compared to $1,080 in the bottom quartile in 2014 (PPP constant 2011 US$).  Interestingly, the average income of the poorest 10 percent in the most economically free nations is twice the average per-capita income in the least-free nations.

  • Life expectancy is 80.4 years in the top quartile compared to 64.0 years in the bottom quartile.

  • Political and civil liberties and considerably higher in economically free nations than in unfree nations.


Capitalism Needs a Press Agent


Why, then, are young people so anti-capitalist?  How can this be?  Let’s try these reasons on for size.


1.  Ignorance


Current statistics show that recent global progress and the decrease in poverty should be the greatest story of our time.  Extreme poverty has been halved, life expectancy has increased, infant mortality has decreased, and deaths from HIV have decreased.  Yet over two-thirds of Americans believe none of this has happened.  In 2015, the United Nations announced its goal was to eradicate poverty in 15 years.  This seems mad, but it can happen if governments keep their grubby hands off private markets.


2.  The Myth That Capitalism Is Based on Greed


Conservative economists and philosophers are to blame for this myth.  Let’s watch greed turn into progress.  What a magic trick!  Capitalism is based on self-interest, but entrepreneurs profit only if they serve others.  You don’t have to like your fellow human beings--just serve them.  If entrepreneurs pursue their personal interests rather than improving service to their customers, their businesses will fail.  Because trade is voluntary, both the buyer and the seller must be satisfied with the deal.  That’s why both people say “thank you” when the deal is done.


3.  The Belief That While Capitalism May Deliver the Goods, It Has No Soul


There is so much more to life than materialism, but money expands lifestyle choices.  In fact, billionaires love giving their money away (even though they probably did more good for others while they were earning the money).  I’ll grant you that capitalism isn’t romantic and challenge you to write an inspiring folk song about capitalism.  However, Deirdre McCloskey makes a strong case that virtue is advanced by capitalism.  These virtues include love, faith, humility, courage, prudence, temperance, and justice.


4.  The Idea That Planning Is More Efficient Than Markets


F.A. Hayek debunked this one.  If you don’t believe it, list all the improvements to our lives by capitalist entrepreneurs against all the improvements to our lives by government programs.  Nevertheless, when there is a big problem or a crisis, people turn to government to solve it.


Please Oppress Me


Joan Robinson once said, “The misery of being exploited by capitalism is nothing compared to the misery of not being exploited at all” or as Deirdre McCloskey has been rumored to say at conferences: “The only thing worse than being oppressed by a capitalist is not being oppressed at all.”


If you prefer not to read Smith, Hayek, McCloskey, Friedman, Mises, Bastiat, and Schumpeter, try taking a field trip.  The international set can visit North Korea, Cuba (cute old cars), and Venezuela.  Those with more limited budgets can visit their local DMV facility, VA hospital, or Social Security office.


As for me, I prefer putting on my “Enjoy Capitalism” t-shirt and having a martini.  I will contemplate how billions of human beings, most of whom don’t know each other, had a hand in creating my glass (made in Sweden), gin (made in England), vermouth (made in France), and cocktail shaker (made in China).  After the second martini, I won’t care.

Spiraling Downward

By Jonathan B. Wight

I remember studying the history of how we got into World War I. It was a disaster nobody wanted, and yet, step by step, we marched over that precipice.  Where were the grown-ups? 

We are facing a similar crisis today. Leadership in the world’s dominant country is absent due to incompetence and inexperience.  Many executive leadership positions are still sitting empty because names have not been submitted for confirmation; quality candidates are also withdrawing from consideration.  Who wants to be part of this administration’s dysfunction?  There is also the huge energy- and attention-drain in Congress and the White House as politicians focus on Russia-gate and related investigations.

In the UK there is electoral tumult. France has an inexperienced new leader. The Middle East and North Korea are powder kegs.  Taiwan just lost a key ally in Panama and may feel more threatened than ever as China becomes more militarily aggressive.  Instability breeds distrust and small disagreements spiral out of control.

Something relatively minor coming out of the blue—the assassination of Archduke Franz Ferdinand of Austria in June 1914—set off a chain of seemingly marginal reactions that culminated in a world war that destroyed a generation.  We like to think it could never happen again—we’re too sensible, right?

Perhaps not.  We’re ruled by a president who eschews reasoning.  Raw instincts and emotions propel him to strike out and aggravate wounds, rather than attempt healing.  While Adam Smith identifies moral sentiments as the basis for understanding morality, morality does not derive from an individual’s sentiments, but rather from the shared moral sentiments that have grown up over many generations. Each individual, by distinction, is called upon to use self-control to obey the moral norms and rules of the time.

What Trump has done is upset the moral norms by sympathizing with dictators and attacking allies. All presidents lie and do ethically questionable things for expediency and for national security.  But what is their attitude toward doing such?  Is it reluctance and regret at having to behave in this way, or is it bluster and gloating?  Motives matter.

My bleak assessment is likely wrong.  Our constitutional system may be much stronger than I give it credit, and heroes will appear when the going gets tough. That is something to have faith in—faith being the belief in something not yet revealed in evidence. 

Response to Jonathan’s Post on Hayek and Healthcare Reform

By John Morton

In his post of May 30, Jonathan makes a good case that Hayek believed the state should provide a minimum level of assistance to individuals who cannot guard themselves.  He clearly says in The Road to Serfdom, “There can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody.”  (Fiftieth Anniversary Edition, p. 133)  Hayek also says his opposition to planning should not be confused with “a dogmatic laissez faire attitude.”  (p. 41) 

However, it’s a big jump to think Hayek would be a supporter of a growing welfare state, single-payer health insurance, or Obamacare.  In his essay on “The Use of Knowledge in Society,” his thesis is that no planner can match the efficiency of a decentralized market because what is known by a single person is a small fraction of the knowledge held by all members of society.  To act on the belief that planners know enough to shape “the processes of society to our liking, knowledge which we do not possess, is likely to make us do much harm.”

Obamacare and the possible Trumpcare make his point.  Obamacare is a Rube Goldberg machine.  It makes every aspect of heathcare more complex.  It’s a fantasy that a single-payer system would work more smoothly than a market-based system.

Instead, let’s just try a minimum income and allow people to decide where to spend their income.  It’s a novel idea.

Harvard Becomes Ugly Censurer

By Jonathan B. Wight

The Boston Globe reports that “Harvard revokes admission to at least 10 students for offensive Facebook posts.”


First of all, don’t students have some expectation of first amendment rights?  I don’t know what they posted (other than that it was reported to be offensive blather).  What do we expect from teenagers?  Aren’t we all supposed to do stupid, experimental things to stretch our wings?  If that did not involve making some mistakes, it means we’re not really stretching very far.

Second, the university claims the right to expel a student for pretty much any behavior “that brings into question their honesty, maturity, or moral character.”

Does posting to a website constitute the kind of egregious act that calls into question someone’s character?  Perhaps, but only in the view that character and one’s views should be fully formed by age 18.  My brother, for example, vehemently protested against the “evil forces of global capitalism” while a student at Boston University in the 1960s.  A few years later, he became an international banker for Citibank!  Strange how time heals many things.

Hate speech is stupid speech and harmful speech.  Is the world a better place without it?  Undoubtedly.  In most cases (where no law is being violated), should it be legislated away or censured by college administrators?  I think not.  The kinds of egregious things students said during Vietnam War protests were hyperbolic and hate-filled toward our soldiers, but should students have been expelled for such things?  Most of us would say no. 

What if a student in the 1930s had voiced dissent against the racist, sexist, and anti-Jewish policies of Harvard at that time?  Should he be expelled?  We would say, no!

Alan Dershowitz, who retired from Harvard Law School, worries about the bad precedent set by Harvard’s decision:

“Punishing students academically for their political views or their personal values is a serious mistake…. These actions are not consistent with the spirit of the First Amendment.”

Instead, Dershowitz argued that counseling students would be far more effective in trying to create a culture of mutual respect.  Create an opportunity for empathy to flourish, and that happens with engagement, not expulsion.

[Thanks to Bette Viano for the link!]

The Brain Drain

By Jonathan B. Wight

Several months ago I predicted that self-respecting civil servants would be reluctant to stay working for an administration that shows so little regard for ethics, which includes the process by which public policies are enacted. 

The New York Times reports that key career diplomats in the State Department are starting to jump ship.  The ranking American official in Beijing, David Rank, announced yesterday he was resigning in protest against the decision to pull out of the Paris accords.

“’[Rank] was a complete pro, extremely well-regarded,’ said Daniel F. Feldman, a former special representative for Afghanistan and Pakistan. ‘In all his years working for me, I never even knew his politics; exactly what you’d hope for from a career Foreign Service officer.’”

Meanwhile, the OMB Director, Mick Mulvaney, unleashed a tirade against Holly Harvey, the economist who put together the CBO scorecard for the health care bill passed by the House.  He accused her of partisanship simply because she did her job, following economic logic.  In other words, he criticized her for not making up numbers to fit what the President wanted.  (Note that the head of the CBO is a Republican appointee.)

Why would anyone of credibility want to stay or take a job at the CBO under these conditions?  The people who do stay may be more concerned with ideology than with truth-seeking. 

We all remember the slogan during Mao’s Cultural Revolution:  “Better red than expert.”  It was more important to the dictator that a factory manager or college professor be well-heeled with regard to Mao’s little red book of writings than it was to actually know anything about efficiency or economics. 

Please remember the 30 million or more who died by starvation in the ideological push for forced collectivized agriculture.  “Better red than expert” is a recipe for disaster--America, are you listening?

Deng Xiaoping’s famous come-back to Mao, which landed him in prison, was “It doesn’t matter whether the cat is black or white, as long as it catches the mouse.”  Long live the pragmatist Deng! 

*     *    *

Bottom Line:  We need virtuous civil servant economists who will adopt professional ethical standards in their roles in government. If in doubt, consult The Oxford Handbook of Professional Economic Ethics.

And down with politicians who confuse their narrow political causes with allegiance to America. 

The Paris Accord

By Jonathan B. Wight

Bart Hinkle is one of the smartest, principled, libertarian editorial writers today.  His opinion pieces demonstrate reason and moderation, with a hefty concern for procedural justice and economic ethics.  They are also often very funny, and draw on classical thinkers.

In today’s opinion, the RTD editorial writers hit the right balance, I think, with regard to the Paris climate change accords. Global warming

The key point is that the global political/economic sphere has lots of moving pieces, and they are all interconnected.  You cannot treat each treaty in isolation, but rather must focus on the big picture.  You cannot cherry pick, the way the Trump administration would like to.

While the Paris Accord is non-binding and unenforceable, it does provide an inclusive moral norm framework for taking baby steps on global warming, a major tragedy of the commons problem.  Moral norms are often not backed up by legal penalties, but are enforced through social outing and ostracism.  Such accords can be hugely effective in moving societies forward. Keeping a scorecard, even if non-binding, is important. 

Withdrawing from the Paris Accord was thus a blow to establishing moral norms on negative externalities and enforcing them with jab-boning and other time-honored techniques of social enforcement. 

The bigger picture is even bleaker, however.  Trump is degrading America’s reputational brand around the world, except among dictators.  He attacks our friends and cozies up to repugnant autocrats.  He breaks our trade and defense commitments on weak and often faulty logic.  Does any serious economist think that bi-lateral trade (e.g., between U.S. and Germany) should be in balance?  Does any serious economist believe that trade is a zero-sum game? 

The editorial concludes: “by repeatedly pulling out of international agreements, or threatening to, the Trump administration is eroding American honor in the eyes of the world. Over time, that could inflict far more harm on the U.S. than the Paris agreement ever could.”

[Image shows  NASA's visualization of climate change in the year 2100.  Image: https://www.flickr.com/photos/24354425@N03/18508601420]

Violence in Overbooking

By Jonathan B. Wight

All my students are overbooked, stressed out, and unable to relax in the flow of life.  Many of their faculty members feel the same way! 

Despite mindfulness meditation, centering prayer, yoga, and other non-medical techniques, life can weigh us down.  

To some extent, neoclassical economic theory isn't helpful.  When we focus on "maximizing" as the desired mode of operating, it sets us up for constant evaluation and stressful revisiting of our choices.  Herbert Simon's "satisfycing" behavior seems like a much better mental attitude to adopt--that is, stop calculating and striving when you've reached a minimum threshold of acceptability.  In other words, don't let the best be the enemy of the good.  Even better, become a Buddhist.  :)

Here’s a pithy quote to remember how giving in to all the impulses of modern life does violence to our sense of peace:

Merton“To allow oneself to be carried away by a multitude of conflicting concerns, to surrender to too many demands, to commit oneself to too many projects, to want to help everyone in everything, is to succumb to violence. The frenzy of our activism neutralizes our work for peace. It destroys our own inner capacity for peace. It destroys the fruitfulness of our own work, because it kills the root of inner wisdom which makes work fruitful.”

--Thomas Merton, Conjectures of a Guilty Bystander

[Thanks to Eryka Fiedler for the quote.  Image: https://www.flickr.com/photos/jimforest/2055118984]

Is America a Sick Society?

By Jonathan B. Wight

Pithy quotes are a delight to the mind and the ear.  Of course, they can be taken out of context, which has happened so much to Adam Smith and others.  456px-Jiddu_Krishnamurti_01

Nevertheless, here is a gem to get the mind and heart going:

  1. "It is no measure of health to be well-adjusted to a profoundly sick society.”

                -- Jiddu Krishnamurti (1895-1986)

Is America a profoundly sick society?  On various dimensions, the answer is certainly yes

Three data points say a lot:  incarceration rates, suicide rates, and early death rates (whether from murder or drug overdoses).  All three measures indicate a profound failure to properly socialize, to help people succeed in the economic and social systems and to feel loved and respected.  America, as a society, is certainly sick concerning these items. 

Other figures we could point to are the huge health care expenditures, with so little to show for it in terms of health outcomes compared to most other industrial societies.  

More quotes coming….

[Thanks to Eryka Fiedler for passing on this and other quotes.  Image: https://commons.wikimedia.org/wiki/File:Jiddu_Krishnamurti_01.jpg]