One of the curious characteristics about debates about Capitalism and Socialism is the tendency for those on both sides of the debate to assume a system can't have elements of both. The Capitalists argue ferociously that a little bit of socialism will undermine Capitalism, the economy (and freedom). On the other hand those of a Socialist bent are equally vociferous in arguing Capitalism has no redeeming quality's.
In my experience either/or choices are seldom imposed by reality, they are imposed by our own desire for simple answers.
What sparked a recurrence of this thought in my mind was reading a book review (Economist, July 14, 2012, p.74). The book is "Why Capitalism" by Alan Metzger. As the Economist characterizes Mr. Metzger's argument, he believes Capitalism is the only system that leads to freedom and economic growth. I assume Mr. Metzger isn't arguing there has been no society in history that wasn't free that experience economic growth, so I guess he is somehow arguing you can't have freedom without (pure?) capitalism.
I wonder what the people of Sweden, or the other very successful and happy denizens of Northern Europe that have created pretty successful amalgams of free enterprise and socialism would say to him?
As summarized by the Economist Mr. Metzger evidently argues the problems in Capitalism aren't from the theory, the problems are a result of the "elements of state control" and that get grafted onto the capitalist systems that always lead to corruption, waste and excessive regulation. I wonder if he was paying attention in the last decade to things like Enron, Lehman Brothers, or if he has any friends or relatives who got sucked up by sharp real estate people selling nonsense loans to buy overpriced houses.
What strikes me as most startling is his assumption freedom and capitalism go hand in hand - that you can't have a free society that isn't capitalist. Modern free societies are scarcely 2 centuries old, a fraction of the history of humanity, and up until the last 50 years you could count the "free" countries on one hand. In my estimation a truly free society does not yet exist. Even in the US if someone wants to make stupid personal decisions that affect no one else, government often steps in. In the scope of human history the democratic free society is a pup just beginning to develop. Mr. Metzer seems to be stuck in a mindset sort of like the ancients convincing themselves the earth is flat because they wanted to be an expert and did not have the powers of observation and imagination to conceive of any other explanation.
Another book reviewed at the same time (same cite) - "A Capitalism for the People: Recapturing the Lost Genius of American Prosperity" by Luigi Zingales - is focused more narrowly on what the problem is in the US (and most other countries). Government focuses on being pro-business instead of pro-markets. US Law is riddled with complex subsidies that favor certain businesses to the detriment of the market - and the detriment of taxpayers.
Overall these reviews seem reflective of a tendency in public dialogue to assume we have to be either capitalist or socialist, we can't choose different systems for different parts of society. I do not believe it is impossible to develop a system that combines the best attributes of Capitalism and Socialism in a successful free society. I do believe it won't be easy, but few things worth having are easy.
Saturday, August 4, 2012
Tuesday, July 31, 2012
Economists need to step outside themselves
Economist Paul Krugman's recently released book "Stop this Depression Now" reminded me of one of the basic truisms I have harbored about economics - the subject is so complex that although any economist who wants to build a career has to develop and publish hugely complex mathematical formulations and theoretical constructs, since there is no consensus on much of anything, in the end many famous economists are pretty clueless about what makes an economy work.
At the moment we are enduring the spectacle of Republican leaning Noble Prize winning economist's who shower data on folks to support their believe that Government taxes and spending are the problem with the economy, while Democrats have their Noble Prize winning economists who have volumes of data to support their view that Government spending is the cure for our economy.
If you took a group of average folks and asked them how to fix the economy, you would get a wide variety of responses, generally reflecting the emotional worldview each person is comfortable in rather than any real hard data. We all adopt views in life so we have some default position from which to make decisions. That adoption usually has more to do with our personality as it interacts with our life situation than it does with dispassionate careful study of all the diversity in human behavior. We have to many decisions in life to spend time studying everything, and most of the time macroeconomics is pretty far removed from the things that touch our lives on a daily basis.
I don't think some economists are any different. Early in life they found a viewpoint they felt comfortable with and they built their career's on developing data and theories to support their viewpoint.
Krugman's book cited a bunch of economists who agreed with his view Government spending is the way out of our current economic morass, and a bunch who believed the private sector and the free market are the pathway to jump start our economy. On the assumption the side of the political fence any particular economist falls on might be a function of his personality and background I randomly picked 10 names out of Krugman's book (including Krugman) and did a little spread sheet with some basic data about each.
Two of the 10 were born long ago. Englishman John Maynard Keynes - the patriarch of the Government spending view, - who was born in 1883, and Milton Friedman - the patriarch of the supply side theories that were the intellectual justification for the Reagan and Bush tax cuts - was born in 1912.
Of the other 8 the 4 cited as being the spokesperson for the tax cuts and deficit reduction wing of economics, were all born between 1925 and 1939. The 4 (including Krugman) who are supporters of the idea Government spending is the cure for this economic doldrums were all born between 1939 and 1953.
Nothing scientific about this little survey, but it does suggest the possibility a more careful review may provide some support for the view that an economist's basic predilections may often have more to do with when they are born than with a hard headed view of all the available data.
At the moment we are enduring the spectacle of Republican leaning Noble Prize winning economist's who shower data on folks to support their believe that Government taxes and spending are the problem with the economy, while Democrats have their Noble Prize winning economists who have volumes of data to support their view that Government spending is the cure for our economy.
If you took a group of average folks and asked them how to fix the economy, you would get a wide variety of responses, generally reflecting the emotional worldview each person is comfortable in rather than any real hard data. We all adopt views in life so we have some default position from which to make decisions. That adoption usually has more to do with our personality as it interacts with our life situation than it does with dispassionate careful study of all the diversity in human behavior. We have to many decisions in life to spend time studying everything, and most of the time macroeconomics is pretty far removed from the things that touch our lives on a daily basis.
I don't think some economists are any different. Early in life they found a viewpoint they felt comfortable with and they built their career's on developing data and theories to support their viewpoint.
Krugman's book cited a bunch of economists who agreed with his view Government spending is the way out of our current economic morass, and a bunch who believed the private sector and the free market are the pathway to jump start our economy. On the assumption the side of the political fence any particular economist falls on might be a function of his personality and background I randomly picked 10 names out of Krugman's book (including Krugman) and did a little spread sheet with some basic data about each.
Two of the 10 were born long ago. Englishman John Maynard Keynes - the patriarch of the Government spending view, - who was born in 1883, and Milton Friedman - the patriarch of the supply side theories that were the intellectual justification for the Reagan and Bush tax cuts - was born in 1912.
Of the other 8 the 4 cited as being the spokesperson for the tax cuts and deficit reduction wing of economics, were all born between 1925 and 1939. The 4 (including Krugman) who are supporters of the idea Government spending is the cure for this economic doldrums were all born between 1939 and 1953.
Nothing scientific about this little survey, but it does suggest the possibility a more careful review may provide some support for the view that an economist's basic predilections may often have more to do with when they are born than with a hard headed view of all the available data.
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