Saturday, June 19, 2010

Common Fallacies About Capitalism 1

On my Facebook Page I come across misconceptions about capitalism, about corporations, and about business.  From time to time I will quote snippets from such misconceptions and then apply some reason and facts to enable you to make a more accurate judgment and revise your own notions accordingly.  Here are just a few I've recently come across.

I had written:  "As to fear, Americans have considerable justification to fear zero [the Obama Administration] and his thugs in Congress for the simple reason that Congress has been voting away our individual rights in favor of a dictatorship.  This is seen most notably with the recent passage of legislation that socialized the medical industry and deprives everyone of their right to run their lives as they wish."

To which my correspondent claimed:  "The insurance companies have regulations like any industry has."

Insurance companies are heavily regulated by the states.  Their rates are regulated directly and indirectly.  The state controls the market by limiting entry and it controls the product by specifying in detail what the product is.  To take Florida as an example, if you are an insurance company you are not permitted to sell medical insurance in Florida unless the state permits it, and the state will not permit it.  The state further tells the few insurance companies who are permitted to do business exactly what must be covered in the policies they are permitted to sell.  For example, I am not permitted to buy a policy that does not cover maternity benefits or mental health benefits, even though I do not want to pay for those benefits and can have no need for them.

The purpose of such regulation is to force me to subsidize through my excessive premiums the maternity benefits and mental health care benefits the legislature has decided it does not want to pay for directly from taxes.  Essentially the state is "shifting the cost" and indirectly subsidizing favored classes of people at the expense of others. 

So your facts are wrong.  Ordinary companies selling product or services are not required to get a permit to do so from the state, the state does not limit market entry, and the state does not tell the company what it can and cannot sell.  Companies must simply abide by the common laws all citizens must follow, pay any taxes due, which is the state's main concern, and the state will generally leave the company alone.  Customers then benefit by purchasing the product or service, or the company goes bankrupt because people choose not to do business with it.  People are not forced by the state to do business with it, as they are with insurance companies.

Claim:  "Without regulations, Lake Erie would still be dead and the Cayahoga river [sic] in Cleveland would still be burning."

This statement depends on what you mean by "regulations".  The principle of individual rights requires laws, and when a geographical area is without law, it is, quite literally, "lawless."  That was the situation with Lake Erie.  The "regulations" you cite--the Clean Water Act of 1972--essentially prohibited the dumping of nutrient phosphorus.  However, the problem would have been more effectively addressed by laws written to protect private property interests.  When you have a "commons" it is a well-known and understood phenomenon that unless the people who use the resource are permitted to develop informal or even formal rules for its use and disposal you will put into motion incentives that ultimately destroy the resource.

It is clear, for example, that current regulations do nothing to prevent dumping of raw sewage into these waterways and Lake Erie itself from public, not private, sources.  52 communities within the Lake Erie Watershed Basin, ranging from small towns like Avon Lake, to the larger metropolitan cities including Toledo and Cleveland, have 598 combined sewer overflow outfalls, or pipes, that feed into the waterways that lead into Lake Erie, or directly into the Lake itself.  An analysis of 38 of the 52 communities that dump untreated sewage shows that these communities dumped more than 10 billion gallons of sewage into the Lake Erie watershed in 2005 alone.  This is equivalent to more than 3 billion toilets flushing into Lake Erie--a drinking water source for more than 11 million people.  Combined sewage overflows are a major cause of beach advisories, wildlife destruction, and human death problems.

If private property rights were clearly defined in the Lake Erie Watershed Basin, Americans would have recourse to the courts to sue local and state governments to compel behavior from them that respected private property rights in Lake Erie.  But we do not have those protections because people have been mislead to believe that government "regulations" are protecting them.  Government typically does not monitor itself, doesn't sue itself, and, in fact, generally does everything it can to mislead and hide its malfeasance, just as ordinary criminals do.  This is another reason why the state should be separated from the economy as much as possible, i.e. a society based on laissez-faire capitalism, rather than the mixed economy of socialistic and fascistic controls with some freedoms also allowed.

Claim:  "BP didn't follow what scant regulations on drilling and we see the results."

Oil drilling activities are among the most heavily regulated in the country.  The facts are that the United States prohibited safe drilling on land and shallow water by fiat, forcing companies into the far more riskier deep water.  The government even gave oil companies incentives to drill in deep water and the current administration even exempted BP from having to meet its own regulatory standards.  In addition, the US specificially praised BP's platform, the one that blew up.

The outrage does not stop there.  Because of US regulations, BP was insured for only $75 million beyond the cost of any cleanup.  If BP had to get its insurance on the private market, instead of having the government insure its operations, that limit would have been far higher, the premium would have passed on through the chain in the form of higher production cost and the market would have substantially determined whether or not it was economically feasible to take such a risk.

The US government socialized the risk to BP for political reasons.  Such events happen when you have a mixed economy.  The solution is not more "regulations" but getting the government out of the the private sector so that it can provide the one thing it is qualified to provide the market:  clear liability laws that protect the people whose lives and property are being put in jeopardy.  We can't abolish risk, but we can insure against accidents.  When the government encourages risky behavior, rewards corporations for engaging in risky behavior, and then socializes the risk for risky behavior to further encourage it, how can the government be absolved of any responsibility?

Claim:  "The insurance companies are just leaches off the medical needs. It is not in any way single payer nor are these companies restricted. Hell, they wrote this health bill which sucks because it doesn't include an individual's right to bypass the insurance monsters who love to drop sick people and refuse to insure those with pre existing conditions."

You are misinformed.  As Adam Smith used to say, the tailor does not make you a new suit of clothes because he wants to see you well turned out; he turns you out in the best suit of clothes because he wants to feed his family and otherwise provide for his own economic needs.

Insurance companies are owned by stockholders, just ordinary people, looking to make some money by providing a service, a service that most people appreciate.

When government interfers with the private market, it initiates the use of physical force to compel people to behave in ways that oppose their own rational self-interests, and thereby corrupts the relationships between buyers and sellers, making them hostile.

People trade values voluntarily for mutual advantage, by definition, for otherwise they would not trade.  When government forces sellers to sell what they don't want to sell, and forces buyers to buy what they do not want to buy, government creates hostility, bad feeling, injustice, and sets up incentives for buyers and sellers to game the system in order to get what they want.

The fault lies not with the buyers and sellers, but with the government for intervening in the private economic activities of citizens.

Claim:  "Pray tell what individual rights have been removed since Bush/Obama?"

Perhaps you will accept just one example, since there is not enough time or space to list them all here.  The recently passed legislation that socializes the medical industry will have the effect of abridging the right of the people to seek medical care and to provide medical care as they wish.  Doctors will be forced to provide services and patients will be forced to accept services neither of them wants in precisely the way that they want them.  The government in this legislation establishes bureaus that will decide on what services doctors may provide and what services patients may receive, independently of the wishes of the doctor or patient.

The abridgment of individual rights, of course, occurs in some measure to some degree any time the government intervenes into the free market.  The medical industry was very heavily regulated prior to the rise of the Regime, a situation that created the manifold number of difficulties and injustices the new law pretends to resolve.  However, government intervention always creates many new problems that then require more government intervention, ad infinitum, until government comes to manage every aspect of life and no freedom remains for the individual.

Most everything the critics said of the new law, and denied by its supporters, is coming true as the regulations are put into place or proposed.

Claim:  "That bad memory lives on in the financial disaster we all are living thru [sic]. We and our government let billionaires play games with OUR money and homes. Capitalism sucks."

Your facts are wrong.  The system we currently have is very different from a capitalistic system.  Under capitalism, people have rights and the government does not have the legal power to abridge people's rights.

For example, in a free society (i.e. a capitalistic society) government would not have the power to force a citizen to pay the debt incurred by other citizens, as the current Regime has done in regard to the so-called "bailout".

Claim:  "AND your definition of socialism is not accurate. You describe communism."

Socialism commonly means government ownership and control of the means of production, i.e. all property.  Fascism commonly means government control of the means of production, but technical "ownership" remains in the hands of private citizens.  Communism commonly means government ownership and control of the means of production.

Socialism and communism mean the same thing.  The term "communism" has come to be associated historically with Marxism-Leninism, and the sorts of totalitarian governments that arouse under those politicians who identified as such.  However, there is really little to justify saying one is, in any particular, different in kind from the other.  For example, liberals greatly admire Fidel Castro and the murderous thug Che Guevara, and both these infamous sociopaths considered themselves socialists.  Liberals never tire, for example, in extolling the manifold virtues of the Cuban health care system, or the wonders of its education system.


rj said...

We'll go one at a time, Tom! Let's begin with your last entry, concerning the definitions of economic systems.
According to your own prose:
"socialism" = government ownership and control of the means of production
"Communism" = government ownership and control of the means of production
"fascism" = government control of the means of production, but technical "ownership" remains in the hands of private citizens

I beg to differ on all of these definitions, as they simply do not comport with the accepted universally-defined definitions for those terms.
Communism and Socialism do not have the same meaning, or their dictionary entries would be identical. Fact: the terms simply aren't analogous, and to insist that there are no differences is disingenuous, though I can readily see how you use them interchangeably in order to demonize ANYTHING that we do for ourselves, absent the profit motive, as "communist", in the finest McCarthy-ite tradition.
Fascism, as fairly benignly defined in your post, actually is defined as: "a radical and authoritarian nationalist political ideology. Fascists seek to organize a nation on corporatist perspectives, values, and systems such as the political system and the economy".
I believe that the benign definition of fascism was entered to deflect attention to the fact that what you espouse, "a radical and authoritarian nationalist political ideology, organizing the United States on corporatist perspectives, values, and systems such as the political system and the economy" is, actually fascism, and you'd really like to avoid that label, even though it most closely aligns with your ideology.

I am not a communist, nor am I a socialist, nor am I a fascist. I can readily see the faults in every economic system. I am not blind to the fact that capitalism, as practiced in the United States, has huge flaws. One such glaring flaw is that capitalism keeps a permanent percentage of Americans unemployed. Our system does this for two reasons: 1) a permanently unemployed class provides a large pool of incredibly cheap labor, which leads directly to point: 2) a huge pool of unemployed Americans depresses the overall real wages of the American worker.
It's all about balance, Tom. Fascists clearly do not respect labor, and look at workers as a necessary evil, rather than as partners in a capitalistic venture.
There is no balance in a system wherein corporatists hold all of the cards and have all of the political power (and are purchasing the votes of politician after politician to keep their predatory system in-place).
We will always have a hybrid economic system in this country, much like those in virtually every other advanced nation. As capitalism is our "chosen" economic system, we cannot wear blinders and ignore the short-comings of said system, and that's where public programs like unemployment insurance(termed "socialist" in nature by yourself) step in.
We become flaming communists at our own peril, just as we become flaming fascists at our own peril...

Tom Anderson said...

According to the Oxford English Dictionary, the primary definitions are these:

Socialism - A theory or policy of social organization which aims at or advocates the ownership and control of the means of production, capital, land, property, etc., by the community as a whole, and their administration or distribution in the interests of all.

Communism - A theory which advocates a state of society in which there should be no private ownership, all property being vested in the community and labour organized for the common benefit of all members; the professed principle being that each should work according to his capacity, and receive according to his wants.

The OED, unfortunately, offers only a circular definition for fascism. If we turn to Merriam-Webster, we find:

Fascism - a political philosophy, movement, or regime (as that of the Fascisti) that exalts nation and often race above the individual and that stands for a centralized autocratic government headed by a dictatorial leader, severe economic and social regimentation, and forcible suppression of opposition; 2 : a tendency toward or actual exercise of strong autocratic or dictatorial control.

I have chosen to focus on the conceptual identity of these different forms of totalitarianism, and ignore the historical peculiarities. I do this for purposes of clarity only. I do not deny that Mussolini's Fascists differed in important respects with Hitler's Nazis and that they, in turn, differed from Stalin's Communists. For example, the Nazis were racists, the fascists and communists were not. All were highly nationalistic, all made war on their own citizens and enslaved their subject populations.

Tom Anderson said...

I do not agree with your comments on capitalism. In my view, capitalism is simply the spontaneously arising order that occurs among free people when force and the threat of force has been abolished from human relationships.

Unemployment must always arise among free human beings since individuals make choices that end some relationships and begin others. If I decide to buy a Toyota rather than a Ford, or to hold on to my old clunker for another year, I am making choices that in the aggregate profoundly affect the number of people, for example, who are employed by Ford or Toyota, or by local repair shops who will see an increase in business. So long as we are human and have the ability to make choices, there will arise a discontinuity between what a businessman can plan for and what the reality turns out to be. If he is a good businessman, his plans will be highly accurate. If he is a poor businessman, he will misjudge the market, lose money, and he may even go bankrupt if his mistakes are large enough.

Unfortunately, we also have a fractional reserve currency that distorts the judgments people make, as was seen in the recent housing boom. When government actions corrupt the value of currency they greatly distort the information the price mechanism is able to provide investors, investors make investment decisions based on inaccurate price information and a boom results, to be followed by a bust, or deflationary cycle. During this time, historically, we have had high unemployment, since it takes so much time for good information to once again be available to investors and they get up the courage to take further risk and invest in profit-making businesses that incidentally create jobs for the unemployed.

Under a free capitalistic economy, however, where government's actions are strictly prohibited from intervening into the private economy, such adjustments would be quite rapid, first because the maladjustment wouldn't be that serious since the government would not be controlling the currency, and because we'd then have a free labor market, where wages could decline sufficiently for there to arise full employment, really quite rapidly.

In the United States today we have a mixed economy that is speeding very rapidly toward a hybrid fascist/socialist system of state administrative control of all aspects of economic, social, and cultural life. We do not now have laissez-faire capitalism.