Earlier today I linked to Philip Greenspun and the discussion on How Wall Street is making its billions. A bit further down in the posting, commenter Horace draws attention to one of my main instinctive criticisms against Libertarian/Objectivist economic reasoning:
This is why libertarianism and objectivism won’t work. They actually believe capitalism rewards excellence and don’t take into account the financial gimmickry people have to submit themselves to to get investment capital. You’ll notice there was no such thing as a bank loan in Atlas Shrugged. Banks are never mentioned.
The idea that capitalism rewards excellence is pure ideological posturing. There are just too many examples of the mediocre or downright incompetent surviving pretty well out there to think that they are the exceptions. There is nothing that proves that the few examples often given of capitalism’s just rewards would not have been rewarded anyway under any other economic system.
Greenspun’s own reply to Horace is unsatisfying:
Horace: Capitalism has rewarded excellence. Look at Honda’s steady rise since its founding in 1948. Capitalism combined with some government regulation has given even greater rewards to subprime mortgage scammers. Lobbying the all-powerful government has provided even greater rewards (sticking with the auto theme, Honda’s market cap of $55 billion is roughly comparable to the taxpayer money that is being put into the UAW’s pension fund (after that fund, thanks to the poor judgment of Detroit automakers’ management, already absorbed 100 percent of the market value of GM and Chrysler and most of Ford’s value; see the first third of the book “While America Aged”).
Honda is also a good reminder of the value of government central planning. The Japanese government tried hard in the 1960s to discourage Honda from entering the automobile business. The company is now the world’s 6th largest automaker.
I don’t think we should conflate capitalism, a theoretical concept, with actual day to day economic systems in countries with governments that consume 30-50 percent of GDP. Regardless of the advertised economic system, a government will tend to reward its cronies.
Would objectivism work? Probably not that well if, as you point out, Atlas Shrugged proposes a world without banks (very useful institutions for matching savers and businesses that need to invest in expansion). Would libertarianism work? There aren’t any truly libertarian countries, but the countries that spend comparatively small percentages of GDP on government seem to be doing well.
First of all, my somewhat irreverent objection: I have never driven a car. I have never seen the sense or need for a consumer economy based on private automobiles. For the life of me I cannot see why anything relating to cars would be deemed ‘excellent’. If somebody could find a way to provide everybody with cheap reliable and green public transport, now that would be excellence! A lot depends on how one defines excellence, and successful marketing and commercial success simply do not qualify in my estimation, especially in activities that should matter. Imagine we determined excellence in biology on the number of books sold and the snappiness of the Powerpoint presentations. (Oh, forgot, there are some people who do – creationists).
Furthermore, the objection that capitalism does not reward excellence, is usually meant as a critique of the nepotism that is a main characteristic, at least in the real world. You know, bankstas giving bankstas big bonuses and better jobs despite abject failure while normal employees have no real certainty, get treated like cow dung and paid likewise. Honda’s success does not alter this in any way.
But I really get upset when people tell me I should not “conflate capitalism, a theoretical concept, with actual day to day economic systems …” This type of argument was unacceptable when used by western communists in the 70’s to account for Stalin, it remains repugnant even now. Either your theory describes the real in some manner, or it remains pure fantasy. Does this not imply that your theory is so incomplete as to be unusable? Also note how the fact that there are no existing libertarian economies is mentioned when commenting on the theory’s viability, while having just a few sentences before admitted that there are no existing capitalist economies either.
I am also very uncomfortable with any argument that descends into anthropomorphism, although I often apply it myself. It can be deceptive to make statements like ‘homophobia violates people’s right to respect’, or indeed to use Greenspun’s example, ‘capitalism has rewarded excellence’. It is a good practice to now and again take a step back and remind oneself that it is the person suffering from homophobia that violates my rights, as it is the people in the executive offices who has rewarded excellence. When one imbibes concepts with human characteristics, it removes your argument from the realm of factual and scientific knowledge to that of discourse, an exercise in the production of meaning. It is prudent to remember when you are telling stories no matter how true they seem.
It is also remarkable how quickly, when the theory of capitalism does encounter that recalcitrant real world, in other words, when the system based on greed derails to such an extent that the evidence can no longer simply be rebranded or remarketed, the defenders of capitalism blame the government, or regulation, or anything but greed. In truth, most of these governments interventions and regulations they complain about were drafted and bought by their own lobbyists, mere symptoms of their own greed. It is time people stop acting as if this corruption is not an integral part of capitalism. If it is true that “[r]egardless of the advertised economic system, a government will tend to reward its cronies”, it seems to follow that regardless of the advertised economic system, the executive class will also tend to reward their cronies. Oh true, I forgot: according to the theory capitalists do not have cronies and the whole notion of class is ignored anyway … Anybody ever wondered why that is the case?
With regards to Objectivsm, hmm, what can I say. Ayn Rand is pure poison. When reading her, one should keep the same attitude you would have when reading the collected works of Satan. Libertarians though at least get all my respect for their emphasis on individual liberty.