Tag: Capitalism

You Can’t Peddle Prosperity

Ilya Somin makes a great point on the Detroit bankruptcy:

Detroit’s sixty year decline, culminating in its recent bankruptcy, has many causes. But one that should not be ignored is the city’s extensive use of eminent domain to transfer property to politically influential private interests. For many years, Detroit aggressively used eminent domain to promote “economic development” and “urban renewal.” The most notorious example was the 1981 Poletown case, in which some 4000 people lost their homes, and numerous businesses were forced to move in order to make way for a General Motors factory. As I explained in this article, the Poletown takings – like many other similar condemnations – ended up destroying far more development than they ever created. In his prescient dissent in Poletown, Michigan Supreme Court Justice James Ryan warned that there was no real reason to expect that the project would produce the growth promised by GM and noted that Detroit and the court had “subordinated a constitutional right to private corporate interests.”

Eminent domain abuse certainly wasn’t the only cause of Detroit’s troubles. But the city’s record is a strong argument against oft-heard claims that the use of eminent domain to transfer property to private economic interests is the key to revitalizing economically troubled cities. In addition to the immediate destruction and dislocation caused by such takings, they also tend to deter investment by undermining confidence in the security of property rights. One of the main findings of recent scholarship in development economics is that secure property rights are an important factor in promoting long-term economic growth. As economists Daron Acemoglu and James Robinson put it in their much-praised recent book Why Nations Fail, “secure private property rights are central [to development], since only those with such rights will be willing to invest and increase productivity” (pg. 75). Detroit is an abject example of what happens when policymakers ignore this reality.

Always remember: the lot that the Supreme Court let New London boot Suzette Kelo out of ended up vacant. And the specialized tax breaks New London gave Pfizer left Pfizer packing the second they expired. These “big deals” to bring in businesses never work because if locating a business there was such a hot idea, the businesses wouldn’t need eminent domain, special tax breaks and subsidies.

But pay close attention to Somin’s second paragraph about how eminent domain and other attempts to “promote” businesses undermine the very basis of the economic system. In that respect, this is just another form of crony capitalism. Connor Friersorf today discussed this in a different context. He references an NYT article about how Goldman moves around giant piles of aluminum to take advantage of government regulations on the price. It nets Goldman billions while harming the economy by making aluminum artificially more expensive. There are innumerable ways in which this is happening — private industries using government loopholes and regulations to become rich without actually doing anything.

Preventing this sort of thing ought to be a high priority for anyone who wants to see free-market capitalism succeed in America. So long as our economic system resembles what Adam Smith described — the profit motive benefiting everyone, as if by an invisible hand — much of the American public can be counted on to support politicians who campaign as unapologetic capitalists, even if people are rewarded unequally, based on the value their labor is producing.

But if “capitalism” starts to be associated in the public mind with Wall Street profiting by deliberately slowing down industrial productivity (or with Mitt Romney making millions by buying companies and gaming the tax implications of shuttering them), Americans are not going to support capitalism. They’re going to regard it as a rigged system that only profits wealthy insiders.

In the short term, Republicans and Democrats alike benefit by allying themselves with the wealthy insiders. Like the GOP, President Obama has benefited from Wall Street money. But in the longer term, enough stories like this New York Times scoop will destroy Republicans, because rhetorically, they’re the ones insisting that the market is beneficial and more or less fair, even as a transparently corrupt financial sector consumes a larger percentage of the overall economy.

Crony capitalism is the antithesis of free-market capitalism. It is similar to what Adam Smith was writing against.

But, as Detroit shows, it doesn’t even have an economic benefit. Detroit, like New London, ended up with nothing for all their seizures, subsidies and graft. Is that the model we want for America? Because it’s certainly the model we’re pushing.

Post Scriptum: Now if you want to see someone get it totally wrong on Detroit, enjoy.

Eat The Rich

Envy, there is a reason why it is one of the 7 deadly sins. Like rose colored glasses, it distorts your view of reality, but in a bad way. And like leg irons, it can hamper any progress you might make in improving your own station in life. But it also can be comforting, when used to assuage your own miserable failures or lack of any industry, coddling yourself with the notion that whatever the rich obtained, naturally they were ill gotten gains, robbed off the back of the proletariat.

Interestingly, the Bay Area, probably the single birth place for the most wealth created in the world, has become obsessed of late criticizing the rich and their peculiarities. No doubt fostered by that OWS mentality, that view of history where America is dominated by a greedy kleptocracy that exploits the remaining 99%, reaps most of the spoils for itself, and cleverly avoids paying it’s fair share of taxes, monies BTW that the rest of us are entitled to. Yeah, it’s pretty crazy. But it goes well beyond the casual interest the hoi polloi have with the hoity-toity, this is not fascination, it’s much more insipid.

Two stories in the news of late have riled folks (those folks susceptible to getting worked up), over perceived excesses of the rich. The first is here:

In Marin County, Calif., where people tend to have money, people in Belvedere tend to have more. Even so, a recent decision by Clark and Sharon Winslow of 337 Belvedere Avenue to buy the home next to theirs for $4.2 million — and then tear it down to get a better view — might seem extraordinary.

Naturally there are some that believe the rich must run their financial decisions through them:

I don’t mean to pick on them. (OK, a little.) The One Percenters are constantly pulling stunts that could be seen as arrogant, self-absorbed, wasteful, unjust, mean and, well, loopy. But what things seem are not always what they are. The problem is the One Percenters don’t explain themselves. They’re rich and explaining themselves is one of the many things they don’t have to do because they are rich.

How dare those rich snobs don’t explain themselves, don’t poll the consensus for all their financial decisions. For some the concept of private property is lost and the freedom to spend your money any damn way you want seems radical and antithetical to the common good. I’m still trying to figure out how this act is “mean”, considering that they bought the house on the open market, no duplicity or coercion involved. But I chuckle at these so called champions of the common man, how they think nothing of putting their nose in others’ affairs, and can inject hair trigger criticism over stuff that is none of their business. It is obviously lost on this chowder head that jobs are being created and sustained by the demolition, that turning this lot into a garden is more environmentally friendly, more green, and that this couple’s actions are benefiting the rest of the neighbors, thus improving the entire community.

The other spur under the saddle of the resident busy bodies is a recent real estate purchase of another local bazilionaire, Larry Elison:

Larry Ellison, the billionaire chief executive of Oracle Corp., ORCL -0.89% was identified Wednesday as the buyer of the bulk of the Hawaiian island of Lanai.


The Maui News reported that the asking price for the property was between $500 million and $600 million.

Ellison could be in his own Old Spice commercial. The epitome of the American Dream, a self made billionaire who works hard, plays hard, dates super models and lives extravagantly, and yes, he pays his fair share of taxes. But buying an entire island? Clearly this goes beyond the pale, what can one man possible do with his own island? Thus, all the bellyaching.

The concept of capitalism is hard for some folks. Some can hide under the blanket of self pity and point fingers at the exploitative upper crust, but economic dynamism is a marvelous thing. Entrepreneurial risk taking and the rewards of success (and the heartbreak of failure, when the government will allow economic Darwinism) is the name of the game, that whole risk/reward dichotomy that is essential for true capitalism. Allowing those so inclined to risk, to get rewarded for that risk, this is the true growth engine for real prosperity, not only for more jobs all around but for a better standard of living, for everyone.

Question the motives…

Janet Delay has an article in the Telegraph, one that greatly mirrors my thinking on the subject, where she asks “why the lessons of communism and its fall have not been learned“. Seriously, why so many people still believe that there are “other” systems that are better and fairer than capitalism, after communism proved without a doubt how command economies – any economy driven by government for that matter – are abysmal failures, should make everyone do a double take. From her piece;

The fall of the Berlin Wall and the collapse of communism which followed it are hugely important to any proper understanding of the present world and of the contemporary political economy. Why is it that they have failed to be addressed with anything like their appropriate awesome significance, let alone found their place in the sixth-form curriculum?

The failure of communism should have been, after all, not just a turning point in geo-political power – the ending of the Cold War and the break-up of the Warsaw Pact – but in modern thinking about the state and its relationship to the economy, about collectivism vs individualism, and about public vs private power. Where was the discussion, the trenchant analysis, or the fundamental debate about how and why the collectivist solutions failed, which should have been so pervasive that it would have percolated down from the educated classes to the bright 18-year-olds? Fascism is so thoroughly (and, of course, rightly) repudiated that even the use of the word as a casual slur is considered slanderous, while communism, which enslaved more people for longer (and also committed mass murder), is regarded with almost sentimental condescension.

Is this because it was originally thought to be idealistic and well-intentioned? If so, then that in itself is a reason for examining its failure very closely. We need to know why a system that began with the desire to free people from their chains ended by imprisoning them behind a wall. Certainly we have had some great works of investigation into the Soviet gulags and the practices of the East German Stasi, but judging by our present political discourse, I think it is safe to say that the basic fallacies of the state socialist system have not really permeated through to public consciousness.

By now it is only the most hardcore of marxists that still has the gall to publically tell the lies and make excuses for the failure of communism. Telling people that real communism has never been put into practice, that communism failed because the wrong people where in charge, or one of my favorites, because evil capitalism undermined it and doomed it to failure, is a sure fire way to end up being made fun of by most sane people. And yet, in circles on the left, as this author points out, Fascism – another disease of the left that the left was quite successful at convincing many was right wing, when nothing could be further from the truth: fascism is rooted in socialism – is a dirty word, the worst kind of slander you can label someone with, but communism, calling someone a communist, does not result in a similar response. Considering communism killed and imprisoned far more people than fascism ever did, it baffles me that the class warfare mantra that is part & parcel of these collectivist ideologies, has not been discredited, once and for all.

Command economies fail because they are driven by people at the top that neither have a clue about the needs of people below them, as individuals, nor the angelic predisposition needed to obviate the unavoidable degeneration into a tyrannical state every single state to embrace communism went through. Communism fails because it basically is an attempt to create heaven on earth. To make these collectivist paradises work free would need to be eradicated. As Winston Churchill put it:

The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.

The truth is that there is no in between. If a totalitarian system like communism could not address the inequalities that so bother the class warriors, then what can? Was the ruling class not totalitarian enough? Seriously, is there any way short of the eradication of free will to overcome the human factor and thus redress the injustice these people claim drives them to keep fighting against a capitalist system? Why then do so many still glom onto the crap Marx cursed us with about a classless society? Why have we not discussed communism as it should have been discussed and put in its proper perspective?

The argument that the left leaning segment of our political class was too invested in this nonsense to allow this discussion about the failure of communism to take place, sure makes sense, but after communism produced such abysmal failures, so much suffering with the inequalities becoming even more pronounced, not less, why do people still remain proponents of the system or parts of the system?

Someone motivated by the need to do good and that went along with this Marxist nonsense, then realized half way there that it was doing no good at all, and actually instead was causing great harm – and communism caused great harm – would stop what they were doing. Wouldn’t they? Wouldn’t you? Yet, our disciples of the teachings of Marx seem not at all fazed by the harm communism has caused or causes. There isn’t even an inkling of doubt or shame with the class warriors. There is injustice, and government – one that looks a lot like the communist government – MUST address it. That great harm was the only result when their beliefs have been put into practice is excused with a plethora of insane arguments. Their claim to be demanding a redress to the injustice they dislike, doing good, should remain wholly and totally suspect. Communism was totalitarian and the most likely system to do what they preach. Yet all it did was inflict misery, on a grand scale, while millions where murdered, to produce a system that history shows us only exacerbated the inequalities.

If that’s the left’s way of meaning well, I am sure we can do without that. But if one where to believe, like I do, that these class warriors were driven by something else, like envy and jealousy of what others have, then it would not matter whether communism worked or was a complete failure. People driven by envy and jealousy would remain true to the cause regardless of how horrible communism was. After all, despite what they claim, they are not hoping to do good: what they are hoping to do is strike at those they dislike. And that is why I think we have not had our discussion about how evil communism and the underlying beliefs that spawned this ideology are: the end goal was never a classless society, but to get the people they dislike. As the soft collectivist states now also see their system collapsing expect more totalitarianism akin to that of the old communist states. The state will take what it wants to keep itself going, until it can go no more. And they will keep telling us they are doing to address all these injustices only they can address.

Any way you spin it..

I am sure that the usual suspects in the LSM have to be heart broken by the results of this USA Today poll about whom Americans blame for the depressed economy. Here is how the USA Today writer tries to salvage the day:

Most Americans blame Wall Street for the nation’s economic predicament — but they blame Washington more.

And in the democracy that fancies itself the capital of capitalism, more than four in 10 people describe the U.S. economic system as personally unfair to them. A USA TODAY/Gallup Poll taken last weekend, as the Occupy Wall Street protest movement completed its first month, found that:

Oh hell! Only 4 out of ten people are good enough to believe the left’s idiotic talking points. Erm, that’s not entirely accurate either. The author is seriously embellishing. It’s a poll, and it’s a poll conducted by a member of the LSM, so I am sure the questions where seriously skewed to illicit the response they wanted, and even then, the numbers are far worse for the “Blame Wall Street” class warriors as the next statement shows:

•When asked whom they blame more for the poor economy, 64% of Americans name the federal government and 30% say big financial institutions.

So 64 out of 100 say blame government. Only 30, or 3 out of 10 – not the 4 this author would like you to believe unless you want to talk the 6% that voted “present” into the later group out of desperation – blame those evil corporations. And that’s despite the following revelation:

•Only 54% say the economic system is personally fair to them; 44% say it is not.

I will stress how funny I find it that the economic system seems to be the fairest to people that work hard and avoid the usual pitfalls, short-cuts, and bad decisions that lead to economic problems. There are exceptions of course, but they are just that: exceptions.

The last reported pair of statistics makes me wonder. This author hopes to confound people by again combining the results in such a way that it leads one to believe the opposite of what the study finds. Here you go.

•78% say Wall Street bears a great deal or a fair amount of blame for the economy; 87% say the same about Washington.

I feel that you have to interpret this obscenely weird cobbled result, which otherwise adds up to numbers over 100 as the result of 2 sets of questions. Obviously the first part deals with a question where they illicit people to lay blame on Wall Street, but it looks like they are combining two buckets, fair amount and great deal, to achieve that higher, close to 8 in 10 if you want to go there. However, if you assume they did the same and combined those 2 buckets like they did for the wanted the high answer for, when added up based on a question directed at D.C, the amount is 9 out of 10 blaming D.C. the most. No way to spin it: most Americans understand the root of the problem.

I wish they had asked people if they thought letting government write more regulation to address the problem so many see with Wall Street would put an end to the problem or just make it worse. My guess is when the problem is posed showing this relationship for what it is, all but the dumbest would think that handing government – the people that have wrecked the economy according to the majority – even more power, will not fix things. Some people seem to get it, even if you have to read through the nonsense to see it.

“You see the frustration that there’s some serious things wrong with capitalism in America, but you also see the conundrum — how do we change it?” says Terry Madonna, a political analyst and polling expert at Franklin and Marshall College in Lancaster, Pa. “This crisis coincides with a huge debate over the role of government.” He says some of the 64% who place primary blame on Washington fault it for too little government regulation, while others blame it for too much regulation.

First off, the problem isn’t capitalism at all, but government trying to subvert capitalism to the onerous beliefs one group of ideologues have that it’s government’s job to level the playing field, social engineer results so we all cross the finish line at the same time, and that it is an injustice that life isn’t fair to some people. I could add how obvious it is that the people life is the least fair to tend to be the ones that do the dumb things, but I expect that to be obvious.

And yes, the big problem we have is that the same ideologues that feel government should pick winners & losers, to make life fair, are never going to understand/accept that the best way to roll this problem back is to roll back the power and ability of government to rig the system, so those “evil rich” whom now have to come to the politicians to buy privileges – look at who gets excluded from travesties like Obamacare for example, and by whom – from them, can’t do that anymore, by drastically reducing government and the power of what government can do.

As we can see the usual suspects are already advocating for giving the politicians even more power over who wins and who doesn’t, and they will be the ones complaining the loudest when this has exactly the opposite effect that they are hoping for. Queue the next crisis due to social engineering followed by politicians promising to fix it all if they are given even more power.