Book Review - Saving Capitalism - Wall Street Journal

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johnkarls
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Book Review - Saving Capitalism - Wall Street Journal

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Wall Street Journal – 10/1/2015

Rewriting The Economic Rules
By George Melloan – Former WSJ Columnist and Deputy Editorial Page Editor; he is currently writing a book on the Great Depression to be published by Simon & Shuster


Robert B. Reich no doubt intends to shock with his declaration that the “free market is a myth.” Few ideas “have more profoundly poisoned the minds of more people than the notion of a ‘free market’ existing somewhere in the universe, into which government ‘intrudes,’ ” writes the Berkeley professor, former labor secretary and author of 14 books.

Mr. Reich has no problem with regulation. He’s unhappy because he thinks that the wrong people have written the rules, namely the rich and powerful. His populist tome will probably find sympathetic readers in this era of widespread and ill-defined discontent, judging from the outlandish poll rankings of Donald Trump and Bernie Sanders.

In “Saving Capitalism” we learn that humans no longer live in their natural state, where only the fittest survive. That news isn’t especially fresh. The federal governmenst alone has 21 agencies and 15 departments that intervene in markets, not counting state and local interventions. Legal precedents, rules and regulations fill thousands of law-book pages.

The author cites what he calls the “five building blocks” of capitalism: property, monopoly, contract, bankruptcy and enforcement. Decisions must be made about each, he writes. Take property: Some things we aren’t allowed to own, like slaves. Or take contracts: Buying or selling “sex, babies and votes” are frowned upon. Enforcement tries to ensure than no one cheats. “These decisions don’t ‘intrude’ on the free market,” Mr. Reich writes. “They constitute the free market. Without them there is no market.” Well, yes. The “free market” is constrained by rules, many of which are widely accepted and some of which facilitate the market’s own smooth functioning. But let’s get to the point.

The point, for Mr. Reich, is a familiar one: We are ruled by big business. The granule of truth in that claim has sustained progressive politics for decades, harking back to the early 20th century, when muckraking journalists and Teddy Roosevelt were beating up on Standard Oil. It’s true that big corporations often seek government interventions that offer them protection from competitors. They don’t have armies of Washington lobbyists for nothing.

Mr. Reich himself is not above protectionism. He boasts that as labor secretary he opposed President Clinton’s Nafta free-trade agreement with Canada and Mexico. Protectionism is a seamy side of corporate—and unionist—behavior. But free-trade forces have more often won than lost. America’s and the world’s markets are still free enough to require businesses to compete vigorously for consumer favor. To that end, Google, Apple, Amazon, Toyota, Samsung et al. strive for productive and distributional efficiency.

The author doesn’t acknowledge this visible truth. Instead, he finds it insidious, for example, that farmers are snapping up Monsanto’s genetically modified seeds because the seeds’ resistance to pests and diseases increases crop yields. To his credit, he doesn’t take the food-faddist line that GMOs are unsafe (which they aren’t). His worry seems to be that Monsanto is making too much money. Attacking technological innovation is a strange way to go about saving capitalism.

Mr. Reich admires populist author Thomas Piketty, who proposes to save capitalism from itself by taxing capital out of existence, thereby creating a truly egalitarian society. He calls the Frenchman’s finding that capitalism steadily widens inequality a “powerful thesis,” although he nowhere contends with the many critiques of Mr. Piketty’s dodgy numbers supposedly backing his claim that the return on capital exceeds economic growth. Mr. Reich asserts that U.S. median family income has been stagnant for over a decade because of the decline in private-sector union membership, although he never contends with the effects of unions on job creation or mobility or on pro-growth economic dynamism.

But back to “free” markets. Markets always exist. The old Soviet Union tried to suppress them but couldn’t, since the managers of state enterprises merely traded among themselves, illegally, to keep the factories running. The question about markets, always, is “how free?” There is ample evidence that the freest countries are the richest.

The U.S. has been sliding down the personal and economic freedom rankings in recent years. The latest index, compiled by the Cato and Fraser institutes in cooperation with Germany’s Liberales Institut, shows that 19 other nations are freer than the United States. In 2008, there were only 16. Perhaps to counter the suggestion that President Obama had anything to do with this relative decline, Mr. Reich argues that Mr. Obama has “presided over one of the most pro-business administrations in American history,” enacting a “health care law that enriched insurance and pharmaceutical companies.” Some insurers and drug makers indeed supported ObamaCare, only to suffer buyer’s remorse, but don’t ask the energy industry, for example, what it thinks about Mr. Obama’s attitudes toward business.

Mr. Reich believes that the fault line in American politics will shift from Republican vs. Democrat to anti-establishment vs. establishment. Messrs. Trump and Sanders might agree. What are Mr. Reich’s own anti-establishment proposals for the salvation of capitalism? Provide everyone, starting at age 18, with a minimum income. Award every child at birth a portfolio of stocks and bonds. Give everyone a share in intellectual property. That would be nice. But there’s always that nagging question: Who’s going to pay for it?

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