Wednesday, June 3, 2009

Political Theory vs. Reality.... Obama is a socialist...

This post is on the fly, as its 11:15pm and I have to be up in 3 hours but reading the Bello speech I just posted (MANIFESTATIONS OF THE SAME MINDSET) I thought it might be good to reflect on some of the "Obama is a socialist" meme that is very "in" on conservative talk shows and tv.

David Boaz from CATO write on how Obama isn't a socialist...

Is Barack Obama a socialist? Not really. Is George W. Bush a free marketer? Not hardly. In fact, right now they both seem to be pursuing policies that are neither socialist nor laissez-faire but rather corporatist.

I've posted on this before, Obama is not the problem... underfunded government and a heath care crisis are... part deux  and French vs. American Market systems... as well as many other times.  But this meme is still very popular....

Many of the people I talk to who are worried about Obama talk about how they look back and want the economy they knew when they were younger, or that their Parents, or Grandparents had.  Keep in mind, taxes were higher, government intervention in the economy was higher, unions were stronger, protectionisms on and on down the line. 

Government intervention in the economy? How about the GI Bill of Rights that sent a generation of unemployed young men to get their college degree's.  It almost single handedly created the middle class... (the government stimulus spending  plan called World War II didn't hurt either... nor did the Marshall Plan...)

Its also based around a fundamental misunderstanding of what real world capitalism--rather than some Philosopher's conception of it--is.  As i've noted many times before. 

Longing for the days of freewheeling entrepreneurship that never existed is not an argument that has any validity when it comes to a policy debate rather than some Ivory Tower debate in some philosophy department detached from the real world concerns of working people.

The terms we must maneuver within are those of industrial capitalism.  We must accept the facts about what capitalism is and what it isn't.  Capitalism has and always will be intertwined in government intervention in the economy.  As Edmund Phelps recently noted in the Financial Times:

In countries operating a largely capitalist system, there does not appear to be a wide understanding among its actors and overseers of either its advantages or its hazards. Ignorance of what it can contribute has in the past led some countries to throw out the system or clip its wings. Ignor­ance of the hazards has made imprudence in markets and policy neglect all the more likely. Regaining a well-functioning capitalism will require re-education and deep reform.

Capitalism is not the “free market” or laisser faire – a system of zero government “plus the constable”. Capitalist systems function less well without state protection of investors, lenders and companies against monopoly, deception and fraud. These systems may lack the requisite political support and cause social stresses without subsidies to stimulate inclusion of the less advantaged in society’s formal business economy. Last, a huge social insurance system, with resulting high taxes, low take-home pay and low wealth, may not hurt capitalism.

In essence, capitalist systems are a mechanism by which economies may generate growth in knowledge – with much uncertainty in the process, owing to the incompleteness of knowledge. Growth in knowledge leads to income growth and job satisfaction; uncertainty makes the economy prone to sudden swings

In Bad management is bad management... bad history is bad history I noted it was useful to point out that Toyota has had a huge amount of protectionism thrown their way by the government of Japan for them to become competative to begin with, as noted by Ha-Joon Chang in his book Bad Samaritans:

Once upon a time, the leading car maker of a developing country exported its first passenger cars to the US.  Up to that day, the little company had only made shoddy products--poor copies of quality items made by richer countries.  The car was nothing too sophisticated--just a cheap subcompact (one could have called it 'four wheels and an ashtray').  But it was a big moment for the country and its exporters felt proud.

Unfortunately, the product failed.  Most thought the little car looked lousy and savvy buyers were reluctant to spend serious money on a family car that came from a place where only second-rate products were made.  The car had to be withdrawn from the US market.  This disaster led to a major debate among the country's citizens.

Many argued that the company should have stuck to its original business of making simple textile machinery.  After all, the country's biggest export item was silk.  If the company should have stuck to its original business of making simple textile machinery.  After all, the country's biggest export was silk.  If the company could not make good cars after 25 years of trying, there was no future for it.  The government had given the car maker every opportunity to succeed.  It had ensured high profits for it at home through high tariffs and draconian controls on foreign investment in the car industry.  Fewer than ten years ago, it even gave public money to save the company from imminent bankruptcy.  So, the critics argued, foreign cars should now be let in freely and foreign car makers, who had been kicked out 20 year before, allowed to set up shop again.

Others disagreed.  They argued that no country had got anywhere without developing 'serious' industries like automobile production.  They just needed more time to make cars that appealed to everyone.

The year was 1958 and the country was, in fact, Japan.  The company was Toyota, and the car was called the Toyopet.  Toyota started out as a manufacturer of textile machinery (Toyoda Automatic Loom) and moved into car production in 1933  The Japanses government kicked out General Motors and Ford in 1939 and bailed out Toyota with money from the central bank (Bank of Japan) in 1949. Today, Japanese cars are considered as 'natural' as Scottish salmon or French wine, but fewer than 50 years ago, most people, including many Japanses, thought the Japanese car industry simply shoud not exist.  (p19-20)

The biggest problem I have with "leave it to the market" types is they lack an examples of major industrialized nations that have used the hands off approach that they hold in such high regard. There is a reason why we aren't still exploiting our comparative advantage in the fur trade--and personally i'm glad about that. Small Government "Capitalism" isn't viable because its not going to happen in modern industrialised nations--in fact its not even how we industrialized to begin with.  Many of them pine away to live in the agrarian economies of yore--which is a personal preference; or use theoretical arguments that are logically coherent in the abstract--which is fine for the Ivory Tower of academia.

But what matters is the real world, hard working Americans deserve an economy that works for them; our entrepreneurs deserve an economy that empowers them.  We need to be competing with the other industrialised nations of the world, we need to be focused on the future--using revisionist histories and academic theories isn't the way to create a strong, dynamic, competitive economy.

In the past i've used the local example of the Kia Plant More jobs from Government intervention in the "Free Market" to highlight these problems...

 

Posted via web from jimnichols's posterous

1 comment:

  1. I'm sorry, but I don't think we have the right to demand that we have that kind of economy when our wealth stems from what we have stolen from our colonies- the very ones we condemn to be third world nations are the ones who have put us high up on the economic scale, and what is happening now is a by-product of what our ancestors have done, colonizing every nation they can!

    ReplyDelete