McCloskey and My Capitalism Confusion
from Peter Radford
Maybe it’s just me, but I am confused over this thing called capitalism. I have read that it is the great force that, somewhere back a couple of hundred years ago, suddenly unleashed a surge of wealth creation that has, like a huge tide, carried us all to heights of luxury previously unheard of. Perhaps that’s true. I am told that scientific advance, religious and political freedom, and the diminution of the conservative institutions that characterized society before that point were insufficient to spark such growth. No it was capitalism. The swiss army knife of socio-economic advance.
I mention this because I am, in my normal ham-fisted manner, trying to grapple with the so-called “structural unemployment” issue. This being the currently fashionable explanation for why US unemployment rates have been so resistant to improvement.
We are, apparently, stuck in one of the more destructive moments of what Schumpeter called creative destruction. The capitalists say tough. They say get used to it. Eventually we will all motor on to better and better things. So stop the whining.
But I like whining. Especially when I am yet to be convinced this is all true.
I am not going to fall into the trap of criticizing capitalism as totally corrupt or iniquitous. I agree with the general thesis that is has been agreeably beneficial for us all. For instance, I have to agree with McCloskey when she forces us to face the long run gains in wealth that the poor have experienced wherever innovation has been allowed to let rip. Innovation, that is, when coupled with greed. With personal greed providing the spark that spurs people to exploit innovation. The long run idea being that we as a society benefit from the relentless shift of resources from lower value uses towards higher value uses. That gain in value-in-use is what explains my comparative wealth when compared, say, with that of my grandmother who worked as a servant on the estate of an English aristocrat.
So, yes, I am much better off than my ancestors. And for this I am grateful. Well done all you innovating entrepreneurs.
But. I am not so sure I like all the consequences, some of which take the edge off those gains. There are two I dislike most. You may have a different list.
First is the most obvious. Apologists for capitalism invariably oversell its ability to solve problems. They make it sound as if capitalism is the solution to everything. This is absurd. For just as we skeptics should acknowledge the great wealth it seems to have created, the apologists should acknowledge the great number of things it hasn’t solved. Plus they should acknowledge the ancillary costs that come with it. I see no cure for cancer. Nor do I see a current solution to the environmental muck that those factories spew out. There seems to be a great deal of social cost associated with all that essential private gain. So, we are certainly better off, but we also have new costs to bear. Costs that often mitigate some of that gain, but which we are supposed to be happy to bear so the heroic entrepreneurs can run free and innovate to their happy hearts desire. And to their profit of course.
Second, and perhaps less obvious, is that the constant turmoil so well described by Schumpeter is more economic and less social. Wealth tends to stick. And that stickiness builds up. The result is that societies can congeal with the top tier then able to ensure that the destructive bit of capitalism passes them by. The wealthy get to run things either directly, as in the old days, or indirectly, as in contemporary American politics where money talks very loudly indeed. Unfortunately this means the two spheres mingle into a socio-economic melange and the constant churn of capitalism gets muted by the barriers of privilege and class continuity.
I think Schumpeter realized more than any current economist just how much the political, social, and economic spheres interact. They are not at all separable. We are faced with one giant complex jumble of relationships. When we try to tease out the so-called “purely economic” part, we come up with dumb and irrelevant analysis because we have left behind the essential context within which that economic part comes alive. It’s as if we have to kill the market in order to study its vitality. So too with capitalism. We take it out of context and we draw wrong conclusions. Those wrong conclusions can sometimes be dangerous. As in the relentless deregulation that contributed to the instability of our banks.
When I consider just how much America has changed since I arrived here – after leaving England precisely to escape its love of crusty social structures – I am left wondering just how creative all that destruction is. America seems to be fast ossifying. The energy of what I came to having been replaced by a more slow moving, quasi-class sediment, deposited across society. There is a definable upper class here. More so than ever. So where is that churn? Where is that risk of collapse that Schumpeter spoke so glowingly of?
Put this in context.
The Great Recession has scarred America. The prime movers of the errors that plunged us into the abyss are relatively unscathed. They are back making millions. They are still in control. They, as a group, seem undaunted by the experience. I am sure that within the group some re-strucucturing of the pecking order has taken place. But I see very few ex-Goldman Sachs bankers driving taxi cabs. In fact I see, and know of, none. The great crisis did not alter the social fabric one iota.
All that destruction ended up on the shoulders of those who experience capitalism second hand. They are the ones McCloskey says should be happy to tolerate the capitalists. They are the poor whose boat has been so generously lifted by the great capitalist tide. It is not for them to complain. They are lucky. After all it is not their hard work or effort that made all this possible. It is those capitalists. They did the heavy lifting. Workers merely work. And we all know they only do that up to the point at which the disutility of losing leisure matches the utility of earning a wage. After which they revert to their natural lazy and indolent state. Or unemployment.
So it is only right that the workers bear the brunt of the great changes afoot as the clever capitalists engage in a humungous gear change.
Hence structural unemployment.
It appears that our wise capitalists and financiers have learned that American workers are too expensive and not very well educated for the new things we need to do. This is, obviously, the worker’s own fault. So they are justifiably unemployed. They need to learn new tricks. And they need to do those new tricks for a lower wage. This is because there are hordes of cheap and apparently well educated workers elsewhere willing to catapult their own wealth by working all hours for less. This naturally excites the capitalists who can similarly catapult their own wealth beyond its current meager levels. But those American workers have to give up the notion of maintaining their living standards, at least until they get themselves a better education more fitting to the new wave of up-scale jobs about to be unleashed by all this creative destruction. Just don’t ask the capitalists to chip in for that education. You see, education is a private, not a public good. Workers benefit from a better education so they should pay for it. The capitalists will look after themselves thank you very much. So should the workers.
As we emerge from the crisis and ponder the lingering unemployment problem our capitalist friends have an important message: this is only the destructive bit. We can rest assured a new wave of creativity is rushing ashore to lift us all to riches beyond our wildest dreams.
This is where it gets a little sticky. For me at least. That onrushing wave looks a lot like a tsunami, with all the terrifying destructive power we are now all too well aware of. Even the apologists have to admit this wave looks a little different from the others. This should make a difference in our analysis.
This is because for all the enormous amount of talk there’s been, we really don’t have a lot of history with capitalism. As McCloskey says, it’s only been around for a couple of hundred years only. That’s not many generations. And Schumpeter was writing his glowing account several decades ago when we had even less history. His descriptions often sound like the naive wonderment of the young, before time chips away at that early awe. And time plays a big role. It’s one thing for me to acknowledge that I am much better off than my servant ancestors. It is another to live through one of those destructive phases. If the destructive phase is so long that it encompasses a person’s entire working life, then that person is entitled to wonder what all the fuss is about. They are entitled to wonder where all that creativity is. Gain over several generations, it turns out, can include a loss over one of those generations. It’s our bad luck to be the loser.
That’s pretty much where we’ve been. Wages in America have languished, not just through this crisis, but for three decades prior to that. The vaunted onrush of creativity hasn’t impelled the average worker forward for a while now. At least not here. Globally, maybe it has. Those newly minted Chinese middle classes are surely in the thrall of the greatness of capitalism. Chinese style naturally. But capitalism nevertheless.
Here. Not so much.
McCloskey makes a big deal about lecturing to us, in her maternal way, that we should not see creative destruction as a win-lose dichotomy. She suggests it is more a win-win-win-win-lose game. Yes there are losers. But the winners are so many more, that society as whole can tolerate them. They can be absorbed or ignored. Life is tough. This argument was written just before the implosion. Now it looks less assured. The problem being that there are too many losers this time. The destruction vastly outweighed the creation.
And that congealed top layer of society is untouched. So the destruction is asymmetrical and acute.
McCloskey wants us to believe the hype. She wants us to relax and wait for the next great leap forward. She says all this growth in wealth has been delivered by the unleashing of forces after greed became socially acceptable. Only we don’t call it greed. We call it capitalism. The wealth machine started rolling when dignity was conferred on greedy entrepreneurs. When they came in from their long held social outcast status. When societies recognized something she calls Bourgeois Dignity.
But what about worker dignity?
Or is that not important?
I think it is.