• Tag Archives capitalism

  • The Anti-Capitalists Are (Still) Wrong about History—and Much More

    Posted on by Azrael Comment

    The [American] Dream is not dead, and we shouldn’t let a populist scream convince us otherwise. Americans living today have every reason to be optimistic—and grateful.

    – Michael Strain, American economist

    Capitalism has become the preferred whipping boy of those calling for more government involvement in markets. The statists love to begrudge it and the wealthy wokes love to downplay it. Whether it’s income inequality or the growing power of big tech, “late capitalism” is a term employed by those who would like to eliminate or greatly reduce private ownership and usher in an era of redistribution.

    But is capitalism really in its final gasps? And if so, where are we headed?

    The notion of late capitalism has been around since Karl Marx began his assault on free enterprise in the 19th century, although the term was officially coined by German economist Werner Sombart in his 1902 book Der Moderne Kapitalismus. Marx believed that the proletariat would eventually revolt against the bourgeoisie due to the angst created by inequality and exploitation. For him, one of the most egregious injustices was wealth inequality. He believed private property was a major driver of inequality, effectively insulating the wealthy from giving workers their fair share.

    Sound familiar? Senator Sanders has an entire policy trove of bad ideas built on the premise that wealthy Americans have exploited workers by weaponizing their possessions (property) for their own malignant greed.

    Those suggesting capitalism is in its final throes assume two things:

    1. Economic inequality equals injustice
    2. The existence of  economic inequality means that capitalism must be replaced

    Unemployment in the United States is currently at the lowest level it has been since the 1960s. Not only is the economy creating more jobs, but wages are growing. And consider this: “wages for the bottom third of workers have risen at a 4.1 percent annual pace over the past two years versus 3.3 percent for the middle third and 3.6 percent for those at the top.”

    Workers are in such demand, especially in industries like healthcare and education, that an increasing number of companies are offering incentive packages to defray the cost of moving to a new job. When we consider the income mobility of Americans, with 95 percent of those at the bottom 20 percent not being there in 15 years, it becomes clear that wealth is transient in a market economy, providing a pathway for many to pursue the American Dream.

    It’s important to note that regulatory and tax reform play a role in reducing wealth inequality. To be sure, nothing will create absolute wealth parity in a free market (nor should it), but the effects of deregulation and tax reform are instructive. Economist Michael Strain notes that from the start of the Great Recession until 2016, “inequality decreased by 7 percent” after accounting for taxes and transfers.

    As the government’s demands on business and personal wealth are reduced, employers feel more comfortable investing in expansion, leading to more jobs that in turn create a demand for additional labor. This makes workers more attractive to prospective employers, bolstering job seekers with a competitive environment that enables them to be choosier employees.

    Despite the free-market’s ability to create a more level playing field, however, some types of inequality will continue to exist. Economist Thomas Sowell notes that there are many contributors to inequality, saying, “there was never a reason to expect equality. [There are so] many different complicating factors, cultures matter, demographics matter, regions matter.”

    For example, the average life expectancy of a man that lives in the mountains is a decade less than one that lives in the Virginia suburbs. Inequality is even evidenced in seemingly superficial matters, such as physical attractiveness, athletic aptitude, and musical ability. Not everyone can play like Patrick Mahomes or sing like Adele.

    There are few things more professionally distressing than seeing your hard work and earnest efforts thwarted by a system designed to quash competition. Unfortunately, this is the type of approach many protectionists on both the left and right take when it comes to economic policy. Through onerous regulation, occupational licensing restrictions, minimum wage laws, price controls, tariffs, and more, it can feel like the deck is stacked against you.

    By contrast, free enterprise is liberating and creates opportunity. The spread of capitalism and the promotion of free markets has led to a substantial decline in extreme poverty. In the 1980s, approximately 40 percent of the world’s population lived in extreme poverty. Today, that figure is 8.6 percent.

    Even authoritarian regimes, like China, recognize the importance of limiting government intrusion in markets if they hope to be competitive in an increasingly globalized economy.

    Capitalism has proven to be the best vehicle for economic justice for the marginalized and impoverished. Why would anyone want to deprive the poor of the mobility free enterprise affords?

    If we look to public trust as an indication of capitalism’s viability, look no further than business, which holds “a massive 54-point edge over government as an institution that is good at what it does,” according to the Edelman Trust Barometer. It’s also worth noting that US economic confidence is the highest it has been in nearly 20 years.

    No, capitalism doesn’t appear to be going anywhere anytime soon. Instead of statists thumbing their noses at capitalism–oftentimes suggesting governments intervene–they’d be wise to exhibit a little intellectual humility and take a lesson from the efficiency and dynamism of the private sector.

    The data is indisputable. Capitalism has been the primary driver of economic flourishing and innovation for nearly three hundred years, catapulting individuals, societies, and nations into levels of prosperity that were previously unfathomable. Capitalism respects the agency of people and communities, recognizing that they should be able to freely associate and trade as they see fit. Free market capitalism honors the natural right to private property.

    But, even beyond these principles and big ideas, the practical matter is that so long as humans value prosperity, opportunity and innovation, capitalism won’t fade away. Free enterprise offers technological innovation that make products smarter, lighter, cheaper, and use less material.

    Capitalism creates, socialism destroys.

    Moving from free market capitalism toward a command economy is neither moral nor responsible. So long as free people choose action over apathy and liberty over serfdom, capitalism will continue to offer individuals the opportunity to pursue the American Dream.


    Doug McCullough

    Doug McCullough is a corporate attorney at the Texas law firm, McCullough Sudan, and is a director of the Lone Star Policy Institute. Doug is a co-host of The Urbane Cowboys, a podcast on policy, society, and innovation. He is a National Review Institute Regional Fellow and Better Cities Project Fellow. He is a regular contributor to Foundation for Economic Education, and has been published in Entrepreneur, The Hill, Washington Examiner, Arc Digital, Houston Chronicle, and San Antonio Express.

    This article was originally published on FEE.org. Read the original article.


    📂This entry was posted in News and Politics 📎and tagged

  • My Response to Time Magazine’s Cover Story on Capitalism

    Posted on by Azrael Comment

    [Editor’s note: The following is in response to the cover story, “How the Elites Lost Their Grip,” by Anand Giridharadas in the December 2-9, 2019 issue of Time magazine.]

    The inventor of the now-famous “Overton Window,” the late Joseph P. Overton, was my best friend and a senior colleague at the Michigan organization I headed for nearly 21 years (1987-2008), the Mackinac Center for Public Policy. The Window postulates that at any given time, public policy options are framed by public opinion. Politicians who operate within it can get elected or re-elected, while those who offer proposals outside of it run the risk of public rejection. Move the Window by changing public opinion, and what was previously a losing proposition can then become politically possible.

    The Overton Window concept is the springboard Anand Giridharadas uses in his recent Time article. He suggests that anti-capitalist candidates and proposals are now winning because the Window has shifted toward socialism.

    While I appreciate the personal citations of both Joe Overton and me in Mr. Giridharadas’s article, I’m compelled to point out a few of its questionable assumptions. In doing so, I feel like the proverbial mosquito in a nudist camp: I know what I want to do, but it’s hard to decide where to begin.

    Let’s start with the article’s assessment of the Democratic race for president. Polls showing that capitalist uber-critics Senators Bernie Sanders and Elizabeth Warren are “top contenders” are proof, Mr. Giridharadas suggests, that his wishful thinking about socialism is valid. This is a “window” that seems to have shifted markedly in the short interval between when the article was written and when it was published.

    Warren recently put a price tag on her Medicare-for-All fantasy, a policy that would ban private health insurance. Her support collapsed. Sanders is languishing in third or fourth place, nowhere near the support he had going into the last Democratic convention. All the talk now is about how the rank-and-file are fleeing to the center.

    Mr. Giridharadas points to the rise in membership of the Democratic Socialists of America—from 5,000 members in 2016 to at least 50,000 today. But that’s still half the membership (113,000) the Socialist Party claimed at its all-time high, which was in 1912. The Libertarian Party’s membership today is 10 times larger.

    Among young people, the story that Mr. Giridharadas completely misses is the explosion of membership and activity among groups friendly to liberty, private enterprise, and free markets—organizations like Young Americans for Liberty, Students for Liberty, Young Americans for Freedom, Young Americans Against Socialism, Turning Point USA, and the one where I serve as president emeritus, the Foundation for Economic Education. If Facebook following is any sign of relative popularity, it’s notable that the Democratic Socialists’ presence on that social media platform is a tiny fraction of that for those pro-capitalist youth organizations.

    If I were a socialist, I’d be worried that these and similar organizations are where the genuine and lively intellectual ferment is. While the Left seems absorbed in suppressing debate, these groups are quietly broadening discussion and nurturing the next generation of thought leaders.

    Meantime, reports the Pew Research Center, public trust in the government stands at historic lows. Pew finds that “Only 17% of Americans today say they can trust the government in Washington to do what is right ‘just about always’ (3%) or ‘most of the time’ (14%).” Mr. Giridharadas would do the American public a real service if he pointed out that this is the same government on which socialists want to bestow more power and money.

    Socialist rhetoric always scores higher than socialist policies, and both score much better than socialist outcomes. Telling people they’re entitled to free stuff, or assailing the rich generally, appeals to a certain number, but those figures shift when rhetoric meets reality. This is one reason nobody—socialists, least of all—is conducting any polling in Venezuela.

    The worst assumption in Mr. Giridharadas’s article, however, concerns what capitalism really is. Implicit throughout is his belief that capitalism is nothing more than cronyism, whereby the rich use political connections to line their pockets.

    Mr. Giridharadas ignores the fact that those of us he would surely label as pro-capitalist are just as much against cronyism and corruption as anybody, and likely more so than any socialists are. We understand that the answer to cronyism and corruption is not to give government even more power and money. We support not some corrupted, capitalist straw man but genuinely free markets, limited government, private property, and the rule of law. When will mainstream media learn this distinction?

    Moreover, to those of us who appreciate this distinction, the pursuit of money is not the principal objective in life. Critics of capitalism suggest endlessly that it is, but that’s infantile. The case for capitalism rests on something far more important than material wealth. It is not refuted by the occasional bad eggs who misbehave (socialism, by the way, produces bad eggs by the bushel and never creates anything resembling an omelet).

    The case for true capitalism is a moral one that’s rooted in human nature and human rights. To create wealth and add value to society through invention, innovation, entrepreneurship, production, and trade is a birthright. One cannot be fully himself—or even fully human—if he must live his life and conduct his affairs according to the dictates of those with political power. It speaks volumes that capitalism is what happens when peaceful people are left alone; socialism, on the other hand, is a Rube Goldberg contrivance with a lousy track record fueled by envy and class warfare.

    I’ve known a few business people who do indeed seem to worship “the almighty dollar” and will gladly cut corners or get in bed with government for money’s sake. For every one of those, I’ve known a hundred who are in business for the exhilarating fulfillment they derive from creating useful products, solving problems, and meeting the needs of happy customers.

    The Overton Window is a remarkable tool for understanding the connections between ideas and political reality. But it matters that those who invoke it do so with clear thinking, proper definitions, and no axes to grind.


    Lawrence W. Reed

    Lawrence W. Reed is President Emeritus, Humphreys Family Senior Fellow, and Ron Manners Ambassador for Global Liberty at the Foundation for Economic Education. He is also author of Real Heroes: Incredible True Stories of Courage, Character, and Conviction and Excuse Me, Professor: Challenging the Myths of Progressivism. Follow on Twitter and Like on Facebook.

    This article was originally published on FEE.org. Read the original article.


    📂This entry was posted in News and Politics 📎and tagged

  • Don’t Blame Capitalism for Surging Student Debt and High Tuition

    Posted on by Azrael Comment


    studentdebt

    American college graduates are suffering financially under the weight of $1.5 trillion of student loan debt. The bulk of that debt stems from worrisome federal student loan practices and ballooning state tuition costs. Approximately 75 percent of college students attend a state university or college with tuition rates set by legislatures or state institutions. Over 85 percent of student loans are generated under the federal student loan program. In the past three decades, tuition at state colleges has increased by 313 percent.

    Oddly, some seem to blame “capitalism” for the student loan predicament. Ray Dalio, billionaire investor, cited massive student debt loads in a recent article that made the case for reforming capitalism. Presidential Candidate John Hickenlooper penned an op-ed for the Wall Street Journal boldly proclaiming he is running for president to save capitalism. The very first point in his argument is that (public) high school education doesn’t provide adequate training for the modern economy. Anecdotally, we have heard the federal student loan predicament conflated with capitalism.

    The pain of student debt is real. Sadly, there are many adults burdened by thousands of dollars in loan debt. Khalilah Beecham-Watkins, a first-generation college student and young mom, is one of many who feels as if they’re a prisoner to student loan debt. Khalilah has been working to pay down her $80,000 debt while helping her husband tackle his own loan obligations. In an interview last year, she said, “I feel like I’m drowning.”

    As is well-reported, many young adults feel like Khalilah. In the United States, the average student loan debt is more than $37,000. As unsettling as that figure is, some graduates face even higher debt loads. About five percent of degree earners have student loan debt totaling $100,000 or more. Stories like Khalilah’s need to be told so that students don’t flippantly take on crushing debt without recognizing the gravity of such a decision.

    This significant debt load is exacerbated by the fact that many graduates are finding it difficult to find well-paying jobs, which has spiraled into incredibly high rates of loan delinquency: More than one out of every 10 loan recipients is unable to keep up with payments. The Brookings Institute estimates that nearly 40 percent of borrowers will default by 2023. These are sobering statistics, and it’s important that borrowers be fully aware of the risks and benefits associated with debt of all kinds, including student loans.

    Despite the burden that comes with debt, there are undeniable long-term benefits to earning a degree. In our skills-based economy, it is no surprise that a person with a bachelor’s degree will earn significantly more than a person with only a high school diploma. It has been estimated that a bachelor’s degree increases a person’s average lifetime earnings by $2.8 million.

    And the more degrees someone holds, the more their earning potential increases. Studies indicate that earning a graduate degree could triple a person’s expected income. But in the near-term, the financial stress of loan delinquency, deferred consumption, and lower net worth is real.

    While the buck ultimately stops with each of us when it comes to our own financial decisions, the student loan quagmire is chiefly the product of federal policy. Federal laws prohibiting sound commercial lending practices and states setting tuition rates high enough to guarantee they’re able to absorb all the federal money they can are complicit in this widespread problem.

    Rather than addressing the underlying problems of federal financial aid and rising public college tuition, politicians like Senators Elizabeth Warren or Bernie Sanders are offering politically expedient ideas. Sen. Warren proposes debt cancellation of up to $50,000 to more than 42 million people.

    Sen. Warren’s plan would eliminate debt for 75% of borrowers with student loans, and federal funding to ensure students attend state college for free. But nothing in life is free. Warren’s sleight-of-hand doesn’t make existing debt or future tuition magically disappear. Rather those costs are passed on to taxpayers. And since college graduates earn roughly twice as much as high school graduates and can expect to be in higher tax brackets, guess who would be paying the taxes for Sen. Warren’s plan.

    To understand the federal student loan mess, it is necessary to understand some details about the loans that are at the center of the issue. The federal government provides a few types of loans, but the largest share of student debt comes from subsidized and unsubsidized federal loans.

    In the case of a subsidized loan, the Department of Education pays the interest on the loan while the student is in school and for six months thereafter. A student can qualify for this type of loan whether or not they are creditworthy or have the ability to repay the loan.

    In typical commercial lending, a bank would not offer a loan to an individual who didn’t hold a reasonable promise of being able and willing to repay it. This harkens back to 2008 when the US housing market collapsed because of irresponsible lending practices and the belief that everyone—no matter their financial situation—should own a home. It should be no surprise, then, that some economists predict a similar implosion of the student loan market. In other contexts, this would be called predatory lending.

    The second contributor to these financial aid troubles is ballooning state college tuition rates. State legislatures and state institutions set public college rates, so these state officials should be held accountable to provide lower-cost alternatives. One lower-cost alternative to traditional on-campus programs would be to offer a basic skills-based college curriculum online at-cost, i.e., based on the marginal cost of providing downloadable lecture videos and similar programming.

    While the total cost to a student of an online degree currently tends to be less than a traditional degree, the tuition is often the same. By offering video of select classes, schools could unlock the value of their existing educational resources and expand access to more students. However, state schools are largely immune from market discipline, which encourages cost-cutting and leveraging economies of scale. Instead of reducing operating costs and tuition prices, state schools soak up the flow of federal loan dollars.

    On the finance side, state universities could offer their own alternative to federal student loans. Take, for instance, the market-oriented model of Purdue University and offer income sharing agreements (ISAs). Income sharing agreements allow consumers to pay off a debt by sharing a portion of the student’s income with the lender for a set number of years. Instead of a loan, ISAs allow investors to take “equity” in a student’s future earnings for a period of time.

    The problem with the financial aid predicament is that market discipline has been eliminated from state college education and federal financial aid. Public colleges aren’t going to be privatized and run like for-profit businesses any time soon. However, by applying market-based innovations and lessons from the private sector to state colleges, it may be possible to expand access to state college, offer alternative financing arrangements (like income sharing agreements), and reduce the cost of college through technology and economies of scale.


    Doug McCullough

    Doug McCullough is Director of Lone Star Policy Institute.

    This article was originally published on FEE.org. Read the original article.

     

     


    📂This entry was posted in News and Politics 📎and tagged