Some myths about capitalism prominent on the left, involving the Chicago boys, privatization, cronyism, progressivism and greed
Myth #1: Capitalism is unpopular with ordinary people and popular with certain elites in business and the DC policy world. Free-market reforms can therefore only be implemented through trickery. Naomi Klein has authored just this argument in her infamous Shock Doctrine: The Rise of Disaster Capitalism (2008). To give but one of many possible examples, Klein willfully quotes remarks by Friedman out of context, making a sociological remark of his look like a nefarious plot to spring surprise capitalism on the innocent, unsuspecting People. (See exposes of her shameless arguments and revel in the gullibility of her readers in The Agitator, Friedman Facts, Reason and even The New Republic.) It is simply untrue that the liberalizing (i.e. pro-market) reforms of the past three decades were undertaken in secret or behind publics’ backs, in countries from Ireland to Iceland to China to Mexico.
Myth #2: The free-market corner of the modern Right has been in bed with authoritarian governments consistently in the 20th and 21st centuries. This is because, according to this myth, what advocates of free markets really want is corporatism or at least cronyism, that is, they say they want freedom but they are really just shills of the rich, or at least friendly toward the rich and powerful. By this account, the free-market right is mendacious or hypocritical, for they say they want freedom for all but really want wealth for a few. (This myth has been a hallmark of opposition among some people at the University of Chicago to the creation of an economic research institute named in honor of Milton Friedman.)
This myth shifts the political logic: Advocates of political and economic freedom see opposition between political control / regulation and personal freedom. Their opponents on the left effectively reject the freedom position all together. For them there is only control, which can either be public or private.
Naturally, public control of large-scale institutions (whether industry, natural resources, firms, financial institutions which play a major role in the flow of credit) seems better to many people, according to the civics you learn in high school and mindlessly relearn and repeat until in your mid-20’s you realize the world doesn’t quite work that way. That civic model of publicness is the brand of a normative program invented by the progressives a century ago, a program to use the state’s police power to do things like regulate health and workplace safety conditions. Opposed to this seems to be the darkness and secrecy of the private sphere, since people like you or me or businesses are not required by law to tell most people what we are doing most of the time. But anyone who has lived for a few years in a major American city like New York, Detroit or Chicago knows, upon two seconds of reflection, that municipal governments are hardly transparent or accountable for their actions. State governments are mostly just as bad; just ask Elliot Spitzer. And the national United State government? Please.
Possibly the worst part of this canard is that is assembles a kind of Frankenstein monster of a pro-economic freedom / anti-political freedom character, namely a principled position of supporting freely-floating prices in the market place while wishing to be society’s jailer as it were at night. Let people work for competitive wages during the day, and then let an authoritarian regime control prohibit freedom of speech, communications, assembly, ideas, religion, and indeed choice of government itself.
Just to be clear, the great liberal and libertarian thinkers of the 20th century like Hayek and Friedman were anything but political authoritarians. I can speak a little better to the case of Hayek, but I am convinced by the material linked in above, and from reading Friedman’s Capitalism and Friedman, that the same is true of him. When I talk to people who say that luminaries like Friedman or Hayek were economic liberals but political authoritarians, or sympathetic to or tolerant of authoritarianism, then I seriously doubt that they have read either author. See for yourself, and ask for examples. Both of these guys thought that both political and economic freedom were crucial to leading a full human life, and that it was either impossible or crooked to try to have one without the other. After all, at the end of the day, who owns the printing press? If the government controls all of the television stations, will they let you run programs critical of the government onthe air? If the government is the sole employer, will the opposition get jobs? And so on. It’s also just theoretically difficult to separate economic and political freedom. I don’t think that either of these Chicagoans tried to do so, and I tend to agree with them that you shouldn’t try. In fact, you should get concerned whenever someone does try to separate political and economic freedom, because it probably means that he wants to get rid of one of them.
Myth #3: Excesses of capitalism (”chaos,” capitalism “run amok,” etc.) led to the economic recession we’re in.
One reason that the thinking reader should reject this frame is that it does not use the term capitalism in a meaningful way. What is capitalism opposed to–socialism? How can something defined as one end of a binary pair have more or less extreme forms? It’s even more not-socialism? Do we use the basic Marxist concept of capitalism which, shorn of its tomfoolery, basically means price-competitive, innovative industrial production? How can lots more price-competitive, innovative industrial production be a bad thing? (After all, it’s been decades since anyone could seriously worry that capitalism would lead to permanently declining real wages for “workers”, whatever “workers” are exactly. Empirically, this has just not been the case. Real wages have risen steadily for decades in the U.S.)
But maybe some people subscribe to a more careful version of this myth, along the lines that it was excessive deregulation of financial markets which led to this mess. While I cannot pretend to understand all of the factors which have contributed to the current condition, I am sure of one thing: It had many causes.
(Generally speaking, beware of people who come along and offer simple causes–especially one simple cause, one smoking gun, a discrete group of villains, or one simple solution.)
Here are two causes I have read about: 1. A huge number of bad loans were made by banks. 2. Bad and insufficient rules governing some specific areas of the financial sector, such as the rules about mortgage-backed securities and credit default swaps, and rules governing how investment banks got ratings agencies to get their investments rated.
The very short version of this banks/lending story (mentioned first) was that banks were not so much stupid as much as greedy. Fannie Mae and Freddie Mac assured banks that they would take over risky loans, and they did. Fannie and Freddie were semi-public corporations, meaning extensions of the United State government in some way. Viewed from this angle,the banks could say, hey, this is a policy decision, although jeeze probably a bad one. We’ll do what they want, if they want to pay us to make bad loans. And indeed, since the Community Reinvestment Act of 1977, Congress has been pushing ways for governments federal and local to in effect give money to credit-risky people to help them buy houses and start businesses. By no stretch of the imagination is this a capitalistic idea, unless you count anything involving the use of money or laws affecting borrowing and lending, and indeed government lending itself, to be capitalistic. But this only begs the question of what capitalism is. If capitalism were so broadly defined, then what would not be capitalistic? Philosophical conversation in a desert? Prayer?
Another problem with this notion that “excesses of capitalism” or of “deregulation” led to the recent economic problems is that it is articulated as a problem of excess or shortage: There was too much capitalism, perhaps too much greed. There was too little oversight. Some people (the bosses) were paid too much while other people (the workers, especially those at the bottom of the totem pole) were paid too little. Remember that one? A few years ago in the heyday of market highs and endlessly rising home values, this was about the only purely economic or purely financial critique that the Left could trot out.
Beware the simplifcation of this myth, which goes: The problem was that Wall Street was too greedy. Here the left’s mythical feel-good dichotomy is: private greed vs. public, progressive statecraft. With this comes the very fire with which the Obamanites are now playing, which goes: Someone needs to know when to say when — to say when executive salaries are too high, when a bank or industry is too big to fail, when an investment is too risky to make, when something is safe enough to do. The beauty of the marketplace is that these decisions are made all the time by many, many risk-taking, betting, competing, accountable individuals in a pluralistic environment. And each business-leader is there at the suffrance of his investors. Barring force and fraud, or lazy lack of oversight, if he makes a mistake or engages in unremunerative risky behavior, they’ll get rid of him. (If Obama does it, the South Side of Chicago will march right off the cliff with him. Sixty years after the Great Depression and New “Deal”, most Americans have swallowed the myth that FDR’s policies combated the Great Depression. It’s closer to the truth to say that his anti-business policies turned a crash and a recession into a destructive cataclysm which he needed a war to get out of. Luckily he found one. If Obama bets and loses, he saddles you and me with $4 trillion in debt which cannot possibly possibly possibly be paid off.)
I’ll cut to the chase: The problem was not excessive greed as such. After all, in ordinary markets, sellers price things which they want to move attractively. If you want to move it move it fast, you make it very attractive–a fire sale, a bargain. The incentive is greed. That’s why we have the charming, positively-valued expression “I got it for a song.” If I go to Target and buy lots of housewares which I believe I need and think (know) that I save a pretty penny rather than buying them in Hyde Park, do you criticize me for my greed? If I invest in Microsoft in 1980 because I think that Bill Gates’s business plan is great, is my greed a problem? Isn’t it rather a solution to a problem, namely Bill Gates’s problem of how to raise the money he needs?
So what was this greed on Wall Street which was too much, too excessive? I think that the problem here is again that people of the left have swallowed the old progressive chestnut, the polemical contrast between public-spiritedness and private greed. That contrast cannot account for why big private greed (self-interest, interest for one’s family and people) can be good in some circumstances and bad in others. A more useful contrast is between good law and bad law, good rules and bad rules. I will have to come back to this at a later date, but in a nutshell, the heroes of my narrative will be Friedrich Hayek, Bruno Leoni, Hernando de Soto and Harold Berman. Tune in next time! Same Bat Time, same Bat Channel!
