Entry 2083, on 2020-10-21 at 21:51:22 (Rating 2, Politics)
Read this blog going back almost 20 years and you will see a slow transition in my political beliefs. In the past I was quite anti-capitalist, and had fairly socialist views, but more recently I have had become more libertarian, and now understand that implementing socialism (at least in most of its forms) results in inevitable failure.
I certainly aren't an extreme libertarian, but other people are, and one of the most extreme is Peter Schiff, who is is an economist, financial broker and dealer, author, and guest on US news shows.
He recently did a 3 hour session on Joe Rogan's podcast - which turned into an epic rant - promoting pure libertarian capitalist views. There was nothing in particular which would lead a reasonable person to doubt what he was saying, except one thing: most of his points were presented in terms of pure theory, and I think things might have moved on since then.
I have commented in the past about what I see as the differences between traditional economics, and the more modern form: behavioural economics. Essentially, the way I see it, the big difference is this: in traditional economics the participants in the system are seen as rational operators who make decisions based on their own best interests, but in behavioural economics the people involved are viewed as more flawed and often likely to act irrationally.
And that's where pure free market capitalism might fail. But before I discuss whether I think it does or not, I would like to go through some of Schiff's points.
First, he claims that people in a capitalist system succeed when they provide useful goods or services for others. But many of his own activities might be fairly criticised as providing nothing outside of the system itself. In other words, he manipulates the intricacies of capitalism for his and his clients' benefit.
Here are some examples of those services: broker-dealer, investment advisor, financial services provider, asset manager, precious metals dealer. I'm not saying that these aren't real services, just that they ony have value within the system he is defending, making the argument somewhat circular.
Also, there are many organisations which struggle to fund themselves even though, by any reasonable standard, they are very valuable, and there are others who have plenty of money even though their value is highly doubtful. My favourite example here is that the Coca Cola company spends more money on marketing sugar water than the medical research community spends on cancer research (I checked those numbers a few years back and they were correct then).
Often this "value" judgement is based on a very circular argument. A company makes a lot of money because they offer something of value. And how do we know it has value? Because it makes a lot of money! This is clearly a deeply flawed rationalisation.
Second, he claims that the government can never provide genuinely useful services, and is inevitably inefficient, corrupt, and inflexible. There is certainly a lot of superficial data supporting this view, because government waste is a widely accepted phenomenon. But the claims of these negative outcomes might more accurately be assigned to large organisations of every sort, because the operations of large private companies often feature those exact problems, although probably to a lesser extent than governments.
But there are cases where government run services might be the only option. The cancer research example I gave above is one candidate for this, because research which only provides products or services which can be monetised after years of investment costs, or might not ever provide those outcomes, is difficult to justify in a capitalist system.
Third, he claims that most of the problems which capitalism is blamed for are really the result of government interference, and that more freedom for capitalism is required rather than more government imposed restrictions.
I think this is undoubtedly true in many cases. Governments are infamous for creating perverse incentives which cause adverse effects. Various benefits discourage people from seeking work, for example, and subsidies essentially arbitrarily encourage some activities at the expense of others.
An example that Schiff likes to quote is government imposed minimum wages. He claims, probably with some justification, that minimum wages disadvantage the exact people they are designed to benefit. An employee has a certain value to a company, and if that person has to be paid more than what they can contribute why would anyone hire them?
In theory that is hard to argue against, but in practice we would have to ask whether having to accept very low wages might result in a "race to the bottom" where one company offering lower wages might result in a general lowering in the entire economy. After all, companies don't pay people for all that they can contribute; they pay what they are worth minus as much as possible which goes towards the company's profits.
Finally, there is the observation that socialism is generally equated with kindness, and capitalism with greed. This attitude is encouraged by many popular sources, such as movies. The catch-phrase "greed is good" is very well known, for example.
But the great lie of socialism is that it is generous. The government doesn't really produce wealth. Sure, it can print money, but that is not wealth. And any money it does have has come from someone else. How often do we see a "generous" government giving away vast amounts of money? Especially in the COVID era, we see that a lot, but the money generally comes from exactly the people it is being given to (or it is borrowed which requires those people to repay it in future). How is this generous?
I'm extremely suspicious of any claims of "kindness" because they tend to be very naive, often to the point of being childish (and yes, it's our PM's favourite meaningless catch-phrase). Schiff equates this with a belief in Santa Claus. Most people eventually grow up and realise than Santa Claus is a myth, and that his generosity really comes from the parents. Schiff says that older people like Bernie Sanders have never got past their childish belief in free gifts!
And even people who support the idea of wealth redistribution through the government generally cannot see how those unintended consequences might sneak in again. While wealthy people provide the majority of tax payments, they still avoid a lot of them, making the wisdom of taxing the wealthy a bit doubtful. For example, people might be tempted to move their business operations to low-tax countries, which results in less tax being collected, not more. Schiff himself lives in Puerto Rico where he is not required to pay federal income tax.
The "kindness" claim is also soundly rebuffed by looking at the reality in most socialist countries in history. The USSR, North Korea, and China immediately spring to mind. Does the word "kind" describe these regimes?
So these points really are a mixture of good and bad, of fair and unfair, of genuine and doubtful. The biggest problem with Schiff's arguments, as I said above, is that they tend to be based on theoretical considerations, rather than on the real world. I agree, he offers some real world anecdotes, but they are just that: anecdotes.
In the end this probably can be summarised in the same way as I summarise many other ideologies: that there are some very good points made, but the truth probably lies somewhere between the views presented by pure libertarians and pure socialists. The trick is to know where the balance should be. I think I agree with Schiff and say the government tries to do far too much now, and tends to get most of its activities badly wrong. But we need to be aware of the deficiencies in capitalism too. People, as a rule, don't act rationally or fairly, and any economic system based on the idea that they do is unlikely to be effective.
Peter Schiff sounds very convincing when he is in full rant mode. His enthusiasm, knowledge, and certainty are contagious, and I think he makes many good points, but the real world is never that simple!
Comment 1 by Jim on 2020-10-29 at 11:34:31:
OJB, you also sound very convincing in full rant mode! It would be great to hear a debate between you and an expert libertarian.
Comment 2 by OJB on 2020-10-29 at 19:48:15:
Well, thank you. I welcome debate with anyone. I prefer to do it on-line in a discussion forum, blog, or by email. That way I have time to research any points I want to make.
You can leave comments about this using this form.
Enter name, email (optional), enter number, comment, click Add. You can leave the name blank if you want to remain anonymous. Enter your email address to receive notifications of replies. Comment should appear immediately (authorisation is inactive).
BLOG PAGE