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Home Publications Blogs Beat the Press Capitalism, Steven Pearlstein, and Morality

Capitalism, Steven Pearlstein, and Morality

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Sunday, 17 March 2013 07:46

The Washington Post had a major column by Steve Pearlstein on the front page of its Outlook section headlined, "Is Capitalism Moral?" The piece notes the sharp upward redistribution of income over the last three decades and asks whether we should just being willing to accept market outcomes.

Of course this question is absurd on its face. The upward redistribution of the last three decades was the result of deliberate government policies designed to redistribute income upward; it was not the natural workings of the market.

For example, trade policy was quite explicitly intended to place segments of the U.S. workforce in direct competition with low paid workers in Mexico, China and other developing countries. The predicted and actual result of this policy has been to push down the wages the bottom 50-70 percent of the workforce to the benefit of those at the top.

This was hardly the free market. We could have adopted trade policies that were designed to put doctors, lawyers and other highly paid professionals in direct competition with their much lower paid counterparts in the developing world. If we had done this, doctors in the U.S. might be earning closer to $100,000 a year rather than the current average of more than $250,000 annually. This would transfer more than $100 billion annually to the rest of the country in the form of lower health care costs.

The government also strengthened and lengthened the periods of monopoly protection provided by both patents and copyrights. This has hugely increased the amount of rents being paid to high-end earners, the pharmaceutical industry and the entertainment industry at the expense of everyone else.

The government has also helped management against labor by having laws that asymmetrically punish workers and management. If workers have a strike that is ruled illegal, the case can immediately go into court and the leaders of the strike can be thrown in jail. By contrast, when management breaks the law to prevent workers from organizing, the case goes to the National Labor Relations Board, where it can be dragged out for months or even years. Management will almost never face imprisonment as a result of its lawbreaking.

In the last three decades the government has allowed banks to merge and grow large enough so that they enjoy an implicit guarantee from the government. This guarantee provides a subsidy to the big banks that has been estimated to be as large as $80 billion a year. The financial sector also enjoys a special low tax status in that it is exempted from many of the taxes (most importantly state sales taxes) that affect other industries. This is also an implicit subsidy.

Even the state of the macro economy is a policy decision, not a market decision. The fact that almost 8.0 percent of our workforce is unemployed is the result of a policy decision that put a greater emphasis on limiting deficits and debt than maintaining full employment. (There is no natural market level of government surpluses/deficits. Whatever the government does is a policy decision -- sorry natural market lovers.) The decision to put a higher priority on deficit reduction than maintaining employment levels also redistributes income upward. The people who are unemployed are disproportionately at the lower end of the income ladder. Also, high rates of unemployment put downward pressure on the wages of the bottom half of the workforce even if they are employed. 

The massive upward redistribution of the last three decades has been the result of these and other deliberate policies that had the goal of redistributing income upward. It was not the result of free market capitalism. (This is the topic of my book, The End of Loser Liberalism: Making Markets Progressive.) The real question is whether a system that is designed around policies that redistribute from the middle and the bottom to the top is moral.

Pearlstein's piece is incredibly dishonest to imply that the upward distribution of the last three decades was just a natural occurrence. Perhaps he really doesn't know better, but someone in an editorial position at a major newspaper should.

Comments (26)Add Comment
Simple answer
written by Jennifer, March 17, 2013 9:49
The answer is no of course. The reality is that modern capitalism has never existed without government policies to help it along-no matter what any libertarian says. But I actually think it was a decent article, he obviously did not articulate your points but I think he was hinting at them with this:

In our current debate over capitalism, too much attention is focused on whether, how or how much to redistribute the incomes that markets have produced, with too little focus on the institutional arrangements that determine how that income is divided up in the first place.

Thought provoking - even for a conservative like me
written by Joe, March 17, 2013 9:55
This is precisely why I advise young people to pursue a career in fields like law and healthcare where they will not have to compete with the Chinese. The medical society industrial complex will never allow foreign competition like you describe and are much more politically connected than the manufacturing sector.
Ditto for our immigration and labor standards policies
written by Luke Lea, March 17, 2013 10:10
Opening up America to massive low-skilled immigration in 1965 also skewed the distribution of income, as has our failure to adjust statutory limitations on the length of the workweek to offset the increasing employment of labor-saving technologies (everything from modern household appliances to computerization of almost every area of the economy). It's hard to say that any one of these three causes is more important than the other two.
It's all capitalism...
written by leftover, March 17, 2013 10:13
Perlstein may be dishonest, (about more than just the "natural workings of the market"), but wether it's monopoly capitalism, predator capitalism, or the "free market" capitalism you describe...isn't all still capitalism?
Marxism, socialism, communism didn't get us into this mess. It was capitalists. It's capitalists in control of the market and the governments that support it, enabling it to exercise power over standards of living, the media, elections, wars, life and death...not socialists or socialism.

Capitalism is as capitalism does. And right now...it's capitalism that is dictating what is moral and what is not.
To the manor bourn.
written by jhm, March 17, 2013 10:32
In a way, the tendency of government to assist the maintenance and acquisitiveness is just another aspect of democratic capitalism. It would be hard to make a democratic system where citizens were prohibited from advancing their own cupidity if that's what they were determined to do. Sure, one can think of many reforms that would help, but how to make them persisting?
...
written by skeptonomist, March 17, 2013 11:44
The "free market" is an abstraction or ideal, not something that occurs normally in nature and is maintained as a state of equilibrium. Markets in a new product or in a new area typically start out with lots of competition, but over time tend to be taken over by a larger and larger producers. Some markets never really have much competition, nor should they; for example electric utilities and computer operating systems. Utility service has to arranged in a process of negotiation or legislation, not through raw competition. Over time more and more services have had to be considered in this light - and especially it has become clear that health care is not suitable for completely "free" markets.

The consolidation of banks has been a natural process for a long time. Before the Great Depression there were far more small banks and even during the "roaring" twenties they failed at the rate of hundreds per year. The unmodified free market caused thousands of banks to fail 1929-1933. The arrangement of FDIC insurance by the government slowed the failures, but the number of banks still shrank almost continuously. Of course the Fed and Treasury deliberately aided mega-mergers during the late crisis, but this was a fairly small part of the long process of bank consolidation.

It it not really necessary for the government to deliberately adopt policies that favor market power being concentrated - it does happen naturally. Of course the more market power, the greater the profits and the greater the political power. Government favoritism for big-money interests is also "natural" and must be combated by vigorous collective action, unless you think that aristocracy or plutocracy, being "natural", is therefore right and must be accepted. I think that Dean, like many US "liberal" economists, is too confident in the powers of "free markets" to produce equality by themselves. I really doubt, for example, that the lack of foreign competition is really the cause of high compensation for US physicians.

The economic policies that prevail in the US are clearly not the choice of the majority, but politicians, especially Republicans, have managed to tie big-money interests to the racial and religious interests - or "social" concerns - of a large segment of the population so that economic policy is not really determined by the national will on economic matters. It would help to recognize that there are major conflicts of interest between groups in society - especially between capital and labor - and these will not be worked out to maximal benefit in an unmodified "free market".
...
written by fuller schmidt, March 17, 2013 11:53
Capitalism is just a tool that is ruined by greedy people. The socialist isms have no example where they are not ruined by greedy people, and are inferior tools for allocation as well.
First Things First
written by Jeffrey Stewart, March 17, 2013 12:39
It is indispensable to first accurately represent capitalism before one can ever answer the question of whether it's moral. The point here is that one must have the appropriate theoretical and conceptual tools to analyze capitalism as it really is.

Neoclassical economists don't analyze capitalism as it really exists. They invent a theory generated, superficial, idealized version of it known as the fantasy world of perfect competition. Since neoclassical economists analyze the endless mathematical properties of this fantasy and not actual capitalism, or only its superficial aspects, they don't have a clue as to it's underlying essence.

In fact, the purpose of neoclassical economics is ideological. Neoclassical economists' job, whether they're aware of it or not, is presenting capitalism as the best of all possible worlds that is in every way moral. Thus, why would anyone want any alternative to capitalism?

One critically important ideological role of neoclassical economics is shifting the blame for the negative outcomes associated with capitalism's normal, profitable operation back onto its victims. They do this by assuming resource scarcity and unlimited wants. Right then and there neoclassical economics becomes a study of choice. And, if people choose, then the outcomes are their responsibility. This way of thinking is impressed on every introductory economics student's consciousness and it is a popular prejudice. Hence, it profoundly influences thinking about these issues.

This way of understanding capitalism and economics as a study of choice purposefully, logically and inevitably places the blame for poverty, unemployment, homelessness, income inequality and other social ills caused by the normal profitable operation of capitalism directly right back on the victims' shoulders. President Ronald Reagan famously said that homeless people choose to live on the streets.

https://www.nytimes.com/1988/12/23/us/reagan-on-homelessness-many-choose-to-live-in-the-streets.html


Perhaps the most ideological elements of neoclassical economics are the notions of the marginal productivity theory of income distribution and opportunity cost. Neoclassical economists studiously ignore and obfuscate the question of profit's origin. They assert that capitalists receive profits for the value of their marginal contribution to production and not because of private ownership of the means of production! The issue is further clouded by defining profit as the opportunity cost of capital! Profit is a COST, war is peace, freedom is slavery and ignorance is definitely strength!

Only if capitalism is first accurately and scientifically represented can the question of its morality be answered in any meaningful way.
Retired
written by Jim Simmons, March 17, 2013 12:52
George Mason Economics Department is a right wing funded think tank. Mr. Pearlstein thrives there. Dean Baker wouldn't last a week.
Capitalism is Moral: Takers Brainwash Makers Through Sock Puppet Moralism
written by Last Mover, March 17, 2013 1:06
America has been brainwashed into believing that "government" is mutually exclusive from capitalism and all its claimed economic virtures. Government is framed by media as a necessary evil that must be allowed only in most minimalist of forms such as national defense, courts of law and, police and fire protection.

In most venues the discussion of government is absurdly and offensively reduced to "conservative versus liberal" as if speaking to an audience of young children on the forces of good and evil respectively.

"Government" has come to exist in the public mind as a crude spinoff from the libertarian vernacular as a threat to "negative freedom" - the freedom of an individual agent to act and not be restrained by any obstacle that can interfere with the will to act, the exception being acts that threaten other's negative freedom.

Fast forward to the economic principle of competition. What does it mean in terms of freedom and government? The brainwashed version means they're mutually exclusive - less government, more freedom to compete and vice versa.

Now consider the Dean Baker version. "More or less" government has no necessary relation to "more or less" competition and free markets. They are not mutually exclusive. Government itself creates or eliminates competition and free markets, the same way it creates or eliminates monopolies, either within government or within the private sector.

It doesn't work in the other direction. One doesn't start with no government at all and end up with utopian free markets that are competitive. In fact the result is economic anarchy that ends up in political dictatorship.

This is why Dean Baker stands out among economists. He understands that in regard to markets, market power, market failure and competition, government gives and government takes away because governing comes before all the rest.

Regulation A can kill a market. Regulation B can create a market. Regulations C-Z may have little or nothing to do with markets despite being held up as red tape socialism by the usual dumbed downed dichotomist.

In outing conservatives claiming to be for free markets and competition, Dean Baker trumps them as the true believer, rubbing it in their face that in fact, they're actually cowards of free markets and competition, stealing a free ride from the very government interference they so roundly despise in public as they fund the nanny state privately to shower themselves lavishly with unearned income and wealth.

Is capitalism moral? It could be if claimed makers were real makers and claimed takers were real takers. Then it boils down to simple redistribution between the two from the largest economic pie available.

Since in reality makers and takers have switched sides forthe most part over the last three decades, the moral question of capitalism digresses into a question about the question itself:

Why has it become "immoral" to brand todays makers as takers? Why has it become "immoral" to brand todays takers as makers? Why is it now "moral" to frame claimed makers and takers of today as a moral equivalency between those who make versus those doomed to depend on said makers, because said dependents are categorized as incapable of making?

In real free markets that work based in competition and morals, the moral good drives out the moral bad and that includes driving out the brainwashing.
...
written by skeptonomist, March 17, 2013 1:12
Instead of asking why physicians earn so much in the US, let's ask why physicians earn so much less in other countries. It is doubtful that it is because the market is more free in those countries - in fact most countries have much more control over the employment and compensation of physicians than in the US, where to a large extent physicians are just allowed to charge what the traffic will bear. So bringing in foreigners is not really opening up the free market, it is allowing those foreign physicians to escape from their state-controlled systems into a completely different, but also not really free-market system in the US. Or to put it another way, those state-imposed compensation levels in the other countries would be partially transferred to the US.

I think it would be simpler and demonstrably more efficient just to adopt some variation of the systems in those other countries, which are less, not more free-market. Free-market competition is just not the best system for health care - real competition just does not happen, and it's not because of government interference.
retired
written by Joe, March 17, 2013 2:12
Mr. Pearlstein and morality. I'm still trying to get my head around his March 15 article entitled "Yes, raising the retirement age would be bad for the poor. No, that doesn’t mean it’s unfair".

http://www.washingtonpost.com/...ts-unfair/

I would love to see Dean Baker comment on it. Too many comments about serious, modest proposals that "only" hurt a little and are only "modestly regressive" to Medicare and SS,yet bring in very little to solve the problem.
skepto, you lost me
written by pjm, March 17, 2013 2:14
I get the notion many (non-market) factors play into physician compensation but I am not sure your point follows. If foreign physicians actually entered the US market, i.e., hospitals and other employers were able select from a large applicant pool, it would have an effect on compensation levels, right? Granted, those with market power often shield themselves from supply/demand pressures on prices etc. but in the labor market for physicians the doctors are not the most powerful players even with their union (the AMA).

None of this is argument in favor of the "free market" in medicine or against public provision of medical care (single payer, etc). Dean can speak for himself but I think his policy recommendations are motivated from a couple of places 1) finding something politically possible (remember it has taken more than 60 years to get to the thin gruel of Obamacare) 2) Using progressive market strategies to undermine conservative claims to managerial competence, concern for the common good (rather than the good of their patrons) etc. 3) The issue isn't just health care costs, the issue is social equality in the US. Exposing high-paid professionals to the same global pressures that have been foisted on the vast majority could have some really positive effects other than just lowering the cost-of-living.

The fact that national health or the social democratic welfare state is not an option on the table is NOT due to American culture or popular preferences but to extremely daunting structural features of the political system, features that are not likely to disappear soon. Will Dean's strategy work politically is open question but it is a refreshingly creative departure.
protectionism, and causation versus correlation
written by David, March 17, 2013 2:19
...
written by skeptonomist, March 17, 2013 10:44
... I think that Dean, like many US "liberal" economists, is too confident in the powers of "free markets" to produce equality by themselves. I really doubt, for example, that the lack of foreign competition is really the cause of high compensation for US physicians.

I don't know why you'd think that of Dean, skeptonomist, if you actually read his books and articles and blogs. And in no way has Dean ever said that lack of foreign competition is the cause of high compensation for US physicians. He merely states the economic truth, that if US physicians did not receive the protectionism that manufacturing labor lost then we would see downward pressure on physicians wages. But what he is really pointing out is that physicians receive preferential treatment from the government as an "elite class": if ship welders in Houston have to compete with ship welders in Shanghai, why not plastic surgeons? (Because plastic surgeons have a more formidable lobby on their side, that's why). To say that Dean thinks that lack of foreign competition is [sic] the cause of higher wages for docs, well that's just crazy or ignorant or rhetorical nonsense.
immorality is allowing folks in 3rd worlds to starve..., Low-rated comment [Show]
This Rose has thorns!
written by JP, March 17, 2013 3:27
Capitalism (archaic ideal)
Once a decent economic theory that was corrupted, aided, and abetted by personal greed in a partnership with government officials, at all levels, who happily endorsed and embraced as their personal doctrine the tenets of "Free Market" and "Free Trade" to justify selling themselves to the highest bidder.

"American form of Democracy" is now codespeak for this corrupted ideal.
Useless WP Analysis...
written by Donald Pretari, March 17, 2013 5:29
Amen to that...
...
written by Chris Engel, March 17, 2013 6:08
As mentioned by another commenter, this Pearlstein slimeball wrote a disgraceful piece trying to justify the regressive "let's raise the retirement age" argument.

Essentially he argues that it would be immoral to subsidize poor people's retirement at current age levels based on the reasoning that they have lower life expectancy from poor health, because poor people are fat drunk junkies and we shouldn't enable their bad lifestyle choices.

Yes, the joy of sociopathic neo-liberal Austrian austerian Randites in the 21st century.
"property" is "free market" interference...
written by Carl Weetabix, March 17, 2013 6:19
If you buy land you are granted through the vestiges of the government a lifetime (or longer) monopoly on the use of the land. That someone does not "squat" on that land and build their own home or business is only a result of the fact that the government enforces your so-called "contract" to own the land (though, to note, it is quite possible that none of those wishing to "squat" have entered into said contract).

The same is true of all capital acquisitions. The reason markets can exist at all is simply because the governments enforce that they can exist. Truly free markets would allow me to take what you have at the point of a gun.

I am not suggesting such anarchy, nor espousing that all lands be held in common, however the point is there is no such thing as "free markets" in the sort of quasi-spiritual "rights of man" sort of way so many imply today. These institutions are simply human constructs that we have become so used to that we cannot differentiate them from the "natural order" of things.

In the end I don't give a damn what system we choose as long as it gives the greatest number of people a reasonable level of freedom from misery and general comfort. Capitalism may be the best tool for that, but clearly in contrast to the post war years, it is no longer living up to its maximum potential.
per Chris Engel, March 17, 2013 5:08
written by Joe, March 17, 2013 7:32
"Essentially he(Pearlstein) argues that it would be immoral to subsidize poor people's retirement at current age levels based on the reasoning that they have lower life expectancy from poor health, because poor people are fat drunk junkies and we shouldn't enable their bad lifestyle choices."

May I add that Pearlstein quotes Maya Rockeymoore who says “people who are shorter-lived tend to make less, which means that if you raise the retirement age, low-income populations would be subsidizing the lives of higher-income people.”

He(Pearlstein) then goes on to conclude that "The moral argument against a higher retirement age rests on the assumption that poor people die young because they are poor. While it is true that life expectancy correlates with income, it is important to remember that correlation is not the same as causation."

So,remember, when your 54 year old neighbor dies while heaving boxes at work you can tell his widow that he died of correlation, not causation. She will gratefully be relieved. And then go back to work(at the same plant) until she is 70.
woohooo -2 rating...truth hurts., Low-rated comment [Show]
The excess profits of U.S. doctors: some of the home-grown causes
written by Rachel, March 17, 2013 11:01

In the U.S. doctors make more than many other people with PhDs. Partly this is due to a restriction on education: we could train many more MDs than we do now. We could also train MDs more cheaply. But it's easy to overcharge for a medical education in an elitist culture, and where pre-meds have no worries about passing on the costs to their clients.

Incidentally, by limiting the number of doctors (and nurses) that we will train here, I suggest that we are restricting opportunities for the most disadvantaged among us, the children of the slums and the working class, rather than for the least talented high-income students.

Medical doctors also derive excess profits from restrictions on other practitioners. There are also limitations on abilities to travel for medical services.

Finally, let's not forget the substantial overpayment doctors receive due to lack of transparency (Uwe Reinhardt has been complaining about this market failure for decades now). And of course there is the major problem that high-income people receive medical benefits in pretax dollars, which leads them to be needlessly indulgent about doctors' excessive demands.

This last factor is estimated to cost the government some 2 trillion dollars in tax revenue every ten years. So it's an ugly business all round, this privledging of the medical establishment.

...
written by watermelonpunch, March 18, 2013 1:06
THANK YOU WEETABIX.
True free markets can only exist in total absence of any laws or regulations. In other words, anarchy?
In a truly free market, child prostitution and slave labour would exist, unfettered by interfering government regulation.

It's all a matter of degree, which is what the anti-regulation crowd would like people to be ignorant of, or at least ignoring.

Awhile back I read "23 Things They Don't Tell You About Capitalism" - Ha-Joon Chang
As far as I'm concerned, the topic was open & shut case that morality has nothing to do with capitalism, and capitalism has nothing to do with a society being moral or immoral.
market "democracy"
written by fosforos, March 18, 2013 11:07
Of course it's the "free market" that's responsible. The principles of market democracy (elevated to Constitutional Principle by the SCOTUS) are that one dollar equals one vote (ie., production decisions correspond to effective demand for the product) and that everything is property that can be sold as commodity on the market. That of course includes our "representatives" in the glorious system of Representative Democracy. Since the government is for sale to the highest bidder, of course the richest have bought it and use it freely as their own property. Isn't that what markets are all about under capitalism?
...
written by Ellis, March 18, 2013 11:16
You treat government policies as separate from capitalism. That is wrong. The policy decisions that you talk about correspond to the period of crisis that began in the 1970s, when profit margins shrank. To rectify this, corporations began to attack the living standards of the population. Government policy simply aided them in doing that. These policies were actually very successful. They helped increase profit margins to record levels. Of course, in the process, the system became that much more parasitic, and the underlying crisis got much, much worse. But what counts is profit levels and the wealth of the 1%. Whether or not you consider that "immoral" I guess depends on whether you benefit from that.
But for you to excuse capitalism by saying that all these problems are just due to some wrongheaded government bureaucrats is a white wash, and marks how low the economics profession has fallen.
But government policies are separate from "capitalism"
written by Perplexed, March 20, 2013 2:57
Which is why it is so critical who is making those policies and who they are representing. The "channel" through which capitalism is "controlled" and any "morality" introduced into it, is through government policies (and to some extent accepted norms of behavior). The means by which democracy does this is to attempt to have "government policies" be an expression of the collective, one person - one vote weighted, "will of the people" as expressed through their representatives. Allowing ANY dilution of this relationship between the electorate and their respective representatives alters the power relationship from one person - one vote to some other form of government that, while not well defined, is something other than "democracy." (When the power shifts to the plutocrats though, we do have a name for that.)

If we continue to allow our candidate choices to be restricted to those "approved" by our plutocrats, we have no one to blame but ourselves. Do we really think we are "getting away with something" by having our plutocrats fund our election campaigns and choose which candidates will get funded? Are we so clue-less that we are unable to see that they are getting the money to buy our representatives from monopolies and other forms of government intervention that ultimately result in taxes on us to fund their political objectives? The money they use to buy our representatives is ultimately provided to them by us!

We have choices. If we think its right to have the plutocrats fund our elections we can tax them directly and let the campaign funds be directed to the candidates by the voters! We don't need to sell them "veto power" over our candidates to have them pay for the campaigns if we think that's who should be paying. SCOTUS says we can't limit speech. Do they also say we can't require it be properly identified? Do they also say we can't limit and make it a criminal offense to interfere in any way with the relationships and fiduciary duties between the electorate and their representatives? Maybe we need to change their name if it has so altered their decision-making that they no longer understand that it is "We the People" (actual people, not corporations) that are "supreme" under our constitution; not any particular court.

In a truly functional democracy, the poorest 25% of the population would have political power equal the richest 25%. Think for a second about how far we really are from that. I for one, do not want any representative of mine spending 20% of their time begging rich people for money (especially in a country with a wealth Gini in excess of .87) and ultimately ousted from their job if they are unsuccessful. If we don't truly have a representative democracy, what is it that we actually do have?

We need to move quickly to 100% public financing of political campaigns with voters deciding where the money goes. Non-publicly financed "speech" can be identified as such along with its true source. A truly representative democracy would solve many of our most pressing problems. We should change from whatever it is we have now to this form government and give it a try.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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