August 18, 2010

A Capital Idea

Hatched by Dafydd

I find it simultaneously astonishing and predictably believable that even today, August 18th, 2010, the great majority of the commentariat, the political establishment, and the people themselves -- no to mention the financial mavins and captains of industry! -- have no idea in the world what Capitalism is or how it works.

Believable because, having suffered through the public school system in Southern California, I know just how dreadful government education is (and quite deliberately so), particularly on economics... which, if it's taught at all, takes its cue from the deplorable a People's History of the United States, by Communist Party member and Chomskyite Howard Zinn. (Even if a People's History isn't directly taught in middle school or high school, that book is the source is nearly all the economic "knowledge," or rather factoids, of middle-school and high-school teachers. However, there is a Young People's History of the United States, adapted by Zinn from the deranged original. From little ACORNs do mighty orcs grow.)

And hardly a surprise that multinational corporations are violently protectionist, anti-market, and anticapitalist; it's a natural fallout of Lizardian Lemma 1: The bigger a corporation becomes, the more it resembles a government.

CEOs envy and crave the power of the State to tax the citizenry and spend the stolen loot how it pleases. And as much as possible, boards of directors ape the high-handed fiduciary corruption of their imperial mentors in the government.

Still I find the ignorance of and antipathy against Capitalim astonishing... because properly understood, a vigorous, free-market capitalist economy is better in the long run than the modern-day robber-baronism, the corporate-government "partnerships" and payoffs -- better even for the robber barons themselves! The thesis is not hard to understand; liberty, both political and economic, has produced a world where even the hundreds of millions of lower-middle income workers live better, more fulfilling lives than did the kings and emperors of the Middle Ages.

I don't demand we all have the deep understanding of Capitalism of a Steve Forbes or a Rubert Murdoch; I certainly don't. But the core-basic principles are understood today as poorly as they were in the midst of the Great Socialism-Driven Depression of the 1930s, and much more egregiously misunderstood than they were in the 19th century. A hundred years of liberal government re-education camps, with no child left behind, has worked diabolical wonders of ignorance and paranoia against economic liberty.

The first source of my headshaking... the bizarre notion that savers should be punished with higher taxes:

Figures recently published by the Commerce Department show the mostly upper-income households that hold stocks earned $169 billion more in dividends since 2007 than previously estimated. Much of that money was stowed away in savings, helping drive the personal savings rate to 6.25 percent earlier this year -- the highest level in decades....

The Obama administration -- despite its calls for people to save -- has seized on the number, with Treasury Secretary Timothy F. Geithner stressing that extending Bush-era tax cuts for the top 2 percent of earners would not be a good way to provide stimulus to the economy.

"The top 2 percent are the least likely to spend those tax cuts, certainly not in comparison to the 98 percent of Americans who make less than $250,000 per year," he said. "While they would surely welcome extended tax cuts, its not likely to change their spending habits."

Let's boil this down to a talking-points memo:

  • Rich slackers aren't spending enough money to "stimulate" the economy.
  • Instead, they're hoarding their Bush tax cuts, "socking away" tens of billions of dollars that should be put to use in the economy.
  • The fact that they're not spending their tax cuts proves they didn't need them in the first place.
  • So we should raise taxes on rich people so we can "stimulate" the economy the right way, our way... which has worked out so beautifully in the last couple of years!

Wait... what exactly does the Left mean by saying rich people "socked away their money?" The impression given is a Princess-and-the-Pea-sized stack of mattresses, all stuffed with thousand-dollar bills; swimming pools of gold doubloons; entire mansions built from solid gold, like Scrooge McDuck might have!

The reality is rather more prosaic, and it belies the very premise upon which the Left (Democratic, Progressive, and Republican) bases its economic theory. When we say the rich "socked away their money," we really mean they invested it -- in stocks and bonds, real estate, small businesses, and of course in banks... banks that turned around and lent out much of that $169 billion to those of us lower in the economic spectrum, so that we could buy houses and cars, and via credit cards, items too pricey to be purchased with what's in our wallets at any moment.

The take-away is this: Rich people's money is not hoarded or out of circulation; it is invested directly in our economy, and indirectly via banks and S&Ls. That money is stimulating our economy far more that any corrupt and command-directed government program. The "socked away" money of the rich is the only thing keeping our economy afloat... and the only thing keeping the vast majority of Americans working.

Second depressing article, merely because it reaffirms Lizardian Lemma 1 above. In an article primarily about the new collusion between so-called "greens" and labor unions, we stumble across the following:

Despite protests on the impact of imports from China on its industry, the paper giant Kimberly-Clark "has announced that they will expand their manufacturing facilities in China," according to a briefing paper from the Washington, D.C.-based Economic Policy Institute, "No Paper Tiger." Yet in Australia, Kimberly-Clark's subsidiary KCA has taken the Australian government to court to force the introduction of green-trade restrictions on imports from Indonesia and China.

Alas, this example is the rule, not than the exception; giant corporations think nothing of whining about anti-competitive tariffs when they want to import products from abroad, then even more loudly demanding the government slap an 80% tariff on their foreign rivals' imports. Multinationals especially have no desire to compete in the free market; they demand laws forcing their competitors out of business!

And of course, there is always a friendly, reliable congressman or senator to sponsor just such protectionist legislation... in exchange for, shall we say, a couple of million to the politician's favorite PAC? (It's largely irrelevant whether the subsidy to corporation A or the huge tax on competitor B is in the form of an earmark or just a regular amendment to the bill; the problem is government interference in the market, not the precise mechanism of that interference.)

The Left has nothing but fear and loathing of free-market Capitalism, but so does the corporatist, whether Democrat or Republican. But each unwittingly hurts himself by creating or fostering an anti-competitive environment, in which profit depends entirely upon pull, schmoozing, and who you know, rather than on how good a product you sell and how much you sell it for. The whimsical nature of profit and loss in such a world makes it virtually impossible accurately to predict sales and revenue, because you never know who is going to be up and who down in the next couple of years. That hurts everybody, even the narcissist who doesn't care who he hurts, because he imagines he's profiting from the chaos itself. Ironic, isn't it?

In Schmoozeworld, the legal intrepetation of the law changes whenever the pendulum swings; what was de-facto legal yesterday is unambiguously criminal tomorrow. Because it's not the actual legal words but the way the administration interprets them that has shifted (in response to more and better lobbying by different lobbyists), amoral, anti-market corporatists often abruptly find themselves in la calabooza, convicted of imperfect precognition of how the legal environment would shift in several years time.

We desperately need to get back to a truly capitalist system, including:

  • Economic liberty without the constraints of endless regulation and punitive taxation.
  • Laws strictly forbidding the government from taking sides in legitimate competition between different companies.
  • Laws preventing the government from buying companies and going into business, or else partnering with some private or quasi-private company. Given the State's "superuser" power to set, then reset the rules by which all other actors play, it is literally impossible for such acquisitions or partnerships to avoid the appearance of impropriety; and it's nearly impossible to avoid actual impropriety itself.
  • And a court system that takes contracts seriously, takes private property seriously, and that takes seriously the mano a mano competition within the free market; a court that desires neither to hinder it nor "help it along," but only adjudicate disputes.

The market is a bias-free medium meant to facilitate a "meeting of minds" between buyer and seller; it was never meant to be a government-owned monopoly that picked and chose who would be allowed to sell and who excluded for insufficient payment of tribute.

We conclude with a short parable in which is contained all wisdom.

When Sachi was in college back in the early 19th century, she took a Sociology class. During the course, the professor engaged the class in a fascinating and illuminating experiment.

  1. Every student in the experiment was given the same number of "dollars" at the start.
  2. Everyone then engaged in a complex series of business transactions, in which it was possible to win, lose, or stay at roughly the same monetary level; some randomness was involved, but skill also played a role.
  3. At the end of that series of transactions, the "richest" 20% of the class -- eight students -- was segregated into a special area of the room. In addition to those who earned their way there, one student not already in the upper group won a "lottery;" he too was put into the ritzy area of the classroom, making nine in all. Sachi was one of the upper group (not the lottery winner), but she insists it was due more to luck than skill.
  4. Before the second round of transactions, the professor told those students in the upper-income group (including the lottery winner) that they could change the rules of the transaction game any way they chose.
  5. The uppers discussed proposed rule changes in a different room. Of the nine students, three argued that the rules should remain exactly the same for the second set of transactions, even though that meant the uppers might very well fall down the socioeconomic ladder.

    Three more argued the opposite: That they should change the rules to ensure the uppers would always win. One illuminating observation was that the lottery winner, the only person in the uppers who didn't earn his way there, was in this "cheater" group.

    The third group was somewhere in between: They wanted to change the rules so that the uppers had some advantage in the second-round transactions (contra the first group), but not an absolute lock on winning (as with group two).

    Sachi was in this third group... and she admits today that the fact that she believed, rightly or wrongly, that she was only in the upper group because of luck played a large role in her decision to join the third group, giving all the uppers some advantage but not an iron grip on power. She was afraid that in a fair competition, she would lose the next time and be cast down among the rabble.

  6. The uppers finally voted to go with the third group, the ones saying "some advantage but not a lock on power." Presumably the lock-on-power group realized they couldn't prevail, so they joined the some-advantage group to outvote the no-changes group.
  7. But when the uppers came back and announced the new rules -- the rest of the class refused to continue the game, got up, and walked out: They refused to participate when the rules of the game were changed in the middle of play.

It was an amazing effort for a small college in a suburban area, where one would ordinarily expect a deluge of liberal indoctrination. But the results should be eye-opening.

  • Most of those on the top have a natural impulse to change the rules to keep themselves right where they are.
  • But not all of them: A significant minority want strict fairness, while another significant minority is willing to tolerate a little cheating but not utter tyranny.
  • Finally, nearly everyone has an inborn rejection of changing the rules to his disfavor... and he rightfully reacts with extreme measures when he senses it happening.

I believe the American people have sensed that Obama, the national government, the special-interest favorites, and the biggest corporations are conspiring to change the rules -- to the people's disfavor... and the rest of us are reacting by refusing to play and leaving the room.

You can see it in the polls, in the reactions at townhall meetings (when the anticapitalist incrumbents deign to show up), and in the rallies and protests mounted by Tea Partiers and other members of the popular front against socialism. The pot has boiled over, the lid has blown off, and we're going to see a volcanic eruption at the polls in 76 days.

It will be raining electoral lava and liberal ashes; so grab your asbestos brolly and make ready to mount the battlements. It's long past time to cap the progressivist-socialist-corporatist oil spill and set the Wayback Machine to the days when competition was cut-throat but played under fair rules, with no invisible foot of government stamping on the scales. And if you can wade your way through that big, muddy morass of mixed meaphors (and the big fool says to push on), perhaps it will give you some cheer.

Hatched by Dafydd on this day, August 18, 2010, at the time of 11:11 PM

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