Good Luck and Happy May Day

There are many ways of celebrating May 1 (also variously known as May Day, Beltane, and International Workers’ Day), some of which are rather more risque (and fun!) than others. A less fun option is bellowing about one’s favorite cause on the Internet. Two groups in particular drive me nuts: the Socialists and the Capitalists.  Specifically, the most extreme fundamentalist segments of both groups.

The Socialists will scream about how workers’ rights have never been at greater risk all over the world (and they’ll have a point.) The Capitalists will scream just as loudly about how if only the government would get out of their way we’d all be a lot wealthier (and they’ll have a point.) That’s actually fine. What ticks me off is when the Socialists wear clothes manufactured overseas by 10 year old girls making 20 cents a day, and the Capitalists beg or threaten their political allies to write them  checks drawn on the public treasury to cover losses for bad decisions, while they scream for their respective causes.

The hypocrisy and selective ignorance of historical fact–not to mention the energy they expend keeping themselves that way–wears thin after about 5 minutes.  It gets a lot louder each year on this day.

Anyway, I wrote an article a couple of years ago that suggested that maybe some middle road between the two extremes would be better than either fundamental position. It’s been edited and expanded a bit since then, and I’ve put it behind the cut. 

Enjoy!

Capitalism won. Socialism lost.

There, I’ve said it. Except that it’s not quite that simple. For example, the capitalists have now socialized their economies to a point never imagined by the most ardent new Dealers and the socialists are now embracing capitalism in one form or another to survive economically.

Capitalism, which doesn’t really exist in the form Marx wrote about in “Das
Kapital” or that Mises wrote about in “Human Action” anywhere on this Earth,
and probably won’t any time soon, really does work. It really does (within
certain limitations) provide more people with a higher standard of living more
quickly than any other economic strategy is likely to. Certainly it allocates scarce
resources better than any command-and-control economy that’s been tried here in
the past century. Having said that, it needs rules and their consistent and
impartial enforcement to function properly. Adam Smith recognized this, which
is what “The Theory of Moral Sentiments” is all about. He went and devoted a
couple of chapters in “The Wealth of Nations” to it just to make sure the
lessons stuck. And Smith wasn’t that original a thinker; a lot of the ground
work for his stuff was laid years before by Hume and his contemporaries. But
Smith got most of it right and presented the concept of the “invisible hand” of
the free market’s distributive properties as a coherent picture, so we remember
Smith because his ideas were accessible.

Mancur Olson said it simply (and elegantly) in “Power and Prosperity:” any
political system that provides for private ownership of property, the freedom
to contract, and the lack of predation pretty much has to do well economically.
(Keep that lack of predation—a necessity for prosperity, not an option—in mind
when considering what’s wrong modern American capitalism.)

But capitalism has problems; it divides wealth unevenly; it promotes the
concentration of capital in the hands of a few agents (notably banks and
monopolists); it is inextricably linked to the political system of the day, and
so it promotes predation after a certain point. And after predation is
considered normal, the system goes completely bonkers and breaks down except
for the few ultra-wealthy owners at the top. None of these things can be studied
in a vacuum and there’s nothing ideological about it. It’s been observed in a
number of economies for the past few hundred years. It is merely how things
work when large numbers of people trade with each other.

 The ideology that supports capitalism has problems, too.
When free-market fundamentalists talk about capitalism what they often really
are talking about is something called “Laissez Faire.” That’s a school of
thought based on the idea that only a market structure devoid of government
action can really work properly. It’s a great theory, and it looks perfectly
logical and rational on paper. Unfortunately, in real life it often breaks down
for the simple reason that people are neither logical nor rational. They are
emotional, panicky, driven by greed and fear rather than by reason, careful
analysis, or logic. It’s the greed and fear that creates market volatility,
which tends to wipe out any measure of efficiency which might have been gained across
a given sequence of transactions. Markets are not efficient because people—specifically,
the thought processes which give rise to particular behavioral patterns–are
not efficient. It’s that simple, and no clever argument or fancy mathematics
will ever change that. But that’s a good thing, when you think about it, since
it’s these same inefficiencies that gives a budding entrepreneur his opportunity
for profit, which is what drives capitalism in the first place.

Now for what capitalism is not: it is not a tradition, rule, law, regulation or
religion that insists that workers don’t have the same rights that the owners
do. It is not there for the rich and well-connected to steal from the lower
classes. It is not there to enrich the dishonest at the expense of the honest.
It is not a way to segregate people across racial or economic lines. A well-run
company pays its workers a living wage (so they can afford to buy the products and services they produce), returns services to the community in
which it resides, and encourages productivity through treating its employees
like human beings as well as improving the quality of its capital stock. Literally
anything else—brings graft, theft, exploitation and ultimate ruin.

As I said, Socialism lost. But what lost the Cold War was not Marx’s Socialism,
which described a "scientific" theory by which workers realize
they’re being exploited by their employers, organize, oust their owner-bosses,
and then take control of the existing industrial infrastructure. The logical
conclusion of the theory is where the workers then outlaw private
ownership of productive facilities and create a common-share system where
everyone is equally entitled to a share of production. Obviously, this has
never happened in any real world application, at least, not on any large scale.

I’ve always thought that Marx and Mises were kindred spirits: both were brilliant thinkers who gave people
far too much credit for being rational and logical. A person can be rational
and logical. People are emotional, egotistical, short-sighted and mentally
lazy. The truth is that the workers Marx believed could pull this off were
nowhere near as imaginative as he was. That brand of socialism does not account
for human nature, so of course it didn’t work. No student of history should be
surprised at this; certainly all the folks in what we call The West who crow
about having destroyed Socialism in the 20th century should know better. Might
as well crow about we "won" the Cold War because cold air sinks or
because water runs downhill. 

Modern day socialism, when we use the term as something descriptive rather than
derogatory, means "spreading the risks." (Modern day capitalism, in contrast, is the practice of using money to make money.) The idea is that some risk
can be shared among large groups of people, so that if one guy craps out, the
rest of us can give him a bit of a hand getting back on his feet. That’s the
idea behind Social Security, Medicare, Medicaid, Unemployment Insurance, and
all the other cool things that really do benefit everybody instead of just us
and our personal friends. These seem like old hat today but there was a time
not that long ago when these things were considered revolutionary. And there’s
a good reason that the men in charge of the country around 1935 figured they
should go ahead with it: the country was in bad, bad shape. One out of four
Americans had lost a job and couldn’t get another. A significant portion of the
saved wealth of the middle class had literally evaporated overnight as thousands
of banks and trusts went bust (there was no FDIC in those days). A
combination of interest rate hikes and tariffs made things worse and no end was
in sight. Socialism—just a little bit—was seen by the ruling class as a way to
mollify the masses so they wouldn’t erupt in open revolt. Things were that bad.
And they were that worried.

Granted, that sort of protection against rainy days is expensive to provide,
and nobody really likes to go home with a smaller paycheck so that some total
stranger can get free money. But all I can say to that is that you and I and
what friends we have, unless you’re in your 80s or older, don’t really
understand how bad those days were. And for all the fancy jerry-rigging the
government does with the economy (or tries to), there’s no rule or law that
says it can’t happen again. So maybe that insurance policy isn’t such a bad
idea assuming, of course, that we are willing to suck it up and pay for it. If
we don’t want to pay for it, then we shouldn’t complain when it’s not there.

 Also assuming, of course, that if only those fellas in
congress actually gave a shit about you or me or the people we know instead of
their political donors, maybe something would change.

Then again, maybe not . . . it’s the lack of predation that makes
capitalism (or any political system) work, and government is nothing if not predatory.

For my two cents, blindly hating capitalism shows you to be a fool. Blindly
hating socialism shows you to be a sucker. We need both, in discrete doses, and
consistently enforced rules to keep everything running as it should.

Happy May Day, Beltane, and International Workers’ Day.