Tag: Capitalism

Free Market Fueled Evils

Free Market Fueled Evils

Posted on by jabittan
The free market is praised as the best way to organize human activities and the best way to ensure that progress is made in important fields. If we want to solve climate change, then we need the free market to fuel new technological innovations for clean energy. If we want to reduce poverty, then we need the free market to run at full power to ensure everyone can find employment. If we want better justice around the globe, then we need the free market to operate without borders so that everyone everywhere is competing in the same economic system which values good governance.
 
 
But the reality is that the free market doesn’t really care about all these good outcomes. The free market is indifferent. It is happy to exist and fuel great advances as well as great evils. Yuval Noah Harari uses the slave trade in his book Sapiens as an example of the indifference of the free market to human morals and values. He writes, “the slave trade was not controlled by any state or government. It was a purely economic enterprise, organized and financed by the free market according to the laws of supply and demand.”
 
 
A free market is great, and we can benefit from the efficiencies and effectiveness of the free market, but we have to realize that it doesn’t come with a pre-defined set of values, except for maybe supply and demand plus efficiency. The free market doesn’t care about biodiversity. It doesn’t care about climate change. It doesn’t care about slave labor and exploitation. It simply cares about supplying product to meet the demand in the most efficient way possible. This means that free markets can be subject to abuse, inequality, fraud, and worse. Harari continues, “this is the fly in the ointment of free market capitalism. It cannot ensure that profits are gained in a fair way, or distributed in a fair manner.”
 
 
For human societies, morals, equity, fairness, and other ideas and concepts are very important. We certainly could have a world with subjugated humans dominated by a few who are able to wrangle free market capitalism for their own benefit, but few would say that our species would truly be flourishing in that system. We could have a planet where all resources were available to the engine of free market capitalism, but when we have killed off almost all plant and animal species besides the select few we have decided are valuable to us, then we might not like the climate consequences or the consequences of not having new plants and animals to study for medicines and science. “Capitalism has killed millions out of cold indifference coupled with greed,” writes Harari. This has been our reality, and could continue to be our reality.
 
 
However, human societies have decided there are things that are more important than pure free market capitalism. For humans to survive and flourish, it is important that we continue to recognize concepts like liberty, equality, and global security in the face of free market capitalism. We can strive for efficiency, but we have to recognize that is not the only thing that matters for us. We cannot allow the world to be burned by free market capitalism, or we won’t like where we end up. The free market has fueled many evils, and it is up to humans as a collective to decide how we will continue to have a functioning market economy and prevent such evils from continuing in our lifetimes.
Where is Capitalism Today?

Where is Capitalism Today

Posted on by jabittan
“Capitalism began as a theory about how the economy functions,” writes Yuval Noah Harari in his book Sapiens, but today, capitalism is more than just an economic theory. “Capitalism gradually became far more than just an economic doctrine,” writes Harari, “it now encompasses an ethic – a set of teachings about how people should behave, educate their children, and even think.”
 
 
Capitalism is the basic framing through which most of us live our lives. If you live in the United States you probably get bombarded with advertisements all day long. Those advertisements are a product of capitalism (a message to get you to purchase more things and use your capital) and also reflect the general nature of the capitalistic system we live within. We praise two parent families with children who purchase the newest things, have the most expensive stuff, and take the most exciting vacations. Everywhere you look you see advertisements featuring parents purchasing things and experiences to enrich the lives of their children. You see messages about the things you could be if you spent your money on a new car, a new outfit, or traveled to a new place.
 
 
Underlying all of these messages is that the true way to exist within society is through purchases. Buy more, spend more, work more, all in service to the economy and our own consumption of materials and experiences. Those who work and produce are good, those who have lots of resources to spend and spend them freely are even better. A hermit, not working, not producing, and not spending money, is the worst thing you can be.
 
 
I think it is important to step back and recognize how many areas of our lives are influenced by something that started as a way to describe a set of economic principals. Major decisions, like where we should live or whether we should have children, are often influenced by ideals found within capitalism. In many ways, capitalism has become the end goal, and not just an economic theory. Many values have taken a back seat to consumption, or the appearance of consumption, and that can leave life feeling empty, cold, and somewhat vain.
Profits, Production, & Acquisitions

Profits, Production, & Acquisitions

Posted on by jabittan
I listened to the latest episode of The Readout Loud from Stat News yesterday, and the hosts of the show said that bio-tech companies have a huge amount of cash available as 2022 starts. The hosts stated that they are interested to see if any major acquisitions are announced by bio-tech companies at this year’s JP Morgan Chase Healthcare Conference.
 
 
This short discussion about mergers and acquisitions from the podcast came to mind when I re-read a short quote from Yuval Noah Harari on capitalism in his book Sapiens. Harari writes, “in the new capitalist creed, the first and most sacred commandment is: the profits of production must be reinvested in increasing production.”
 
 
Bio-tech companies, which range from major pharmaceutical companies to start-ups using artificial intelligence to better diagnose disease, seem to have a lot of money at their disposal (at least the major companies do). This suggests that companies have not been following Harari’s capitalist creed. Rather than reinvesting in their own production, companies are sitting on capital, waiting to purchase a smaller company. It is interesting to consider that major companies are expected, by journalists and shareholders, to use their money in this way. They are not expected to invest in their own research and development, but in an acquisition of a smaller company. As an example, the hosts quickly mentioned a few companies with blockbuster drugs that will soon be loosing their patent protections, meaning another manufacturer can begin making those medications. When that happens, the companies will need a new drug to bring to market to maintain profits. That new drug is expected to come from a smaller bio-tech company with a break through medication or treatment technology that could be absorbed by the larger existing pharmaceutical or bio-tech giant. 
 
 
In the capitalist system that Harari described, acquisitions doesn’t seem to fit with the idea that profits need to be reinvested to increase production. Following that model, companies wouldn’t sit on cash produced by patent protected drugs until they could acquire a new company. Instead, they would continually put their profits back into their own systems to increase productivity of their manufacturing process, supply chains, and their own drug development. Instead, what we see is cash and funding infused into smaller start-ups that can drive a particular technology or product to a point of success, and from there a larger company buys out the start-up, flushing the initial investors in the start-up with profits. This model seems to work fine, but it is distinctly different from the capitalist system that Harari describes, and which most of us probably think about when we consider what capitalism is.
Capitalism and Externalities

Capitalism and Externalities

Posted on by jabittan
Capitalism has come under fire in the recent years in ways that I would not have predicted as I completed my college degree and entered the workforce. For so many years the idea of capitalism has been central to the American story and to American identity. It may not be perfect, but it has always been held above other economic systems as the best option available. However, recently, people have taken a new look at capitalism to ask if it can be maintained without the plundering of others. Can there be a reasonable sense of equity or equality within a system of capitalism? And in the United States, do we really have a meritorious system of capitalism, or is the American system of capitalism overrun with grift and graft?

 

Allowing people to flourish based on their own talents, allowing people to pursue their own interests, and to accumulate wealth can be a good thing, but it can also be done to excess. Like alcohol, chocolate cake, or Netflix, our pursuit of wealth can essentially be an addiction, and the costs can be born on all of society, not just on ourselves. Our actions and the systems and structures within which we operate have unintended consequences. These consequence, or externalities, can be positive or negative. Within capitalism, positive externalities include new technologies that improve our lives, more efficient markets which minimize waste, and hopefully more goods and wealth for everyone. But negative externalities related to capitalism include pollution, corruption, and extractive processes that harm individuals, communities, and environments.

 

In Letters From a Stoic, Seneca writes to his friend Lucilius, “I myself pray rather that you may despise all those things which your parents wished for you in abundance. Their prayers plunder many another person, simply that you may be enriched.”

 

Seneca is acknowledging that when one person gains resources, often times it is at the expense of another person. The goal of capitalism is for our economic system to be positive sum, meaning that everyone is better off in an exchange – a state known as a Pareto Efficiency. However, this is not always the case. Seneca sees exchanges, or maybe more precisely the accumulation of resources and wealth, as zero sum, meaning that there is a fixed amount of stuff, and that anything that one person accumulates is taken away from another person. This, in my opinion, is where so much of our discontent in the United States and across the globe with capitalism lies.

 

Seneca may not always be correct. There may be Pareto Efficiencies out there and there may be situations in which capitalism builds a positive sum economic system. But it does seem like moderation in our approach to capitalism and wealth accumulation is warranted. At a certain point, for us to have more necessarily mean that we are extracting wealth and resources from other places. Mining, logging, and cattle grazing can have damaging effects on local environments and communities, even if they do help develop industry or increase GDP in the places we take resources from. Beyond a certain level, continuing this trend is likely to make our lives marginally better, while potentially making the lives of others much worse. We should constantly ask ourselves if we are nearing that point, and try to limit our need for more stuff and more wealth when we are at sufficient level where the marginal gain for us is meaningless and effectively just plunders others for our own enrichment. It seems reasonable if we should ask whether limitless growth is really possible, or if capitalism ends in a state of plunder, in which nothing is left for a sustainable existence for everyone.

Self-Seeking Versus Unselfishness

Posted on by jabittan
“The world is so full of people who are grabbing and self-seeking. So the rare individual who unselfishly tries to serve others has an enormous advantage.”

 

Dale Carnegie wrote that line in his book How to Win Friends and Influence People. The line comes right after he describes a day where he encountered two life insurance salesmen. The first mentioned a new life insurance option, but because he didn’t have much information, didn’t press the sale and make much of an effort. The second salesman also didn’t have much information, but showed a lot of enthusiasm, encouraged setting up an additional appointment with someone from the company who knew more, and offered to help handle some of the paperwork to get the sign up process started more quickly. The second salesman got the sale.

 

When I read the quote in isolation I thought about people hording supplies during our current social distancing efforts to limit the spread of the Coronavirus. I thought about how tempting it can be to try to make a quick buck, even if the couple hundred dollars the hoarders might make by selling marked-up toilet paper won’t really make much of a difference in the lives of most of them. I also thought about a conversation from the Ezra Klein Show, where Klein, the host, interviewed Jane McAlevey, a union organizer who discussed the way that employees could instinctive tell if you actually care about them when you show up on the job-site, or if you look down on them and think that they are not as smart and deserving as you think of yourself. To live in a world that doesn’t price gouge during a crisis, and to be effective in working with other people requires an unselfishness that recognizes that you are not better than other people, no matter what your degree, your bank account, or the social status of your job says. Being truly unselfish means that you view everyone as having at least the capacity for having the virtues that you prize in yourself, and being willing to help them express those virtues.

 

There is a difference between the way I thought about unselfishness when reading the quote in isolation versus the way that Carnegie thought while writing the quote in his book. For Carnegie, the idea is that you can use your selfish impulses and personal desires to improve the lives of others, at least if you can step into the other person’s shoes, see what they need, and fulfill that need in a way that is deserving of compensation on your end. It is a capitalistic view of selflessness, and while it is not a terrible thing on its own, it requires the possibility for Pareto efficiency, for the world to be in a state where an action can be taken that would improve the world for both you and everyone else. It requires that our actions have only positive externalities. This is the view the inspired the entire book How Stella Saved the Farm, in which a brave sheep steps us to lead a farm and creates prosperity for everyone working on and depending on the farm through an embrace of good management in a capitalistic system.

 

The other view of selflessness is a much more social form. It doesn’t ask if there is a Pareto efficiency that can be met, but instead asks if our goals and desires are really necessary. It asks if the resources we have can be better used by people who are in need. It is part of a bigger question of whether we can do things that will improve the lives of not just us and the person in front of us, but of the entire society.

 

I don’t think that either view is necessarily wrong, but I do think that both views can easily be overstretched. Thinking of selflessness in purely the context of capitalism, as Carnegie was and as is presented in How Stella Saved the Farm can be good, but it can also create a system where our core societal value is what you contribute and produce in an economic sense. As we are not Homo Economicus, this can put many of us who are not great market thinkers and are not inspired business efficiency and productivity in a tough place where we are viewed as undeserving.

 

The second view sees us as valuable and deserving simply by being human beings, but it does raise question about how we reach economic development. An argument can be made that big business and technological development are crucial for improving living standards and actually improving lives more than just social do-gooding. Indeed, Tyler Cowen has made these arguments, and while I’m not sure he fully considers how damaging many of the negative externalities can be, I think he is broadly correct.

 

In the end, I fall back on what both perspectives have in common, which is captured in another line from Carnegie’s book just a few sentences later than the line that opened this post, “If out of reading this book you get just on thing – an increased tendency to think always in terms of other people’s point of view, and see things from their angle – if you get that one thing out of this book, it may easily prove to be one of the building blocks of your career.” I would switch the final word career to life, but the idea is there. Thinking about the world and others from other people’s perspectives is crucial for avoiding selfishness and for making a positive impact on the world. Whether you chose to do so through business and capitalism, through direct work with those who need it the most, or a combination of both approaches, you must first be able to see beyond your own wants and desires and understand the way that others see the world.

A Critique of Our Current Markets

Posted on by jabittan
A lot of people today feel that capitalism is failing them. They feel left behind and they believe that the system is rigged against them. This will undoubtedly be a major driving factor in the next presidential election and there will be many candidates who offer their own diagnosis as to why people feel the way they do. A key reason, I believe, as to why people feel the system is failing them is highlighted by Colin Wright in his book Becoming Who We Need to Be. Wright addresses the way that many people seem to be creating businesses, making money, and becoming successful through trickery and rent-seeking behavior. He writes, “…this means that if we can find a clever way to extract money from the system, even if we don’t create anything of value, or we sap value from society in the process, we’re still doing it right.”

In a recent podcast episode for his show Against The Rules, Michael Lewis described the way that many financial companies exist not to serve customers better, but to operate in a way that makes money seemingly by fooling customers into making decisions that benefit the company without benefiting the consumer. I’m sure that for many of us, our healthcare or health insurance has felt that way. Also for a lot of us, we probably felt that we got a little ripped off on one of the first times we tried to purchase something on Ebay, and ended up not quite getting what we expected.

A lot of aspects within our economic system at the moment seem to reward people even if they don’t give us what we expected. There are incentives to create systems and products that sound clear, but end up being hard to access and ultimately don’t seem to make us or anyone except the seller any better off.

On our own, we all want to get the most money and reward from doing the least amount of work. At times it is true that we all want to bust our bums and do great work, but if we could just set something up where we made money no matter what and didn’t have to do any real work, on some level we would be happy. On an individual level this is not a big deal, but when it is combined, multiplied, and turned into a corporation it can become a problem for society, and that is what we are seeing in the national mood today. People sense that the system is not fair and doesn’t produce fair outcomes. The individual instance of being ripped off might not be the thing that makes them the most angry, but rather the fact that the system allows for people to pull out money and become successful without creating value makes people lose faith in institutions. At a certain level, no matter what our individual incentives are, we should recognize and accept that this is a bad way to operate long term, and we would be better off within a society that seemed to operate more fairly because it would create less anger and more stability on a societal level.

How Effective Altruists Capitalize on Capitalism

Posted on by jabittan
In his book The Most Good You Can Do Peter Singer explains the way he thinks about economic objectives, equality, and how capitalism affects the American public.  Singer is globally focused on reducing the suffering of people in extreme poverty and what he explains in his book is that the levels of extreme poverty seen in the united states are far lower than levels seen in other countries. He also explores the idea that to be poor in the United States is better than to be poor in developing countries where there is not a structure of assistance and where there are not wealthy people who are able to make donations to help others.
Singer focuses on the idea of the wealthy helping those who are not as fortunate in his book, but his ideas of wealthy might not align with ours. With his global focus he sees ways in which the average American is vastly more wealthy than most people living throughout the world. Even though we may not consider ourselves wealthy, we are often much better off in the United States, and we often have a much greater opportunity to help others through doing good.
Capitalism in The Most Good You Can Do is explored as the source for both the great wealth in the United States even though it is also a source for great inequality within the our country and the global community. Interestingly, Singer views equality as a secondary goal or a useful byproduct of a society focused on doing good. He writes, “effective altruists typically value equality not for its own sake but only because of its consequences.” I would argue that Singer greatly values political equality and social equality since somewhere at the base of effective altruism one must believe that those who they are helping are equals because we are all human. However, the idea of everyone being on equal footing socially and economically is not a key aspect of effective altruism.  Effective altruists are not driving for more wealth and more things, but may drive toward greater salaries because it means they will have a chance to do more and provide more for those who are in the most unfortunate of situations.
“No doubt capitalism does drive some people into extreme poverty — it is such a vast system that it would be surprising if it did not — but it has also lifted hundreds of millions out of extreme poverty.  It would not be easy to demonstrate that capitalism has driven more people into extreme poverty than it has lifted out of it; indeed there are good grounds for thinking that the opposite is the case.”
Singer’s quote shows that our economic system cannot be blamed for the greatness of our society nor for its shortfalls. People within the same system experience greatly different pressures and outcomes, but what determines the overall health of our society is how we use the system in place. In capitalism the very wealthy have taken advantage of the system to benefit themselves, which is a side effect of the system that does deserve criticism.  I would argue that on the other end of the system, thinking of a socialist or communist society, we would fear that those who are the most disadvantaged would find ways to take advantage of the system as opposed to those who are the most wealthy.
The argument that I believe Singer would make, in regards to capitalism, is that those who do become super wealthy, or even moderately wealthy (which may mean the average American when we adopt a global perspective), can do the most good by choosing to redirect their resources to causes that they can meaningfully impact and that will meaningfully impact the lives of those who suffer the most.  Without a capitalistic system that allows us all to obtain the most wealth possible, we lose the opportunity to do the most good possible. A focus on social responsibility within a capitalistic society, Singer would argue, is the greatest change and source of positivity the world can provide.