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Minyan Mailbag: Has Capitalism Passed the Test?

By is not perfect but I don't see a better system that is working...


You must define your terminology of "working" and "not working." For whom? For how long?

Saying that "
capitalism is working" or that it has "passed its test" is sweepingly broad; so broad that without definition and evidence, it is simply sentiment.

You've read Scott's, John's and Todd's comments about the growing chasm between the few at the top who control most of the wealth and the far greater masses below whose wealth is diminishing as the middle class disappears and the underclass grows. Reconcile that with your assertion.

Read John Phillips' "The Politics of Rich and Poor" and especially "Wealth and Democracy." There are trajectories of wealth and democracy in all modern empires (he studied the Dutch, Spanish, British and American empires). We fit the last stage of empire to a "T." Wealth is increasingly flowing to fewer and fewer at the top through paper instruments and controlled by military force while democracy withers as the middle class erodes into the massive lower and under classes.

This is "passing the test?"

It would be perhaps more accurate to argue that when power is centralized such that the masses are not able to influence those whose decisions are adversely affecting their lives, then no matter what the model (communism, capitalism, feudalism...whatever), it fails to "pass the test."

People should not be afraid of their governments. Governments should be afraid of their people.

Minyan Rosalyn

Minyan Rosalyn,

You are raising some interesting issues. You have to differentiate between the political system and the economic system. The efficacy of our political system is open for debate. I won't participate in this debate as I can add very little value to it. I'm happy about some things and less happy about others. I'll stick to what I know (or believe I know) best: economics.

How long should one wait?

The timeframe is extremely important in this discussion. One has to be willing to take a longer view. Capitalism is creative destruction, thus some industries will go through the "destruction" phase and when they do we have to tie our hands and do nothing, as this is the price we pay for Adam Smith's invisible hand destructively reallocating resources. This "do nothing" approach will be very painful for some in the short run as people will be losing jobs, moving and retraining; but that is the cost of progress.

In the 1970s, the U.S. lost a lot of high paying jobs in the steel industry to the Japanese. The U.S. steel industry was heavily unionized and inefficient. Japan, on another hand, was a lot more technologically advanced when it came to steel production and thus more efficient. If we stopped the Japanese from supplying steel to the U.S. (which I am sure many politicians tried to do), the U.S. economy (and U.S. consumers) would have paid for it in the long run as cheap steel has helped to jump start many industries (i.e. cheaper cars, office buildings, etc.). I am sure people felt bad for the steel workers and wanted to protect them from those "who were stealing our jobs," but the right thing to do was the hard thing to do; we had to put our hands behind our backs and "do nothing."

How do we know if our economic system is working?

If we were to open our borders and allow our citizens to leave this country and go to any other developed country like France, Germany, Italy, Canada, Great Britain, Switzerland etc., and allowed citizens of those countries to come to the United States, we'd have a huge influx of people (I excluded developing nations from this example as it would introduce political elements into this discussion such as people looking for political and religious freedom). Look at what is going on in France.

The strict labor laws prevent employers from laying off workers. Once workers are hired, after a certain period of time (used to be 30 days, then it was moved to 2 years, recently it has been changed to 1 year) they cannot be laid off--employment for life. Basically the whole of France (and a bulk of Europe) function akin to the U.S. Postal Service--the employment for life place. We know how efficient that organization is. The strict, employer-unfriendly labor laws stop job creation and suck the creative destruction out of the economy. France tried to "protect" its workers and it created 10% plus unemployment, the U.S. is not trying to "protect" its workers and unemployment is less than 5%.

I've talked to many companies that will not expand to Europe because they cannot lay off workers during economic slowdown. Companies will not try new concepts in Europe because once you are in you cannot get out. If you want to lay off employees, you have to pay them very high, uneconomical severance packages. The rest of the world wants to be the U.S.--we've got the best thing going. We have overleveraged and overspent consumers, but it happened because people are confident in the future. We have higher birth rates for the same reason. Europe will be going through incredible demographic change as its birth rates continue to decline over the long term.

Let's take our northern neighbor, Canada. People are coming from Canada to the United States to have surgeries done. Why would they do that? They have a "free" medical system. Well, instead of allowing capitalism's "invisible hand" to run their medical system they have let the government mess with it. What happened? Doctors don't get paid as much as doctors should. They go to school for a long time to have their wages set by the state, not the free market. Thus, there are not enough doctors. A couple of years ago I read a WSJ article saying that unless a patient has an emergency it takes months to see a doctor.

We've got a good thing going, it is not perfect but I don't see a better system that is working.

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