CASINO CAPITALISM

At the Democratic debate, Mr. Sanders spent time defending himself as a democratic socialist, and opposed to what he called “casino capitalism.” Anderson Cooper of CNN asked him whether or not he was a capitalist. His response was that he was opposed to the casino capitalism that brings all the wealth to the top, and leaves the rest with nothing, and in favor of a system that makes everyone better off. As for his democratic socialism, it was simply a list containing items such as income redistribution, free health care and education, and paid family leave.

For right now I want to put aside the democratic socialism, and focus on his casino capitalism comments. With Anderson Cooper’s question, he had the perfect opporunity to say that he was not a capitalist, which he refused to answer, instead saying that he was opposed to casino capitalism, which, of course, is not an answer at all. Every classical liberal (conservatives and libertarians) is against crony capitalism, where a given system is rigged to favor certain elements of society as opposed to others. Unless you are doing the rigging, everybody was everyone to be made better off. Anderson Cooper might as well have asked him, “Senator, do you believe in hospitals?” To which Sanders would have answerd, “Do I believe in hospitals where doctors purposefully kill patients? No, I do not.”

What Anderson Cooper should have stated was “Of course nobody believes in casino capitalism. Senator, do you believe in capitalism? A free market, with a rule of law that provides a general framework that is applied equally to all, and strong property rights that provide individuals with the necessary freedom to operate in the market place?” The answer to that question would have been very enlightening. Many leftists try to get out of the free market question by asserting that there has never been a true free market anywhere, and if you want a libertarian society, go to Somalia. This question gets around that by asserting a) a free market works within an institutional framework that is not anarchic, and b) freedom does not exist in an absolute sense anywhere, it is a matter of the degree of freedom which a society has. The United States has a greater degree of freedom than Somalia does, because even though Somalia has a less centralized government, the United States has a complex set of institutions that provide a framework where liberty can have the context to succeed. (Somalia may have a very weak state, but don’t for a second think that they have no strong governments. Just ask all the war lords that are constantly battling each other, not to mention the people trapped inside of that society.)

Senator Sanders dodged the question because he is not a capitalist. I think he assumes that capitalism and “casino capitalism” are one and the same. It would have been more interesting if he had said that, because it is that attitude that is stirring his support, and makes him the candidate that he is.

SPONTANEOUS ORDER VS. THE MAN OF SYSTEM

“The man whose public spirit is prompted altogether by humanity and benevolence, will respect the established powers and privileges even of individuals, and still more those of the great orders and societies, into which the state is divided. Though he should consider some of them as in some measure abusive, he will content himself with moderating, what he often cannot annihilate without great violence. When he cannot conquer the rooted prejudices of the people by reason and persuasion, he will not attempt to subdue them by force; but will religiously observe what, by Cicero, is justly called the divine maxim of Plato, never to use violence to his country no more than to his parents. He will accommodate, as well as he can, his public arrangements to the confirmed habits and prejudices of the people; and will remedy as well as he can, the inconveniencies which may flow from the want of those regulations which the people are averse to submit to. When he cannot establish the right, he will not disdain to ameliorate the wrong; but like Solon, when he cannot establish the best system of laws, he will endeavour to establish the best that the people can bear.

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.”

From Part Six of Adam Smith’s “Theory of Moral Sentiments,” a section entitled “Of the Character of Virtue.”

INDIVIDUALISM: POLITICAL AND ECONOMIC

I recently finished rereading F.A. Hayek’s essay “Individualism: True and False”. In a past post I laid out my own political principles, and the first one I mentioned was individualism. This is a fundamental, and also a much misunderstood concept. In this post I want to use some of Hayek’s concepts (amongst others) to explain both what individualism is, and make an argument for it. One could write a book on this, but it being a blog post, abbreviation will be necessary.

One can make a distinction between the positive argument, what individualism is, and the normative argument, individualism ought to be the reigning political philosophy. I shall seek to address both if space should permit (as it is I’m running long on introductory material), but I shall focus primarily on what individualism is, and shall introduce normative arguments as well throughout the piece.

The best way to start addressing individualism is to start off by asking what individualism is not, that way we can arrive at our answer deductively. Individualism is not the atomistic individual standing outside of society, pulling himself up by his own bootstraps. This indeed is something of a straw man (although there are individualists who would be more than happy to make this argument). The chief error in this line of thinking can be found long ago in the observation of Aristotle, that man is a social animal. Humans are, by nature, creatures that dwell in communities and spend their lives amongst others (exluding the occasional hermit, which is largely considered abnormal by society). Through the use of genetics, scientists have been able to determine that there have never been fewer than a few thousand Homo sapiens at any one point in time. Thus, it’s woven into our very nature to live socially.

Individualism is fully comfortable living socially in community with others. This is why we form voluntary associations. Freedom leaves us to join with others in common causes whatever it may be. It recognizes that the very fact that we are social animals means that we have to learn to live together and respect each other beliefs and differences. Toleration and a healthy pluralism result from true individualism. It allows individuals to work together to find the best ways of making society work best, without relying on top-down solutions.

Nor is Individualism man as homo economicus, living a purely Rational life. Humans are not purely economic entities acting always as consumers. People value lots of different aspects in life, only a part of which can be assessed in terms of cash value. Neither is the individual solely driven by Reason. I use a capital “R” because there is a philosophy still ongoing that believes that purely through reason man can design society and the institutions within it anew. Individuals are very limited in what they can actually know. The idea that a single individual, or even a group on individuals, could centrally plan an economy, or engage in successful social engineering, or put entirely new institutions on a continent like Africa where they never existed before and one can’t know all the particulars is absurd. These constraints upon us introduce a problem where all this individual knowledge needs to be coordinated over a massive scale, but this is a problem for another essay, where I can introduce Hayek’s concept of knowledge and prices.

True individualism recognizes the limits of every person (including elected officials). Recognizing these constraints, allows us to acknowledge the truth that we don’t know who knows whats best, which is why individualism allows individuals on their own, and within voluntary associations, to experiment and contribute their limited pieces of knowledge to the whole. This introduces us to the uncertainty that results from these limitations and the freedom that we have as individuals. Because of this new ideas and innovations emerge that would otherwise not in a society that was planned out and collectivized.

Another aspect of Individualism recognized freedom of conscience, bequeathed to us by the Christian tradition, that each individual is responsible to God for their conscience. This brings with it a need for pluralism and religious toleration. Individuals have different thoughts and beliefs, goals and desires. Individualism is the best method for securing this, for if individuals are free, they are also free in their communities (or voluntary associations), whereas if communities take priority over the individual, then while the community may be free the individual is not (and I’m not actually sure it make sense to say that a community can be free).

Milton Friedman rightly said in his book Capitalism and Freedom that “a society is merely an agreggation of individuals.” Societies/civilizations are complex systems where the whole is greater than the sum of their parts. One of the principles of complex system is that they emerge from the “bottom-up.” I don’t think this negates Milton Friedman’s statement. Rather it reminds us that all the various institutions of society are a result of human action, not of human design. The actions of many individuals, on their own and together, has brought about all societies in their various forms. Thus, it can be said truthfully, that individualism is baked into society. When people have tried to design societies anew (such as the French and Russian revolutions), these projects have been met with disaster.

THE RICH, EYES OF CAMELS, AND ANTI-CAPITALISM

This is my first post in a while. I kind of burnt myself out trying to publish stuff everyday, plus having a newborn leaves time for little else. Nevertheless, I am going to attempt to publish articles once a week, although I’m not making any promises. I’m hoping though that with a more spread out schedule, I can publish posts that are more well thought out, better argued, and more researched as necessary.

First though, a brief thought on free markets and the anti-capitalist straw man. This is particularly a fallacy you see in progressive Christianity, but you see it elsewhere as well. Conservative fundamentalists are just as guilty when they pull out Bible verses to support their own position as well. I came across a post recently where the writer made the argument that Jesus was anti-capitalist because of the passage that it is easier for a camel to go through the eye of a needle than it is for a rich person to enter the kingdom of heaven. According to the writer, fundamentalists hate this passage because it undermines their support of the rich and capitalism, and their criticism of the poor as morally corrupt.

I don’t wish to touch how fundamentalists see the passage because many of them may see the poor as morally culpable for being poor. Such a view would be mistaken. But equally mistaken is the understanding put forward in the argument above. The argument is that capitalism is all about being pro-rich, and at the least indifferent to the plight of the poor. Assuming that capitalism can be used synonymously with free market for the purposes of the article. The free market however is completely indifferent to being rich and completely indifferent to being poor. If you want to really get to the crux of what the free market it, it is simply two or more people voluntarily exchanging goods for their mutual benefit. This assumes of course that no one would be making the exchange if they did not benefit somehow from the trade. This is almost an axiom in economics, if not a primary principle. Notice, though, that there is nothing about being rich or poor within this definition. Indeed, in the free market there is nothing inherently righteous or unrighteous about being rich or poor. Logically, these concepts are unconnected.

The context of this verse tells us how difficult it is to fully trust God when you cling so tightly to your possessions. This tells us nothing though about whether or not people should be allowed to voluntarily exchange their goods. However, what it does tell us about is the sloppy thinking of the author.

ECONOMIC GROWTH VS FOREIGN AID

“Moyo argues that economic growth is the most important factor in reducing worldwide poverty. Prosperity will create a middle class that stabilizes the country, as citizens demand a say in how they’re governed. Thus, the first steps in the development of a healthy state are not the establishment of accountable governments, transparent legal systems and more overall freedom, in her opinion. “Economic growth is the prerequisite for a liberal democracy, not the other way around.” For example, in her home continent, Africa, Botswana originally one of the poorest countries is now one of the fastest growing economies, the least corrupt country in Africa, that has little foreign aid, and has a high level of economic freedom compared to other African countries.”

Economic growth is the most effective alleviation of poverty. Much more so than redistributionary policies. And foreign aid too often ends up in the hands of tyrants.

http://blog.keirsey.com/2015/04/03/a-honest-disagreement-about-the-future/

THE GRIP OF THE EXPORT-IMPORT BANK

George Will had a good piece recently about the Export-Import Bank, and how government programs easily get their tentacles so securely in place that they cannot be removed. Politicians that were once opposed, are now in favor because of their respective constituents who draw benefits from subsidies supplied by the bank, which began in 1934 during the Great Depression as part of the New Deal.

This is what happens with so many government programs that are either outdated and need reform, or need to be scrapped altogether, but are not because of vested interests. This makes the conservative and libertarian job nearly hopeless.

LEE-RUBIO TAX PLAN

Scott Sumner, over at The Money Illusion, writes about the pros of the Lee-Rubio tax plan and why liberals should support it:

  1. Ends the marriage penalty.

  2. Ends the taxation of capital income.

  3. The corporate tax becomes based on income earned in the US, (which is the approach used by most other countries.) The rate would be similar to European tax rates. Interest would no longer be expensed. (Recall that interest income is no longer taxed (point #2), so it balances out.)

  4. Capital investments are expensed, no depreciation schedules.

  5. Ends most itemized deductions.

  6. AMT eliminated.

He also writes about how it could be made better:

Now for the supposed flaws.

  1. It’s not progressive enough.

  2. It doesn’t raise enough revenue.

There’s a very simple fix for both problems—add a third bracket! The proposal calls for a 15% rate up to $75,000, and 35% above that level (or above $150,000 for couples.) Simple solution—add a 50% rate for income above $250,000 (or $500,000 for married people.)

Keep in mind, the tax plan involves switching from an income tax to a consumption a tax. You can read the rest of his piece here.

I think just about any alternative to the current system is good. Especially one not based on income and uses consumption instead. It also gets rid of many deductions to simplify it. Unfortunately, even if it did make it through Congress the president would never sign it into law.

THIS IS ABSOLUTELY A GOOD IDEA

An Open Letter
An open letter:
GREG MANKIW’S BLOG
Greg Mankiw
Mar 5, 2015, 10:00
March 5, 2015

The Honorable John Boehner
Speaker
House of Representatives
Washington, DC 20515

The Honorable Mitchell McConnell
Majority Leader
United States Senate
Washington, DC 20510

The Honorable Nancy Pelosi
Minority Leader
House of Representatives
Washington, DC 20515

The Honorable Harry Reid
Minority Leader
United States Senate
Washington, DC 20510

Dear Mr. Speaker, Mr. Leader, Madam Pelosi, and Senator Reid:
International trade is fundamentally good for the U.S. economy, beneficial to American families over time, and consonant with our domestic priorities. That is why we support the renewal of Trade Promotion Authority (TPA) to make it possible for the United States to reach international agreements with our economic partners in Asia through the Trans-Pacific Partnership (TPP) and in Europe through the Transatlantic Trade and Investment Partnership (TTIP). Trade Promotion Authority provides for an up or down vote on these agreements, without amendments, and thereby encourages our trade partners to put their best offers on the table.
Expanded trade through these agreements will contribute to higher incomes and stronger productivity growth over time in both the United States and other countries. U.S. businesses will enjoy improved access to overseas markets, while the greater variety of choices and lower prices trade brings will allow household budgets to go further to the benefit of American families.
Trade is beneficial for our society as a whole, but the benefits are unevenly distributed and some people are negatively affected by increased global competition. The economy-wide benefits resulting from increased trade provide resources to make progress on important social goals, including helping those who are adversely affected.
Increased global economic engagement will enhance U.S. global leadership in line with our values. Indeed, trade agreements signed under both Democratic and Republican Presidents have included provisions to combat corruption and to strengthen environment and labor standards.
It is not desirable for trade agreements to include provisions aimed at so-called currency manipulation. This is because monetary policy affects the value of currencies. Attempts to penalize countries for supposedly manipulating exchange rates would thus impose constraints on U.S. monetary policy, to the detriment of all Americans.
We believe that agreements to foster greater international trade are in our national economic and security interests, and support a renewal of Trade Promotion Authority.

Alan Greenspan

Charles L. Schultze

Martin Feldstein

Michael J. Boskin

Laura D’Andrea Tyson

Martin N. Baily

R. Glenn Hubbard

N. Gregory Mankiw

Harvey S. Rosen

Ben S. Bernanke

Edward P. Lazear

Christina D. Romer

Austan D. Goolsbee

Alan B. Krueger

The letter writers were chairs of the President’s Council of Economic Advisers under Presidents Gerald Ford, Jimmy Carter, Ronald Reagan, George H.W. Bush, William J. Clinton, George W. Bush, and Barack Obama.

QUOTE FOR TODAY

Today’s quote for today is from the blog Cafe Hayek.

“from page 211 of Gary Becker’s and Guity Nashat Becker’s 1997 book, The Economics of Life:

‘Voting out crooked politicians and punishing people in business who illegally influence policies discourages corruption. Reform movements that come to power often make good for a while on their promises to clean up the process and eliminate corruption. During such crackdowns, businesses and other rent-seekers must rely on campaign contributions and other legal ways to influence outcomes.

But corruption always reemerges wherever governments have a major impact on economic conditions. The momentum behind reform movements peters out as politicians, officials, and companies become tempted once again to risk exposure and disgrace by giving and receiving bribes and engaging in other corrupt acts.

There is only one permanent way to reduce undesirable business influence over the political process: Weaken the link between business and politics. It is essential to simplify, to standardize, and especially to eliminate many of the regulations affecting economic activity.'”