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Blaming capitalism is now the last refuge of scoundrels.
I'm just flat sick of our current mess being blamed on capitalism and supply-side economics, when the fault clearly falls on people and a declining sense of morality. Yes, morals.
Capitalism is a simple economic system that operates on the laws of nature, much like gravity. Free people are able to produce what free people want to buy at a price free people are willing to pay in relatively free markets. In all of this freedom, the core element resides with the individual. That is a system in opposition to socialism, where the core element resides with government and free people are more of a hindrance than a driving necessity.
It is why capitalism was the natural economic state for our country's foundation, which was based on individual liberty. Capitalism, at its core, encompasses individual freedom. Socialism relies on servitude to the state.
Likewise, supply-side economics is a market explainer within capitalism that says supply is needed for consumption and living standards, and that, over time, our income increases as we expand our ability to supply product and services. Further, more modern additions to supply-side economics argue that as marginal tax rates are reduced, people have a greater incentive to earn more and economic activity is spurred.
It seems elementary that people will work harder for money they can keep rather than money they must forfeit to the government. It doesn't require Freud to figure out the human nature involved in that hypothesis.
Ultimately, President Reagan proved the supply-side theory, at least in part, when federal revenues soared in the years after he cut tax rates sharply. Again, after President Bush cut tax rates in 2002, federal revenues soared again. (Unfortunately, so did federal spending both times.)
As visibly explainable phenomena, these systems of capitalism and supply-side economics can no more fail than the mathematical formula of two plus two equals four or Newton's theory of gravity. If a person makes the mistake of slipping on a wet roof, falls and breaks his neck, we don't say gravity has failed. The person failed in his judgment. Gravity and capitalism operate similarly, as understandable laws, and do not fail.
However, liars, cheats, scoundrels, charlatans, politicians, New York Times columnists, the people next door, your co-worker, myself and everyone else breathing does have the power to fail — fail magnificently. Freedom is no guarantor of success, only the chance for it.
Human failure
What we have is a failure of people on a massive scale.
• President Carter and members of Congress failed when they required, through the Community Reinvestment Act, that banks must lend to people to whom they ordinarily would not lend — people who in the end, could not pay back their loans.
• Bankers failed when they took this bad policy and began making loans with abandon, with nothing down, on the assumption real estate would keep rising at unrealistic levels.
• Wall Street gurus failed when they bundled all these “subprime” loans — which come back to people again — into securities and re-sold them without adequate due diligence for the underlying value of the assets.
• Congress failed, again, when it pushed Fannie Mae and Freddie Mac — whose leadership also failed — to get people into home ownership when they had shown a clear inability to be responsible homeowners, um, more people failure. If you make decisions so you cannot afford to own a home, you cannot afford to own a home. Count it as another law that Congress cannot change.
• And the media failed by its insistent and small-minded pursuit of gotchya journalism, always looking for corruption, overpaid CEOs, pollution and journalism awards rewarding unmasking corruption, overpaid CEOs and pollution, rather than performing the basic non-partisan tasks of keeping readers and viewers informed with facts. Choosing political sides further damaged the media's ability to perform what should be its principal functions.
Should we conclude from this that the economic conditions we are in mean that we should give up on Congress, because individual members failed; that we should give up on banks because bankers failed; that we should give up on Wall Street because some financial wizards really had no magic; that we junk a free media because many members of it failed?
No, on all counts. And so, we do not junk capitalism or even supply-side economics and deem them failures because free people operating within them screwed up.
President Obama's erroneous claim just recently that “tax cuts for the wealthy” caused our economic crisis adds to the growing body of evidence that there is no change coming in this administration. And it brings little hope that the change there is will be for the better.
Such a hackneyed, class-warfare canard accomplishes nothing for Americans. It's purpose is to bolster the president's standing among those who are socialist-oriented.
Few people, including economists and politicians, even mention tax cuts as part of the soup of failures that contributed to the current economic woes, let alone peg them solely as the cause. I'd love to see the economics underlying that piece of fiction.
However, President Obama did get a piece of his famed rhetorical flourish dead right when he called for “a new era of responsibility.”
Indeed, that is exactly what has failed in this economic crisis. Not capitalism or supply-side economics, not the presidency or Congress or banks or Wall Street or media. What failed were people in all those institutions. And what failed in those people was their moral compass.
Morals are capitalistic necessity
What we have is a personal moral failure. Unlike the common deception, capitalism is not built on greed alone. A profit motive is not solely about greed. Everyone wants to make money when he works, and frankly everyone would like to make more for working harder or taking extra risks. Capitalism relies in part on that desire for more wealth.
But greed, as defined in Webster's New World Dictionary, is the “excessive desire” for more. Webster's longer definition is “an insatiable desire to possess or acquire something to an amount inordinately beyond what one needs or deserves.”
Now this is all subjective, but it seems that bonuses in the hundreds of millions of dollars would in most rational thinking be considered “excessive.” Much of what we have seen among Wall Street firms and major banking institutions would seem to fall in this category.
But think not this is a quest for the government to intervene and cap — as it is doing. This is a plea for a societal return to responsibility.
Some of these folks earned those bonuses after tanking their companies. The buyout clauses were economically irrational. Clearly something is wrong with the governing boards of some of our major institutions when someone's buyout clause, which is needed because they do such a bad job, makes them rich beyond imagination.
Capitalists' sacred trust
Adam Smith, Friederich Hayek, George Washington and so many others were not only great thinkers and leaders, but they were also moralists.
Smith, in many ways the father of modern capitalism, argued for a deeply-engrained set of morals to guide capitalists, and Hayek found common ground in this thinking. Washington believed that a democracy could only be successful when it was undergirded by a moral people.
For many years, the West had at least some code of morals in place, and these were reflected by capitalists. Some of the early 20th century's greatest capitalist tycoons were also sincere philanthropists. The Fords, Vanderbilts, Carnegies, du Ponts, all saw this. Not for tax deduction purposes — there was no income tax — but because there was a societal, moral expectation to help others. The government was not perceived to be the proper engine for that help, but the individual.
Andrew Carnegie said, “Surplus wealth is a sacred trust which its possessor is bound to administer in his lifetime for the good of the community.” This sentiment was the controlling one during the age of the great industrialists, yet their success in moving the country forward was enormous, dwarfing what government accomplished to improve people's lives. Theirs showed how capitalism works when there is a moral basis for it.
But the decline in western Christianity is mirrored by the decline in societal morals, and that has resulted in a pronounced rise in pure greed. Few of our banking, financing and industrial leaders today think in Carnegie's terms. (A notable exception might be Bill Gates, who resigned as CEO of Microsoft to devote more time to his charitable trust.)
Sadly, where the non-capitalism failure continues now is that many of the people who made the mistakes leading us to this moment are either still in power and making decisions (U.S. Rep. Barney Frank, Sen. Chris Dodd, etc.) or have been rewarded with taxpayer money (major banking and auto executives).
We enable irresponsibility
Being responsible and taking responsibility for actions — in more than just words — is a moral act. We hear the words, and there is still a pull toward moralism. But we do not see the acts.
In fact, from the Bush bailout to the Obama stimulus, we have the polar opposite of “a new era of responsibility,” or what might better be termed as a return to moral responsibility.
What we have is the near-complete enabling of irresponsibility. By giving tax money to poorly run banks and auto companies, by bailing out homeowners who knowingly bought more than they could afford, by giving committee chairmanships to people who've already made disastrous policies, we have enabled bad decision-makers to make worse decisions.
It has been a truly bipartisan accomplishment. But it has not been moral, and it will deeply harm the economic recovery because — and this must be understood clearly — our economy is based on freedom and capitalism. Without those pillars, we have socialism, which will lower all boats except those in government.
We must recover our firm foundations.
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