Socialism v. Capitalism
Some pundits are telling us that the 2020 election may be a contest between those two forms of economic and social organization. They are wrong, and their assertion makes it harder to have a productive debate. What (some of) the Democrats are proposing isn’t socialism, and what the Republicans are defending isn’t capitalism.
Socialism is all about government ownership of the means of production. No candidate is proposing that because the history of that system has not been a happy one. Medicare for all, free tuition, and guaranteed income don’t equal socialism. The Democrats are proposing micromanagement of major sectors of the economy and taxing businesses and the wealthy to pay for the free stuff. That isn’t socialism; it’s a power realignment from the private sector to the public sector, and it’s a significant expansion of wealth transfer designed to alleviate the perceived injustice of inequality.
A capitalist economic order would look very different from the status quo. Government involvement in the economy would be significantly smaller. A capitalist driven government would protect property rights and enforce contracts. It would provide for national defense, secure the borders, and provide physical safety. It would prosecute fraud and provide a patent regime with strict time limits. It would enforce contracts. It would enable user-supported public works. It would take the census. It would sponsor basic research and publish the results. It would strictly enforce an anti-trust policy that evolved with markets to ensure a level playing field. It would set minimum standards for an educational system that prepared its citizens to vote intelligently and earn a living. Any other entry into the marketplace would be a last resort. A few externalities like food safety, clean air and potable water would be the outer limit of regulation. Government would allow market participants to respond to market incentives without further interference.
What we have instead is K Street capitalism. Legislators have abdicated their responsibility to pass laws, enabling unelected bureaucrats at all levels of government to issue a tsunami of regulation. Sophisticated players hire lawyers, accountants, consultants and lobbyists to shape the rules, exploit the rules and capture the regulators. The result is massive amounts of rent seeking, leading to monopoly profits. Most of today’s billionaires used that path to riches. Large companies buy out start-ups with ideas that might compete. The small fry sell rather than trying the expensive and onerous process of a public offering. Competition is killed in the crib. Not a whiff of antitrust enforcement enters the process. Almost all of our residential lending business is guaranteed by two government owned entities, which set the rules for insurable loans. Three sanctioned rating agencies determine the creditworthiness of bond offerings. They were further regulated instead of bankrupted after the 2007 fiasco. Big banks were rescued, not allowed to die, in 2008. Three sanctioned credit rating agencies determine the borrowing power of individuals and small businesses, despite their inability to keep the information they collect secure. Medicare, Medicaid, and the VA control half the medical market; state regulators heavily impact the other half. The health care industry and fraudsters work those systems to a fair-thee-well. Space does not allow me to enumerate a fraction of the ways the system is worked by those who can afford the right lobbyists.
The first question voters should be asking Democrats is where they are going to get the money to pay for the free stuff. A 100% tax on the 1% isn’t going to get the job done. European levels of taxation on all workers and consumers will be required. The second question is whether their proposed levels of regulation and taxation will create economic stagnation, rendering their promises unattainable.
The first question voters should be asking Republicans is why they tolerate (and even enable) the cancer of rent seeking that is destroying faith in capitalism. The second question is what they propose to do to assist those who are being left behind in the rush of globalization and the dizzying pace of technological innovation.
If those questions were asked at the upcoming debates, the quality of the dialogue would genuinely address the problems we face.
