MODERNOMICS: Capitalism and Irony
“History is what happened, not what we wish had happened or what a theory says should have happened.” — Thomas Sowell
Howdy, gang! Welcome to Know Good Things! The previous two submissions of this blog series were spent explaining the nature of two gigantic global organizations: The World Bank and IMF (and you can find them here: https://tackletrading.com/international-monetary-fund/ and here: https://tackletrading.com/the-world-bank/ ). Those institutions have been around since the end of World War II and will likely be around until World War III. That was an attempt at humor and you should all be chuckling right now.
Let’s shift our focus to what we currently have to work with (in America) versus some of the influences that are constantly bouncing off us. The political buzzword of the first decade of the 21st Century was definitely “capitalism.” Documentary films were produced about this economic model and emotions were raised across the country. Protesting capitalism became a popular hobby for college students for a while and there’s still a few pockets of such protests here and there, but for the most part…things have died down regarding the negative rhetoric against capitalism. My opinion as to why the focus against capitalism shifted to something else (social justice, for example) is because the kids who were protesting capitalism during their formidable years eventually had to enter the workforce to find gainful employment. That’s when they saw, first hand, the benefits of capitalism. Another reason could be because they succeeded in implementing programs and regulations that will forever alter the fabric of a capitalist America. The Affordable Care Act is something that immediately comes to mind. Nationalizing the student loan industry is another!
To describe it as simply as I can, capitalism is an economic system where the means of production (such as factories, machinery, etc…) and distribution are primarily owned by private individuals or corporations. The prices of labor and goods are determined on the free market, rather than by a large central government. Profits are claimed by individual company owners or, in the case of corporations, distributed to shareholders…like us!
There are two core ingredients of capitalism that are irreplaceable. Ownership and the free market. Without ownership (private property rights) there is literally no way for anyone to start any type of business venture with the hopes of being profitable because we would always be beholden to a larger, more powerful entity (the government). We would have to secure scarcity rights from the government to lease buildings or machinery in order to produce our product, which would be a nightmare! The government would therefore be artificially tampering with demand (regardless of real consumer driven demand) by limiting who gets to produce certain products by virtue of limited property rights. Whenever a “ceiling” is created in economics… bad things happen. Quality is usually the first thing to take a hit because if there’s limited competition then there’s really no reason for producers to spend any extra capital on making sure their product is a quality product. Just think about “rent control” and the horrors it provided to the inhabitants of those rent controlled buildings. One reason for the random popularity of price controls (usually from young people) is a confusion between prices and costs. There’s literally a huge level of ignorance among the masses regarding business practices, accounting, and economics. Maybe this is why so many parents become infuriated when they find out their kid’s Sociology or English Professor is lecturing the class on economics!
A free market is essential for capitalism to work just as much as property rights… maybe even more so! A free market enables and enforces competition, which is the primary factor necessary for cheap and efficient goods made available to consumers. It also fosters innovation! If a company wants to be the industry leader then they need to feel compelled to create newer and better products. Heck, if a company doesn’t care about being the industry leader, but just wants to survive then they better be working hard on making their product/service better, leaner, and more appealing! There is literally no better compulsion for improvement than the fear of your competitor putting you out of business.
Now, it’s important to note that the ideals of a free market are just that. Ideals. We haven’t had a free and unfettered market economy in a long, long time. In fact, you could easily argue that we never really had a “free market” economy because of the amount of rules, laws, taxes, and regulations that are in place. As with time, there is a natural linear progression with economics and the human factor involved with economics.
Today, we are seeing things that have never been done in our country’s history and it’s having an impact across the board. The moment the U.S. government bailed out some companies (during the economic crisis of 2008–2009), while allowing other companies to fail we enabled the government to set a precedent. Things would never be the same again. After the “too big to fail” fiasco hit, we followed it up by bailing out General Motors. Next, we bailed out the labor unions affiliated with the automobile industry. There were literally billions and billions of dollars that changed hands during all of these huge “non-free market” activities that we actually lost track of a few billion dollars along the way. If that isn’t a testament to the inefficiencies (and corruptibility) of government interference then I don’t know what is!
A market based economy is one in which whoever makes a decision is the one who pays for that decision. Simple as that. The great economist, Thomas Sowell, has made a living teaching that simple principle to whomever would listen. The antithesis of a (free) market economy is central planning…otherwise known as socialism. The sudden rise in popularity of socialism throughout America is extremely unsettling and unfortunate because it only takes a glance at a history book to get a feel for what can be expected through socialism. A recent survey (USA Today) showed that 40% of our nation’s college students have a more favorable opinion of socialism than capitalism. That’s a staggering number of people who will become the leaders of businesses and organizations inside of the next twenty years. Combine that with the love affair the media (and young people) had with a person like Bernie Sanders and you don’t need to be a rocket surgeon to notice the emerging trend.
America is heading towards a more socialistic society and economy, but it won’t get there without a lot of kicking and screaming along the way. The only necessity for bad things to happen to our country on a systemic level is for good people to sit idly by and remain silent. We can’t be shouted down and bullied forever. Eventually, people will start fighting back…but will it be too late? As an eternal optimist, I can’t answer that.
The irony of living in the richest country on earth is the sudden rise in popularity of socialism. There are less obvious forms of socialism that show up as regulations an ideology, which we will delve into next week. Things like protectionism, kleptocracy, and government secured loans are becoming more and more common. It’s hard to imagine how a capitalistic economy can survive with so much irony stemming from the government and society.
Have a fantastic week, my friends. Work hard for what you earn and earn what you get. Until next time!
Be good. Do good. Know good.
Kleiny (@KnowGoodThings)
Columbus, Indiana
You can find more about Know Good Things at www.tackletrading.com
