Mike Levine’s most recent column (Oct. 21, 2008, Volume CXLIV, Number 15), titled with customary dignity as “Why capitalism is screwed from the get-go,” (to say nothing of his column’s title itself) makes a number of ahistorical, absurd assertions about the nature of the capitalist system, and retreads objections that lost their relevance in 1972, speaking optimistically.
Mr. Levine would have his readers believe that the entire capitalist system is structured around a system that is no different from high-stakes gambling. That is, when one invests in Wall Street or chooses to attend an elite university, it is really no different from playing Powerball in that one is uncertain of the outcome. His entire argument, therefore, relies on the asinine idea that there is no such thing as degrees of risk.
Yes, at bottom all of capitalism (and in fact all of human action) relies on some degree of risk. Banks loan out money that they are not sure will come back, entrepreneurs create inventions which may fail, students spend money on degrees which may prove worthless and I step out of bed every day even though my floor may be crawling with poisonous insects that entered during the night. All of this is true. However, to suggest that the risk associated with these actions is equivalent, or that taking one risk is morally equivalent with taking another, is nonsense.
Mr. Levine also rails against credit, claiming that it facilitates unnecessary risk. If credit were unlimited, this would be absolutely true. But it is not. Banks, college students, credit card companies, etc. all assess risks before loaning out money to people because, while they might want to get high payoffs, if the person ends up defaulting, that hurts both the person and the banks/credit card companies. What actually causes mass credit expansion is meddlers like Mr. Levine, who want to protect people from their own stupidity. Mr. Levine asks what differentiates the current economic troubles from the 1980 crash and the Great Depression. Actually, there is one similarity that I think Mr. Levine would find interesting: all three of these crises were caused not by capitalism, but by undue meddling in the market by government authority.
Whether it was Herbert Hoover’s protectionist behavior and tax raises, or the Keynesian chickens coming home to roost in the form of stagflation, or the creation of Fannie Mae and Freddie Mac during the Clinton years as part of a misguided attempt to guarantee a “right to housing,” all of these crises were caused by Mr. Levine’s exact vision of keeping people safe from failure by letting the “smart people” handle things.
It’s easy to understand why. If people rely on the “smart people” in government to protect them from risk, they will be more careless about the risks they take, because they don’t believe they will pay for their failures. If there is no government “safety net,” on the other hand, people will know that screwing up could potentially lead to starvation, and will be much more cautious in their investments. Unlimited credit is the child of socialism, not of capitalism, because capitalism has mechanisms built in which would make unlimited credit impossible.
Some, Mr. Levine included, think the remedy for this is full technocratic socialism. But full technocratic socialism-that is, allowing the state to make every economic decision ever-is completely impossible to run because not even the most advanced military supercomputer could possibly satisfy the preferences of every individual consumer in the world with any degree of fullness because preferences contradict each other and tradeoffs are impossible under socialism since voluntary trade is a function of capitalism. Moreover, since there’s no way to quantify the strength of individual preferences, the hypothetical central planner would have to make totally arbitrary decisions about which consumer preferences to privilege over others, possibly leading to the sort of vicious rationing that was seen under every socialist dictatorship ever tried.
So if Mr. Levine will excuse my horribly risky gambling, I think I’ll take my chances with capitalism, given that it statistically has produced bread lines and mass starvation far less frequently than the Soviet Union, Castro’s Cuba, Chavez’s Venezuela and Mao’s China.
Sure, we may have a few crashes, but at least we’re not throwing people in Gulags for daring to trade with each other when the almighty central planner says they can’t. But as I’m sure I’m not one of the “smart people” anyway, I’d better go back to playing Powerball.