Morality and the Market

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The John Templeton Foundation is hosting a very interesting online debate centered on the question, "Does the free market corrode moral character?" There are a number of major league contributors, including economist Tyler Cowen and political theorist John Gray (who notes that "actual life in Soviet societies was more like an extreme caricature of laissez-faire capitalism, a chaotic and wasteful environment in which each person struggled to stay afloat"). Here's Columbia University economist Jagdish Bhagwati arguing in defense of globalization:

There is now plenty of evidence that India and China, two countries with gigantic poverty problems, have been able to grow so fast by taking advantage of trade and foreign investment, and that by doing so, they have reduced poverty dramatically. They still have a long way to go, but globalization has allowed them to improve material conditions for hundreds of millions of their people. Some critics have denounced the idea of attacking poverty through economic growth as a conservative "trickle-down" strategy. They evoke images of overfed, gluttonous nobles and bourgeoisie eating legs of mutton while the serfs and dogs under the table feed on scraps and crumbs. In truth, focusing on growth is better described as an activist "pull-up" strategy. Growing economies pull the poor up into gainful employment and reduce poverty.

Read the whole debate here.

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  1. In Barack Obama’s Totalitarian Socialist States of America Tyler Cowen and Meagan McCardle will be the only “official” libertarians allowed to express their radical discredited views.
    Terry Michael, yeah he’ll be OK.

  2. Ron Paul’s going to be on Maddow.

  3. Libertarians contend that free markets tend to diffuse the effects of immoral, unethical, and fraudulent behavior, but do not especially give rise to it.

    It is instructive to compare our recent financial services industry “holocaust” with Rwanda in 1994. When the State gets on the radio and tells everyone to go in a certain direction, watch out!

    If free markets corrode moral character, Statism does so much more.

    National governments are far more effective in magnifying immoral impulses to cause great harm. The so called “excesses of the free market” are mild by comparison.

    In the former Soviet empire, the “Nomenclatura”, the elite had its priveleges and corruption protected by the State. Our financial services “nomenclatura” is more vulnerable as we now see.

  4. I’ll be so glad when the election is finally over. Perhaps – just perhaps – the elevated moron level around here will finally drop off a bit.

  5. Anybody claiming that life in Soviet Russia resembled a “caricature of laissez-faire capitalism” is a frickin’ idiot.

    How can you even listen to somebody capable of such stupidity?

  6. This reminds me of the fact I just had to stop reading “The Political Mind” by George Lakoff. Angela Davis would have been more in tune with economic reality and reality in general.
    Has George Lakoff been discussed here?
    Cognitive scientists are usually worth paying attention to. Sigh.

    Peaceful anarchist Ruthless

  7. Read the whole debate here.

    It is extremely distressing to me that there’s even a debate on this issue. All of the caricatures of laissez faire turn out to be recipients of government privilege and largesse, but the myth of antisocial markets continues. No wonder we’re about to elect Obama.

  8. Anybody claiming that life in Soviet Russia resembled a “caricature of laissez-faire capitalism” is a frickin’ idiot.

    How can you even listen to somebody capable of such stupidity?

    You missed the point. In Soviet Russia, gluttonous fat cats at the top of the heap lived large, while the common people fought over scraps.

    That’s what people caricature “laissez-faire as, but it bears a closer resemblence to what actually happens in communist societies.

    In a free market, people at the top of the heap frequently go under. (If the government would allow them to, that is. )

  9. Anyone mention Hayek’s distinction of law vs. legislation?

  10. “Anybody claiming that life in Soviet Russia resembled a “caricature of laissez-faire capitalism” is a frickin’ idiot.

    How can you even listen to somebody capable of such stupidity?”

    He was saying that it was like what critics of Capitalism claimed Capitalism would be like if left alone. It’s irony.

  11. Let’s see, a post that mentions Soviet Russia:

    In Russia, lack of rapacious capitalism rapes you!

    Ehh, still needs work to be Yakov quality.

  12. In a free market, people at the top of the heap frequently go under.

    How do we know? Has there ever been one to observe?

  13. It’s funny that the pictures look appropriate for the answers given.
    Also, Rick Santorum’s picture makes him look like a real estate agent.

  14. lmnop,

    We can see that in a sort of free market they nearly go under before being rescued. From that we can extrapolate.

  15. Has George Lakoff been discussed here?
    Cognitive scientists are usually worth paying attention to. Sigh.

    George’s work on how cognition works is really pretty good–he’s strongly affected my thinking on phonology, but he and I have argued politics on occasion, and he’s just a modern standard liberal who doesn’t get the idea that libertarians are neither conservative (daddy) or liberal (mommy), and that we challenge the whole parent metaphor.
    Shameless book plug

  16. […] India and China, two countries with gigantic poverty problems, have been able to grow so fast by taking advantage of trade and foreign investment, and that by doing so, they have reduced poverty dramatically.

    That takes care of the college-student-activist wing of protectionists.

    Now, what about the “Dey tuk er jerbs!” wing? Those individuals couldn’t care less about foreigners except as markets for American exports, and existing policy reflects their greater influence.

  17. Now, what about the “Dey tuk er jerbs!” wing? Those individuals couldn’t care less about foreigners except as markets for American exports, and existing policy reflects their greater influence.

    I guess explaining to them that when foreigners have more money they can buy more of our stuff is a no-go?

  18. Interesting indeed. This should be worth seeing for sure.

    Jiff
    http://www.online-anonymity.kr.tc

  19. Elemenope,

    How do we know? Has there ever been one to observe?

    In the 19th century so-called robber-barons lost their shirts often enough.

  20. We can see that in a sort of free market they nearly go under before being rescued. From that we can extrapolate.

    I’m not sure that we can. If people suspect they will be bailed out, the behavior is likely to differ from someone who has no such expectation.

    In the 19th century so-called robber-barons lost their shirts often enough.

    Yeah…to other, bigger robber barons. You aren’t helping the case. 😉

  21. I guess explaining to them that when foreigners have more money they can buy more of our stuff is a no-go?

    You lose them right about the part where you mention that foreigners have more money.

  22. lmnop,

    Yeah…to other, bigger robber barons.

    Nope. Usually to smaller, more nimble, up-and-coming robber barons. Who ended up bigger, but werent at the time.

  23. lmnop,

    I’m not sure that we can.

    Part of a successful extrapolation is knowing what adjustments to make. I think this is probably where praxeology becomes handy.

  24. Nope. Usually to smaller, more nimble, up-and-coming robber barons. Who ended up bigger, but weren’t at the time.

    Um, there were lots of cases of further concentration of industries and wealth, and very few (none are coming to mind, but feel free to provide examples) cases of the biggest magnates being overthrown by young upstarts without government intervention.

  25. …more like very few of the biggest magnates keeping themselves from being overthrown without government intervention.

  26. lmnop,

    First example I looked for:

    Vanderbilt undercut Fulton and Livingston. They were the big boys, he was the young, up-and-comer.

    They had the government supplied monopoly. He was operating in violation of the law (although he won at the Supreme Court level).

  27. …unless they out-compete their industrial opponenets by selling too cheaply (e.g. Standard Oil), in which case the government promptly breaks the firms.

  28. Interesting story from reading the Vanderbilt wiki entry:

    After he was uber-successful, he was competing in trans-atlantic shipping with two directly subsidized lines. Two get him to stop competing, they paid him their subsidies. At this point, a cartoonist compared him to the medieval robber barons, accusing him of “taxing” the shipping routes. This was the origination of the term robber baron. Interesting to me that he is being blamed for something that is clearly the fault of government action. If the other lines hadnt been subsidized, they wouldnt have been able to pay him off and he would have just run them out of business – he was clearly outcompeting them, even with them getting the subsidy, hence them paying him off.

  29. The Microsoft US antitrust case, as I recall, was about Microsoft’s audacity in giving IE away for free with Windows.

    Oh the horror! That powerful companies might drive their competition into the ground by offering an inferior product for free! How the poor consumer must feel exploited.

  30. That powerful companies might drive their competition into the ground by offering an inferior product for free!

    When Microsoft was doing this, IE was light years better than Netscape. I may prefer Firefox now, but IE was the best browser out there at that time, and that’s why Netscape went whining to the feds. If they had a remotely good product they wouldn’t have needed to.

    Reflexive IE bashing is stupid.

  31. Elemenope,

    Government intervention was actually at the heart of most of the concentration. This was far more common from the state level obviously, with state legislatures and courts being handmaiden of many of the large concentrated industries at the time.

  32. If the other lines hadnt been subsidized, they wouldnt have been able to pay him off and he would have just run them out of business – he was clearly outcompeting them, even with them getting the subsidy, hence them paying him off.

    Oh, sure- next you’ll tell us government assistance” for ailing and inefficient producers (I’m looking at you, Mister Wagoner) only rewards their failures and reinforces their weaknesses.

  33. That was supposed to be: government “assistance”

    stupid keyboard

  34. The only economic prejudice worse than fear of things being sold too cheaply (which gives undeserved political clout to the proponents of trade quotas, tariffs, anti-trust, and others) is the fear of things being sold for too much.

    Fears of price gouging drive price controls, which have the potential to starve millions.

  35. Doesn’t the 19th century example, then, undercut the original argument, as neither the robber barons nor their competitors operated under free-market conditions?

  36. Fears of price gouging drive price controls, which have the potential to starve millions.

    Heaven knows I hate the idea of price controls, but Nixon’s price controls did not starve even *hundreds* of Americans. Never mind *millions*. Hyperbole hurts the argument.

  37. lmnop,

    Doesn’t the 19th century example, then, undercut the original argument, as neither the robber barons nor their competitors operated under free-market conditions?

    As I pointed out, we can extrapolate from near free market conditions.

    Or use praxeology.

    Eithter way, no.

  38. lmnop,

    Also, the example of Vanderbilt shows that someone operating in a free market way can defeat a government subsidized competitor. Although that isnt the way to bet.

  39. lmnop,

    How many Africans starved because of Nixon’s price controls?

    It would be indirect, but hurting the US economy may have led to people elsewhere starving.

  40. One might also point out the epic collapse of Enron. Or the S&L crisis. Or the dot-com bubble. Lots of fortunes lost. There are plenty of wealthy people losing fortunes today even taking into account the bailout.

    But thanks for the Vanderbilt info. That is very interesting. It would also be interesting to do a more detailed anaysis of what actually went on back then. I’m tempted, but really busy right now.

  41. Fascinating debate, actually, and the kind of thing I wish we saw more of. I figured on the social-democrat angle some commenters took, but it was interesting to see it tinged with a certain amount of the-state-must-protect-public-morality harrumphing.

    I thought that the analogy between politics and the economy (made by Gray, IIRC?) was interesting but flawed. It is certainly the case that reducing the cost of failure reduces the incentives to cheat; I’ve even read papers that suggest that making bankruptcy law more forgiving might result in people taking more chances and being more entrepreneurial, resulting in an overall more vibrant economy.

    Where the analogy falls down is that limiting the political costs of losing politically doesn’t cost anyone else anything: you just don’t have to shoot or exile the losers now. Limiting the economic costs of losing economically does cost other people, though, because they end up having to subsidize your failure.

    Also, I disliked the argument that ruthless capitalism forces people to discard morality, because otherwise, people have no safety net, no assurance that their children won’t starve in the street! This is a parody of the argument, but then his argument was a parody of capitalism anyway. Firstly, he ignores the idea that a generally richer society will have fewer problems like this, but the real problem with it is that is that he doesn’t cite any evidence at all that less-competitive economies or industries are the utopias his argument suggests they should be. Plenty of people lie and cheat even when there’s little issue of their children starving in the street.

  42. I knew there was a reason I gave Vanguard my money. Thanks, Mr. Bogle. Haven’t read all the essays, but I sure liked his.

  43. Actually, the antiglobalist left generally isn’t silenced by pointing out the rise in third world standards of living following economic liberalization. They tend instead to get pissed off and talk about exploitation.

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