Losing Battle

Ok, I was going to make this entry about how capitalism really isn’t the evil monster that most people seem to think it is, but I think I need to concede that I am fighting a losing battle before I even start. Capitalism is a lost word. Most people today associate the term capitalism with the government being owned by big businesses and bailing them out undeservingly when they fail. This “crony capitalism” is not at all the spirit of what the true meaning of capitalism is. In fact, giving breaks to big businesses is completely against the spirit of what capitalism is. It is true that in a capitalist society oftentimes big businesses emerge and drive out smaller competition due to economies of scale (and because of this, we all get better products for less money), but when big businesses fail in a truly capitalistic society then they should be allowed to fail. Real capitalism does not allow for the government to pick favorite businesses to prop up – it allows society to choose which businesses thrive and fail based on their own individual choices.

People also seem to have the notion that capitalism causes poor people to suffer and the rich to get richer. They see it as a system of government that only helps the wealthy and doesn’t care about the less fortunate. This is a false notion too, but it is true that larger income differences usually develop under capitalism. However, just because it causes a greater difference doesn’t mean that poor people are actually poorer. For example lets look at 2 imaginary societies:
Society 1: The top 1% of society earns $5 billion annually, the bottom 10% earns $15,000 annually.
Society 2: The top 1% of society earns $1 million annually, the bottom 10% earns $10,000 annually.
Which is the better society? I think most people will tend to agree that society 1 is the better society, even though there is a far greater income gap. However, the fact that there is a gap doesn’t change the fact that the poorest people in society 1 are still actually wealthier than the poorest in society 2. I think society 1 tends to resemble the makeup of more capitalistic countries, whereas society 2 tends to resemble the makeup of more socialist countries. However, even if you challenge this assertion, you must at least be willing to admit that the poorest people are less poor in society 1. And the way in which people tend to focus on income differences in a country is troubling to me, because it misses so many other crucial points.
Now, you might be thinking that society 1 just seems less “fair” than society 2. It doesn’t seem fair that some people are allowed to use their skills to prosper because they were born in a certain level of wealth, whereas another person with the same level of skills may not be able to prosper because they were not born into that level of wealth. You are correct – this isn’t fair. The problem is that reallocating income is not an easy and simple thing to do. Attempting to reallocate income always results in inefficiencies. This isn’t to say that it isn’t worth doing (I personally am all for wealthier people being taxed at a higher rate and some of that income being passed down to the poor), but you have to be aware that there is a trade off.
For example, I think most liberals would be happy if we made Wal-Mart pay far more taxes – they are pretty much the prime picture of an evil giant corporation in a lot of eyes. However, by charging Wal-Mart higher taxes, the government would also be stymieing Wal-Mart’s growth and thus Wal-Mart will ultimately have to sell their goods at higher prices than they would otherwise – which hurts the poor. The goal should be to find the optimal level of taxation where Wal-Mart and similar entities are still able to prosper while providing the government with a healthy source of tax revenue. What that optimal level is is very hard to determine and very debatable, but what isn’t debatable is this: taxing Wal-Mart to the point that it lost its economies of scale efficiencies would hurt poor people more than it would help them.
Anyway, the goal of my entry isn’t to turn every Socialist reading this into a Capitalist or every Democrat into a Libertarian. I know that is much too far-reaching and I don’t claim to have all the answers on what the best way to manage a society is. All I’m asking for is that the next time you hear a friend say “The greed of capitalism is ruining our country! We need to get rid of capitalism and bring back democracy!” you listen with just a little more skepticism.