New discoveries challenge the present mindframe Is capitalism moral?

Steven Pearlstein

Monday, March 18, 2013 - CAREENING from debt-ceiling crisis to sequestration to a looming government shutdown, the nation is caught up in a historic debate over the proper size and role of government. That’s certainly one way to think about it. Another is that we are caught up in a historic debate over free-market capitalism. After all, if markets were making most of us better off, regulating their own excesses, guaranteeing equal opportunity and fairly dividing the economic pie, then we wouldn’t need government to take on all the things it does. For most of the past 30 years, the world has been moving in the direction of markets. The grand experiment with communism has been thoroughly discredited, a billion people have been lifted from poverty through free-market competition, and even European socialists have given up on state ownership and the nanny state.

Here at home, large swaths of the economy have been deregulated, and tax rates have been cut. A good portion of what is left of government has been outsourced, while even education is moving toward school choice. In embracing welfare reform, Americans have acknowledged that numerous programs meant to lift up the poor instead trapped them in permanent dependency and poverty. But more recently, we’ve seen another side of free markets: stagnant incomes, gaping inequality, a string of crippling financial crises and 20-somethings still living in their parents’ basements. These realities are forcing free-market advocates and their allies in the Republican Party to pursue a new strategy. Instead of arguing that free markets are good for you, they’re saying that they’re good mounting a moral defense of free-market capitalism.

Many of those leading this intellectual campaign can be found here in Washington. Arthur Brooks, the president of the conservative American Enterprise Institute, and John Allison, the successful banker installed last summer as head of the libertarian Cato Institute, have both recently published books laying out the moral case against the modern welfare state and for even-freer-market capitalism than we have now. As they see it, regulation is an infringement of individual liberty, while income redistribution, in the form of a progressive tax-and-transfer system, is nothing more than thievery committed against the most talented and productive by those who are not. Regulation and redistribution, they contend, also undermine the vital incentives that drive capitalism, which throughout history has been the best system for freeing large masses of human beings from lives of misery and poverty. What could be more moral, they ask, than that?

The seeds of this moral defense of free markets were planted by John Locke, Adam Smith and Ludwig von Mises, but they blossomed in America in the writings of the Russian emigre Ayn Rand, whose novels “The Fountainhead” and “Atlas Shrugged” are mandatory reading among right-leaning intellectuals and politicians. Where Rand once saw a world divided between “producers” and “moochers,” today’s conservatives see “makers” and “takers.” Where she warned of an America about to descend into totalitarian slavery, they warn of a slide into socialist egalitarianism, special-interest kleptocracy and innovation-snuffing political correctness. Politically, this new moral offensive got off to a rough start. Republicans tried to make “We built it” a central theme of the 2012 campaign, capitalizing on President Obama’s awkwardly-put argument that it takes public infrastructure to create successful businesses. But that message was soon drowned out by the controversy over Mitt Romney’s videotaped complaint about the 47 percent of Americans who, by paying no taxes and relying on government handouts, have become wards of the welfare state. Americans recoiled at the elitism and lack of empathy in the candid remarks to wealthy donors, and even Romney recently admitted to Fox News that the comments “did real damage to my campaign.”

Now Obama has taken up the conservatives’ moral challenge in pressing for budgetary and tax fairness. If they mean to have a war over morality, the president seems to be saying, then let it begin here. We should welcome this debate. In fact, a big reason our political stalemate has lasted so long, I suspect, is that we’ve failed to grapple with these big, important questions. Unfortunately, many of the arguments have been a bit flabby, with both sides taking refuge in easy moralizing. The conservative case against regulation, for example, is premised on the proposition that everything that has gone wrong with the markets is the government’s fault. That’s the explanation for the recent financial crisis offered by Allison, who, before taking over at Cato, built BB&T from a local bank into a regional powerhouse. Allison’s culprits are the Federal Reserve, federally chartered Fannie Mae and Freddie Mac, federal deposit insurance, and misguided bank regulations designed to make credit available to low-income households.

I asked Allison recently about mortgage bankers who made lousy loans that they knew would go bad, and investment bankers who knowingly packaged them into securities, and ratings agencies that gave them their seal of approval. His explanation was that once a misguided government provided the wrong incentives and opportunities, such profit-maximizing behavior was to be expected in a market system a system that eventually would have punished those who were misguided or unethical if the government hadn’t foolishly bailed them out Note the Gordon Gekko-like logic here: Because pursuit of self-interest is the essential ingredient in a market system, it somehow follows that individuals and firms are free to act as greedily and selfishly as they can within the law, absolved from any moral obligations. And it’s not just in the movies. The same amorality was on display at those Senate hearings in 2010 where Fabrice “Fabulous Fab” Tourre and the team from Goldman Sachs tried to explain to incredulous lawmakers why it was perfectly reasonable to peddle securities to clients that they had deliberately constructed to default.

Free-market advocates have a stronger moral case against government “confiscating” the money earned by one person to give it to another. The traditional liberal defense of redistribution, of course, is that a lot of what passes for economic success derives not only from hard work or ingenuity but also from good fortune the good fortune to be born with the right genes and to the right parents, to grow up in the right community, to attend the right schools, to meet and be helped by the right people, or simply to be at the right place at the right time. A market system should reward virtue, they argue, not dumb luck.

—Courtesy: Washington Post

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