Monday, July 16, 2012

It's when free enterprise and government are combined that countries prosper

I've frequently gotten mad at knee-jerk liberal reactions against capitalism since the most recent economic crisis. The obvious flaws in capitalism revealed by the crisis are a good case for more government oversight. But they do not condemn capitalism as an overall concept.

A lot of The Secret Peace is devoted to showing how free trade and globalization have accomplished the miraculous in the last few decades: lifting millions of people out of poverty. Communist governments could not do this. China could not do this, for example, until it started allowing some free enterprise. We have a lot of evidence about this. Capitalism works.

So, in that respect, I completely agree with the broad point made by Arthur Brooks in this adorable animated video: free enterprise is a good system. So it's unfortunate that, like the knee-jerk liberals who want to paint capitalism with a broad brush of evil, he is emblematic of the Ron Swansons on the right who would do the same thing to government. They argue that since government has obvious flaws (chief among them being that it costs a lot of money, and can be wasteful), it must all be bad.

Why can no one on the right or left simply convey the truth that our system consists of a split partnership of government and business, and always will? America is, say, 70% business and 30% government, and it's perfectly necessary to debate if it should be 80%/20% instead, or 60%/40%. But why does everyone have to pontificate as if it will ever be 100%/0% or even 95%/5%?

Brooks's video makes such broad points that they easily resonate and seem correct in our hearts while we're watching. That's because they mostly ARE correct - on a broad, conceptual level. But in practice, and if you look at the details, there are some big "plot holes" he glosses over.

Let's look at the video step-by-step. His first trite example, of Muffin the dog, has the plot hole of NOT ENDING. He misses a step. We never learn its lesson: why shouldn't we eat the dog? He simply says because "its immoral." But there's a reason it's immoral, and it has to do with social conventions and our emotions due to Muffin being a "member of the family". Moral arguments can have logic, and this one does, he just doesn't mention it.

And it kind of disproves his point ... his point here being that sometimes logic has trouble winning over people who are arguing emotionally. It's a totally valid point. But he uses a bad example, since there are morally logical reasons not to eat Muffin. (Perhaps next time, to avoid this problem altogether, the family won't name their pets after delicious foods.)

His next, similar, point is that you shouldn't argue using anecdotal evidence. Sure, good point. Although it's not as if this video is instead leaning on lots of statistics.

He then compares the US to Greece, which is problematic. Michael Lewis writes some great stuff in Boomerang about how messed up and unique Greek culture is and how its corruption contributed to their crisis. America isn't that similar.

It's also disappointing how Brooks offhandedly mentions that "government just grows and grows" in a tone implying that it's obvious that this is a bad thing. But he hasn't yet shown that.

He next makes the case that money doesn't buy happiness and instead "earned success" is the best way to make us happy. He's right; recent studies show this. But he makes it sound like that's the ONLY way to create ANY happiness, which is not true. Being helped with your success is not worse than having no success at all. And at any rate, there are ways to help that COMBINE with hard work, not replace it, to pay off: does the college student who receives a scholarship not have to work hard for good grades?

He calls the welfare state "shoving marshmallows into people's mouths", as if the benefits it provides are extra confectionery treats - added money going to people who would otherwise be fine if they just tried a little harder. What he doesn't acknowledge is that many of those people ARE trying their hardest.

A leading theory in conservative thought says that handing out money to people will disincentivize them to work and make them lazy. Again, this is taking something that has a kernel of truth - since I'm sure that does happen with some people - and extrapolating it to all cases. Government programs should try to identify and focus on those in need who could not get help in any other way. Granted, this is a challenge, but it can work.

This is easier to see in Brooks's school metaphor. Here, Brooks is correct that people who don't try hard don't deserve good grades handed to them. But he assumes that the only reason a student would ever get a bad grade is that they didn't try hard enough. It's like The Secret of grading. In Brooks's school, no one has learning disabilities. No one has dyslexia. No one has no time to study because they're working two extra jobs or taking care of their grandmother.

In real schools, some people are at a disadvantage, and the government provides them extra help. (In this metaphor, the government actually represents the government, assuming this is a public school.) Help isn't provided by just adjusting their grades up - the equivalent of handing them money they didn't earn. Instead, they are helped by placing them in special classes where they get more attention, or providing tutors, or focusing on different types of learning, or providing lunch so they can focus on studying instead of wondering where there next meal is coming from.

The same holds true of the "welfare state". The goal of the government isn't to hand money to people who don't deserve it. This probably happens sometimes as a negative externality, sure, although I doubt the consequences are as bad as Brooks paints them. But there are millions of real people who are disadvantaged in some way and need help to get to a point at which their own hard work will even be effective.

We have hundreds of years of evidence that the free enterprise system works - it works as an overall concept, and it works better than any other system. But in practice, it always has loopholes, cracks in its edifice, people it overlooks. The job of good government is to close those loopholes.