The Economic Cure
At dinner the other night, my wife and I were discussing our plans for the post-pandemic future. We have both received our two shots of the Pfizer vaccine and our county here in Texas has relatively few cases now. We wondered how the pause in the J&J vaccine would affect developing herd immunity and noted that the US and Europe had restarted J&J vaccinations stating that the danger from harmful side effects was far outweighed by the benefits derived from the vaccine.
And then I had a revelation, the free market economic system that we have in the United States and other Western countries (sometimes called capitalism) has some harmful side effects, but the impact of those side effects is far outweighed by the benefits provided by free markets.
What are some of the harmful side effects of the free market economy? One critical factor is the process of creative destruction as it was named by Joseph Schumpeter. Creative destruction is when new and better products and services replace older and outdated products and services. The companies that produced the outdated products and services go out of business and the workers lose their jobs. This was true even before out of work stocking knitters (known as Luddites) smashed automated knitting machines in the early 1800s. Innovation and technological advancement can be very disruptive. But this disruption increased economic growth and created many new jobs, but jobs that required different skills than knitting. So, some workers suffered economic hardships and other workers had to adapt and learn new skills, but society benefitted greatly from the new products and services.
Karl Marx deplored what he saw as the exploitation of workers through the capitalists’ confiscation of the value of the workers’ labor. But, without the capital to build plant and equipment, there would have been no work to do, and the workers would have been even worse off. The capitalists made huge profits, some of which they consumed extravagantly, but much of which was reinvested in expanding businesses and creating new businesses. It is true that working conditions in the early industrial revolution were deplorable and Marx felt that as capitalism grew and expanded the plight of the workers would get even worse. But despite his dire predictions, working conditions improved over time, partially by the formation of labor unions to push for better conditions, but also from the realization by the managers that better working conditions improved productivity.
Income inequality and other social injustices are prominently cited as the inherent and unalterable outcomes of the free market system. It is true that wages and salaries are highly unequal in twenty-first century America. But all Americans are better off than their grandparents and great grandparents. All the protestors agitating against the free market system in Portland, Seattle and across the country take copious photographic records of their protests with their smart phones. These supposedly poor and oppressed protestors are carrying more computing power in their pockets than the Apollo capsule that took Neil Armstrong and Buzz Aldrin to the moon.
And what solutions are the protestors and the academic elites offering to cure the supposed harmful effects of the free market system. Socialism! If socialism were a vaccine to cure the ills of the free market system, the Center for Economic Disease Control (I made that up) would demand clinical trials before approving such a new vaccine just like the real CDC required for the Pfizer vaccine. But socialism has had clinical trials: The Soviet Union under various dictators, China under Mao Zedong, Cambodia under Pol Pot, Cuba under the Castros, and Venezuela under Chavez and Maduro. These experiments to cure economic ills have resulted in death and poverty for the patients. Few survived.
China recovered from Mao by adopting the capitalist cure. It is still an absolutist dictatorship, but it had to ditch socialism in order to compete with the West. And China remains dependent on capitalism to survive. India under Nehru attempted to employ socialism to cure its economic ills but wound up with economic stagnation, chronic shortages and state inefficiency. When India switched to freer markets, things began to improve.
The unwholesome side effects of the free market economic system are important and must be addressed. They are indications that the obligations of the social contract are not being met, that the rule of law has been diverted to benefit particular interests or evidence of some other failure to live up to our American ideals and principles. But we must overcome those harmful side effects by reinvigorating our society to live up to our American principles. Not abandoning them in favor of some socialist snake oil.
Speaking of cures that are worse than the disease, we need to point out that the Critical Race theory that is being proffered as the solution to systemic racism in diversity, equity and inclusivity training sessions in our schools and institutions is, in reality, only a mutated form of Marx’s poisonous conceit.
If I thought that the solutions proposed by Critical Race Theory would actually make the lives of black people better, it would be worthy of consideration. But a mutated and racist form of socialism is most likely to provide even worse outcomes than regular socialism, which has been an utter disaster.
As Thomas Sowell has pointed out repeatedly, black people were making great economic and social progress despite naked overt racism and Jim Crow laws until President Lyndon Johnson decided they needed some help to get ahead. The price tag for Johnson’s War on Poverty runs into the trillions but black progress slowed down and came to practically a complete stop. Black people acting “white” (which means adopting America’s Enlightenment-based ideals and values) have thrived while blacks dependent on government handouts have suffered. Government help has shattered the black family and broken the black community.
Being dependent on government destroys the self-respect of the recipient. The reparations and transfers demanded by Critical Race theorists are unlikely to help black people. The socialist state necessary to implement the solutions demanded by critical race theory will not just be a tyranny for white people, it will be a tyranny for everybody living under such a government, just like all the previous socialist governments.
The free market economic system and the Enlightenment -based ideals and values have proven to be enormously successful in improving the lives of the people living in such a society. Many of the harmful side-effects we see in America come from the abuse of free markets and the abandonment of our American values and principles. Like many medicines, free markets must be “taken as directed.”