The morality of capitalism v. redistribution

Where to begin with the question "Is capitalism moral"? Let's start with the title. Kind of a loaded question. Anyway let's be precise. Pearlstein is really discussing political economy, i.e. how our laws and governance influence commerce and the general welfare. Pearlstein means to debate the role that government should play in the economy. 

To start, Pearlstein correctly notes that, "For most of the past 30 years, the world has been moving in the direction of markets," and yet increasingly over that same period we have "stagnant incomes, gaping inequality, a string of crippling financial crises and 20-somethings still living in their parents’ basements."

Thus Republicans have pivoted, Pearlstein says, to focusing on capitalism's moral superiority because they certainly can't make a prima facie case for capitalism's benefits. Unfortunately, Pearlstein takes their bait and tries to analyze, more or less objectively, which side -- the "free-market capitalists" or the "redistributionists" -- is indeed morally superior, and the flaws with each.

The truth, as with most things, is muddled and complicated.  But I want to lay down a few markers. First, very few liberals/progressives/Democrats insist on having this "moral" debate. Why? Because we liberals are outcome-based. By contrast, conservatives and free-marketeers believe that one's moral principles should determine the rules of the game, and if one's moral principles are sound, then ipso facto, the results will take care of themselves. More precisely, conservatives believe that economic results are morality-free; only our political economics must be morally sound.

Let's admit though that his whole debate has been predicated by recent shitty economic outcomes. For a liberal, a more appropriate question would be to ask: whose political economy is the most responsible for the shitty state of today's economy?  True liberals would be even more precise: what specific policies have led us to these terrible outcomes? Conservatives would obviously like to dodge this question, and instead talk in philosophical or moral abstractions, parables and anecdotes, because the facts -- the results -- of their 30 years of neo-liberal rule do not support the morality of their political economy.

Second marker: to quote Paul Rosenberg: "economics used to be called 'political economy', because the great classical economists never lost sight of the fact that economics was a thoroughly political activity, not something outside of the life of a political community." In other words, economics never, ever, ever happens in a political vacuum. Thus, the notion that, in some ideal country, the free-market capitalism of Adam Smith hums and churns along for the betterment of all, unfettered by and independent of government, is naive and silly. Government has a role to play, it sets the rules of the economic game, we all know that.  To what extent government is involved is a matter of degrees. 

Again, liberals believe that government's role should be evidence- or outcomes-based, i.e. tweaked according to the outcomes achieved, whereas conservatives believe that outcomes, like people, should take care of themselves. What's important for them is to set up a system of rigid, unchanging moral conditions under which people operate.

Third marker: noting the terrible results of recent deregulation, privatization-outsourcing and tax cutting is not the same as saying "capitalism is bad." Conservatives and perhaps Pearlstein would like to provoke us liberals into saying that. It's not necessary, or rather, it's an academic argument rather than a real one, since we have not had a "free-market" system for a very long time, if ever. Indeed the U.S. Government has been "meddling" in the economy for a very long time, just in different ways and to varying degrees. 

The recent political-economic bag is mixed: just as union membership has been plummeting, charter schools have been blooming, taxes on the One Percent were being cut, and regulations on Too Big To Fail banks were being torn down, so was USG spending on the military-industrial complex going through the roof (Afghanistan, Iraq, and the Department of Homeland Security apparatus), not to mention Dubya's tremendous addition to the Medicare entitlement -- altogether resulting in a 91 percent increase in our national debt from 2002-2009. 

To be sure, we also had the Great Recession from 2007-2009 that is almost entirely to blame for our persistently high unemployment and deficits since then. This begs the question: what political-economic philosophy was more responsible for the Great Recession? Because we wouldn't be having this discussion right now if it weren't for the Great Recession. You could skip all the junk I wrote above and below, and if you answer this one question correctly, then you are nearly at the truth....

But anyway, back to Pearlstein. He critiques liberals because "they have yet to articulate the moral principles with which to determine how far the evening-up [redistribution] should go -- not just with education but with child care, health care, nutrition, after-school and summer programs, training, and a host of other social services."  There are two big problems with where Pearlstein is going with this.

First, his critique is simply untrue. Liberals have laid out their moral principles, most eloquently in President Roosevelt's 1941 "Four Freedoms" speech that included the "freedom from want," and then in President Johnson's "Great Society" initiatives in the 1960s.  

In fact, our moral calculus is much easier to understand than conservatives'. We believe that, in the richest, most powerful nation in the history of the world, nobody should go hungry, uneducated or without health care. Furthermore, we believe that our nation's children, elderly and disabled deserve special care and protection, including additional food, medical and housing assistance. This is pretty easy to understand, and to verify. Can a child perform well in school relative to his peers? Does a person go hungry or malnourished? Does a child have a roof over his head? And so on. Depending on the answer, we have a moral obligation to do something. It couldn't be easier to understand.

Second problem: Pearlstein asks liberals to lay out: 1) our moral principles [check]; but also, unfairly, 2) a formula for government redistribution that is clear and will work forever and ever, amen. That's just childishly naive, I'm sorry. Pearlstein needs to get real. First, he ignores political reality that demands compromise. Nobody gets his way all the time, 100%. And let's just remind ourselves why this matters: if tomorrow President Obama would say that a "fair share" of taxes on the One Percent was, say, 30 percent, then this would be all anybody could talk about. Conservatives and their armies in think tanks, cable and talk radio would parse and mince it to death for weeks and months. When in fact it's all relative; and liberals don't care what the number is, as long as it generates sufficient revenues and ensures economic growth. (But historically, until the 1980s, the top marginal rate didn't fall below 70%).  At the end of his essay, Pearlstein admits as much:

Moral philosophers since Adam Smith have understood that free-market economies are not theoretical constructs -- they are embedded in different political, cultural and social contexts that significantly affect how they operate. If there can be no pure free market, then it follows that there cannot be only one neutral or morally correct distribution of market income.

Second, Pearlstein fails to acknowledge that liberals, unlike conservatives, think and act according to feedback loops: from problem/result --> intervention --> result/problem, and so on. Therefore, without observations of actual events, we cannot tell you what will be a fair and equitable taxation rate 5, 10 or 50 years from now, or a fair distribution of wealth. We won't even hazard a guess. 

Such tolerance for uncertainty drives doctrinaire conservatives to conniption. But that's a fundamental difference between us.  Therefore, a real liberal would start with our current and projected expenditures and sources of revenue and go from there; he wouldn't start the analysis with, "Well, it's just plain unfair and immoral for somebody to pay more than x percent of his gross income in taxes."  And besides, if that is my "moral" conviction, then how in the world can we debate that? We'd start at an impasse.

Pearlstein does argue that the distribution of economic rewards will shift over time, but liberals already know this:

[T]he way markets distribute rewards is neither divinely determined nor purely the result of the “invisible hand.” It is determined by laws, regulations, technology, norms of behavior, power relationships, and the ways that labor and financial markets operate and interact. These arrangements change over time and can dramatically affect market outcomes and incomes.

Pearlstein's next critique of liberals is that they "have been able to create a welfare state only by addicting a middle-class majority to government subsidies -- subsidies that now can be financed only by taking more and more money from the rich." 

Do I really need to cite statistics about tax and income inequality and the disappearing U.S. middle class?  If so, read this, this, this, this and this. And don't even get me started about the $29 trillion bank bailouts, that primarily went to save financial markets in which the top One Percent owns 42 percent of all financial wealth, and the top 20 percent owns about 90 percent. The TBTF bank bailouts clearly demonstrate who is really "addicted" to Big Government and to what degree! 

Overall, although Pearlstein leans conservative, he touches on most of the important questions. The main take-aways from our debate are these:

• Pure capitalism (or socialism, for that matter) has never existed anywhere, nor can it;
• We are only worried about rising deficits and redistribution payments because of the Great Recession that in turn resulted from financial deregulation that conservatives support, even to this day;
• Liberals should never feel obligated to justify the morality of their political economy, when if fact we are much clearer on this than conservatives who claim to care about the poor just as much as we do, yet have no idea how to remedy persistent poverty;
• Liberals should not fall into conservatives' trap of naming "ideal" marginal tax rates, debt:GDP ratios, or anything of the kind, because 1) it's unwise tactically, in a political system that demands compromise, and 2) the correct answers will change over time.

A final note on political-economic morality: Pearlstein doesn't mention it but I will: conservatives' economic morality depends on personal pain and suffering. They firmly believe that pain teaches us lessons and can be personally redeeming; therefore, for redistributionist Big Government to deny a person the pain that he "deserves" is to deny him the chance to learn and improve himself.  

There is also a religious conservative variant of this belief: even if one's suffering wasn't caused by one's poor decisions, it may still be part of God's plan for that person; therefore, for redistributionist Big Government to prevent that pain and suffering is to interfere with God's plan for that person. Moreover, government assistance to a suffering person denies true Christians the opportunity to curry favor with God by performing charitable works for that suffering person. 

I hope I don't have to explain how sick and twisted such moral reasoning is, much less why it cannot be the basis for our country's political economy....

Finally, a note on redistribution. I will take the liberty here of quoting myself at length:

[L]et's recall for a minute what the U.S. Government -- any government from the dawn of human civilization -- actually does, in pure basics: it collects taxes from the people how it sees fit, and then spends that money how it wants. It does not, for example, say, "Mr. David Koch, since you contributed 0.01 percent of federal income tax revenues in FY 2011, we are allocating 0.01 percent of the FY 2012 federal budget to you."  

Since our government doesn't do this -- since no government has ever done this, ever -- then by definition, what our government does is redistribute wealth.  Moreover, sooner or later all government spending ends up in private hands -- just not necessarily (and not usually) in the hands that gave it its money in the first place.  If that's not redistribution then I don't know what is.

Is capitalism moral?

By Steven Pearlstein

March 15, 2013 | Washington Post

URL: http://wapo.st/WLTcrp