I found a recent New York Times editorial by David Brooks interesting. The title was “I Was Once a Socialist. Then I Saw How It Worked.” Although, I am not necessarily a fan of the New York Times, I am a fan of David Brooks. I like his style and find myself agreeing with him more than disagreeing. He started his opinion piece with “I was a socialist in college.” He then described why he considered himself a socialist while in college. He “read magazines like The Nation and old issues of The New Masses,” and described his dream of “being the next Clifford Odets, a lefty playwright who was always trying to raise proletarian class consciousness.” Brooks then attempted to give us a definition of socialism as “what touches all should be decided by all.” He summarizes this in an economic sense as business enterprises being owned by all of us in common. “Decisions should be based on what benefits all, not the maximization of profit.” Discussing the Democratic Socialism of Sanders, et al, Brooks raises some valid points, “why do we have to live with such poverty and inequality? Why can’t we put people over profits? What is the best life in the most just society?”
Brooks, like so many before him, came to his senses. As a young man he thought that “socialism” was “the most compelling secular religion of all time.” Because it “gives an egalitarian ideal to sacrifice and live for.” I remember having those same feelings when I was college age, but then just like the apostle Paul, I matured and put away childish things. Brooks did too. “My socialist sympathies didn’t survive long once I became a journalist. I quickly noticed that the government officials I was covering were not capable of planning the society they hoped to create.”
As I read what Brooks was saying I recalled a book I read several years ago, “A Capitalism for the People: Recapturing the Lost Genius of American Prosperity,” by Luigi Zingales. In his book he tells a very similar story as Brooks and gave many of the same solutions that Brooks does to the problem associated with the negative view of our capitalist system.
In the introduction Zingales describes his awaking as being similar to, “Most of the Italian economists I know who immigrated to this country – and there are many – came to the United States as extreme leftists, in some cases as active communists.” Even though these Italian budding economists had a hatred of the American system, “the best schools were here.” Zingales describes the resulting metamorphosis, “And I’ve noticed that once they moved to the United States, they tended over time to become free-marketeers.” I find this very encouraging, and why I think capitalism is the best system for a fair and equitable society.
The evolution of Brooks emerged when he “came to realize that capitalism is really good at doing the one thing socialism is really bad at: creating a learning process to help people figure things out.” This innovation has a way for us to create a better life for ourselves. This is contrasted to how “Socialist planned economies – the common ownership of the means of production – interfere with price and other market signals in a million ways” resulting in a declining living standard. As Brooks states, “planned economies have produced an enormous amount of poverty and scarcity. What is worse is what happens when political elites learn what you can do with that scarcity. They turn scarcity into corruption.” An ultimately oppression, like we see in Venezuela.
Capitalism brings with it an improving standard of living, as Brooks states “Human living standards were pretty much flat for all human history until capitalism kicked in.” He proposes that economic freedom leads to better living standards. Nations in the top quartile for economic freedom have an average “GDP per capita of $36,770.” While those in the bottom quartile $6,140. Life expectancy in free economies is 79.4 and those in a planned economy 65.2 years. It also produces better results for the environment. “America’s per capita carbon emissions hit a 67-year low in 2017.” All of this is encouraging.
Zingales identifies several factors that were critical in the development of our American capitalist system. In the chapter dealing with American exceptionalism, Zingales describes how, “a fortunate combination of historical, geographical, cultural, and institutional factors made American capitalism different from the versions of capitalism prevailing elsewhere in the world.” To Zingales this was what made the U.S. free market successful.
To accomplish this a political system that could provide the appropriate boundaries that would allow the system to create capital accumulation but also rules to ensure a level and fair playing field would be required. The fact that democracy predated industrialization allowed for boundaries and rules. This meant the economic players could flourish. Another fortuitous event was that the government portion of GDP was miniscule. This meant that small private businesses would be the mechanism of financial prosperity and not whether you were old money or had a good relationship with a politician.
However, one of the most important elements leading to the success of our financial system was the protestant ethic for hard work. Deeply engrained in our culture was the ability and desire to work hard and experience the fruit of our labor. In some countries today you can ask young people if they are going to start a business to become successful, and they will express concern about how if they start something, and it is successful, some powerful elite will take it away from them. This is so different from what we experience in the U.S.
Both Brooks and Zingales describe a fertile and vibrant arena that has led to the economic prosperity of a capitalist system in United States. However, both argue that our system can be better. Brooks describes a capitalism that is not perfect that has led to systems of inequality. Brooks describes this, “capitalism, like all human systems, is unbalanced one way or another. Over the last generation, capitalism has produced the greatest reduction of global income inequality in history. The downside is that low-skill workers in the U.S. are now competing with workers in Vietnam, India, and Malaysia. The reduction of inequality among nations has led to the increase of inequality within rich nations, like the United States.”
Zingales focuses on the merging of our political and economic systems that lead to problematic expressions of crony capitalism. Zingales poignantly expresses this, “In a socialist economy, the political system controls business; in a crony capitalist system. . , business controls the political process. The difference is slim: either way, competition is absent, and freedom shrinks.” So, what needs to be done to ensure our capitalism thrives, and everyone participates in its fruits?
I will say I agree with both gentlemen as they describe actions needed to create a “more and better capitalism.” Brooks describes, “a massive infusion of money and reform in our educational systems.” See my earlier blog on my thoughts about education. Brooks also describes worker co-ops, which will help build worker skills, wage subsidies, so people can have hope of a better economic life. Low income people often find help, but then lose that help too soon when they make a higher wage.
Zingales describes a necessary inequality that “without some inequality, there are no incentives: people go to college and study hard not just because they love learning but also because they expect to earn more money afterward.” And describes what happens when inequality becomes too great, people lose incentive too. Zingales, also, warns how the negative impact of growing income inequality can create a negative perspective of capitalism, “Increasing income inequality is undermining the popular consensus in favor of a free-market system.”
As I have said several times, I am a Democratic-Capitalist. I believe in democracy and I believe the best economic system working in tandem with our politics is capitalism. I agree with Brooks, we can figure how to do it just a little better than we are right now. We just need the social will to accomplish it.
And that is my thought for the day!