Economic Myths, Fallacies and Stupidity

Collectivism, not capitalism, has been the driving force behind sub-par performance since the beginning of human history. Why, then, has capitalism taken the blame for the failiures of its rival?

George Orwell admonished, "Sometimes the first duty of intelligent men is the restatement of the obvious." That's what I want to do — talk about the obvious. Suppose that a person is faced with the choice of spending $50,000 on a brand-new car or paying two years worth of college tuition for his 18-year-old. What is the solution? That's a stupid question. In the world of economic decision making, there are no solutions — only tradeoffs, where having more of one thing means having less of another. Having one desire fulfilled means having another unfulfilled.

For example, there's no solution to our health care issues. Congress' health care law simply substitutes its judgment on the delivery of medical services in the name of helping the uninsured. The tradeoff is that Americans have less of something else such as fewer personal choices, less after-tax income and very likely a lower quality of medical services.
How about the criticism that businesses are just in it for money and profits? That's supposed to be an anti-business slam but upon simple examination, it reflects gross stupidity or misunderstanding. Wal-Mart owns 8,300 stores, of which 4,000 are in 44 different countries. Its 2010 revenues are expected to top $500 billion.

Putting Wal-Mart's revenues in perspective, they exceed the 2009 GDP of all but 18 of the world's 181 countries. Why is Wal-Mart so successful? Millions of people voluntarily enter their stores and part with their money in exchange for Wal-Mart's products and services. In order for that to happen, Wal-Mart and millions of other profit-motivated businesses must please people.
Compare our level of satisfaction with the services of those "in it just for the money and profits" to those in it to serve the public as opposed to earning profits. A major non-profit service provider is the public education establishment that delivers primary and secondary education at nearly a trillion-dollar annual cost. Public education is a major source of complaints about poor services that in many cases constitute nothing less than gross fraud.
If Wal-Mart, or any of the millions of producers who are in it for money and profits, were to deliver the same low-quality services, they would be out of business, but not public schools. Why? People who produce public education get their pay, pay raises and perks whether customers are satisfied or not. They are not motivated by profits and therefore under considerably less pressure to please customers. They use government to take customer money, in the form of taxes.
The U. S. Postal Service, state motor vehicle departments and other government agencies also have the taxing power of government to get money and therefore are less diligent about pleasing customers. You can bet the rent money that if Wal-Mart and other businesses had the power to take our money by force, they would be less interested and willing to please us.
The big difference between entities that serve us well and those who do not lies in what motivates them. Wal-Mart and millions of other businesses are profit-motivated whereas government schools, USPS and state motor vehicle departments are not.
In the market, when a firm fails to please its customers and fails to earn a profit, it goes bankrupt, making those resources available to another that might do better. That's unless government steps in to bail it out.

Bailouts send the message to continue doing a poor job of pleasing customers and husbanding resources. Government-owned nonprofit entities are immune to the ruthless market discipline of being forced to please customers. The same can be said of businesses that receive government subsidies.
The ruthlessness of the market discipline, which forces firms to please customers and thereby earn profits, goes a long way toward explaining hostility toward free market capitalism.

Walter E. Williams is a professor of economics at George Mason University in Fairfax, Virginia. He has authored more than 150 publications, including many in scholarly journals, and has frequently given expert testimony before Congressional committees on public policy issues ranging from labor policy to taxation and spending.

6 comments from readers  

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Well said and simple in its communication.

So what do we do when the government appears to go into a panic and says if we don't bail these big banks etc. out now, our entire economy will fail. I know it's not true, you know it's not true, but how do you convince a terrified public that it's not the answer?

That's the problem... the media... they are the ones who help the government scare the hell out of everyone.
I wonder how many people have moved to parochial or private schools to get a better education for their children across the economic spectrum.

As for the postal service, I heard last night that not only are they asking for another rate hike, but they are planning to cancel Saturday deliveries. More money and fewer services. What are they doing with the money?
"Why, then, has capitalism taken the blame for the failiures of its rival?"

---Two words, here in the USA: Ronald Reagan. Or, as a column in Liberty magazine called him: "Ronald Wilson Blithering Reagan". Reagan sounded like a libertarian, quacked like a libertarian, but wasn't a libertarian.

So there are no clear examples of pure free market capitalism, and when the water is further muddied by human-level intelligence (which is better than chimp intelligence, but worse than the next step in evolution, artilect intelligence, or "homo economicus" --a purely rational agent), the result is something most people can't properly identify. And Reagan said he was for the free market, but bailed out the S & Ls, and supported deficit spending, and the Federal Reserve, and the war against negroes (also called "gun control" and "the war on drugs"). ...So much for "the free market".

Also, emergent order is not intuitive, especially not for the poorly-educated masses who graduated from the uniformly crappy government schools (where history and philosophy are not properly taught).

That explains why the obvious isn't so obvious, here in America.
No business these days, not even Walmart, operates in a truly free-market environment. Crony capitalism is the order of the day. When people see businesses benefiting from political influence they are justifiably angry. But most people are incapable of distinguishing genuine free-market capitalism from crony capitalism. I suggest that this is the main answer to the question in the header, "Why, then, has capitalism taken the blame for the failures of its rival?
I wish we could require all our congress people and the President to take a course in economic understanding from Walter Williams. He usually makes the subject easy to learn and appreciate. Alas, this will probably never happen. Our future could be much brighter if only it were so.
What Walter calls "ruthlessness of market discipline" I would call "respect for voluntary exchange". Public goods and services are paid for by theft and often unwanted. For example, the bailout (the largest transfer of wealth ever made) was done against the wishes of 99% of the people robbed. The representatives represent special interests who support the representatives at the expense of everyone else. How did a desire for protection for everyone lead to this exploitation? The creation of this system was based on the rejection of choice. The individual cannot decide how much he pays, how much protection he needs, or if he is receiving service. No competition exists.
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