Your Questions Answered: Why Can’t Intervention Fix Capitalism’s Flaws?

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Jared Miller May 22, 2017

One of the worst side effects of this conversation is that most often interventionist policies create exactly the conditions which they claim to prevent. One of the other worst is that people begin to assume, at least to some degree, that legal and moral are interchangeable terms. I’ve been studying on my own for several years now, and so far I haven’t seen many examples of capitalism causing more problems than interventionism/crony corporatism.

Of course, interventionism and cronyism do often go by more appealing names, but they are still the same thing. There is a trend in recent years to refer to anything “good” a government does as Socialism. But socialism is not simply the act of paying for services with tax money, nor is it bringing about some broad moral reformation through government intervention. It is something much more specific. Socialism is when the government owns all means of production. There are plenty of examples of government activity that are not socialist in nature. Military and rule of law aren’t socialist. Taxes for national defense and public safety aren’t socialist. Prevention of fraud and exploitation, and even certain kinds of environmental protection, aren’t socialist.

 

What we really have is not socialism, or even capitalism. What we currently have is crony corporatism; a system whereby businesses are able to lobby government for special treatment. This leads to a lack of competition since it keeps new businesses from entering the market. Competition keeps profit margins thinner, often boosts wages (contrary to popular belief), and diminishes the wealth gap while also increasing income mobility (the ability to increase your income over time). Any policy that prevents or hinders competition damages the lower and middle classes. These policies make the very thing they supposedly claim to be trying to prevent into an absolute certainty.

“But depressions!!”
Our depression was caused by a glut of cheap credit, which made it a common practice to borrow money in order to invest it. That cheap credit was caused by intervention; specifically the federal reserve manipulating interest rates. After the recession began, the fed also started shrinking the money supply, further exacerbating the already delicate situation. Even if they had done everything right, just the existence of the Fed caused some damaging distortions. Before the fed, large banks would intervene on behalf of the smaller banks in order to limit the effects of financial panics and protect their own bottom line. After the fed, the large banks no longer saw this as their responsibility. As a result, more small banks failed, causing a snowball effect that eventually harmed the large banks too. Similar causes can be found for our more recent recessions as well. The dot com bubble and the housing market bubble were both at the very least amplified to disastrous proportions by bad monetary policy and interventionist legislation. Without them, that particular market may have hit hard times, but they would not have become national, systemic failures.

 

“But child labor!”
Child labor was already by and large a thing of the past when the legislation outlawing it was passed. Don’t get me wrong, if regulation actually had the power to end that kind of thing, then that’s exactly what it should be doing. But in places where child labor happens, it’s because the entire economy is underdeveloped. It’s not a choice between work and school, it’s a choice between work and prostitution, or worse. Kids don’t work because corporations are greedy. Kids work because avoiding homelessness and starvation is more important than education. No law will change that. It just eliminates their only legal means of helping their families survive. And it’s the same with the rest of the labor market. But don’t take my word for it:

 

Video: “THE UNBELIEVABLE TRUTH ABOUT SWEAT SHOPS.”

https://m.youtube.com/watch?v=O2sW2wt3nLU
(Note: this video isn’t supposed to give the full argument, it’s just an introduction to the topic by someone who has spent most of his career studying this specific subject)

“But Monopolies!”

There are very few, if any, examples of big businesses having that kind of power without getting it from the government. The natural business cycle is such that virtually never does a business accumulate monopolistic power without appealing to organized force to eliminate the competition. Instead, legislators are either manipulated or outright bribed into passing legislation that favors one business over another. Often it is with the best of intentions. Even safety and environmental regulations are often pushed by the industries they are being levied against. Usually, there is some moral or humanitarian motive attached to these new restrictions as a means of gaining support, feeding off of the idea of government as a moral force in order to manipulate the masses into voting against themselves in favor of corporate interest. But here’s the trick: the big guys usually already follow those guidelines, and the startup business has no hope of implementing that kind of infrastructure before they even start production. The manufacturing world is overrun with precisely this style of protectionism. Incidentally this is also one invisible factor that leads to more production overseas, and less domestically. Of course, not all regulation comes from corporate interest or emotional manipulation, but the result is the same nonetheless. We may argue about what level of market distortion we are comfortable with in order to promote the wellbeing of the worker, but we cannot ignore its existence. That is how monopolies happen, and it’s how they stay monopolies.

 

Video: “IDENTIFYING A MONOPOLY: IT’S MORE THAN JUST MARKET SHARE.”

https://www.policyed.org/intellections/identifying-monopoly-its-more-just-market-share/video
(Once again, just a brief introduction to the topic.)

When we say markets are self regulating, we don’t mean that abuse cannot happen. What we mean is that in a free market those who do abuse people are not protected from the consequences of that abuse. As long as there is a law or regulation, there will be someone with deep pockets and great lawyers looking for ways to exploit it or modify it to their advantage. There will always be a politician to bribe who can find ways to prevent a corporation’s competition from ever existing. Without organized force to hide behind, having piles of cash can’t make people buy your product, or use your service. It can’t prevent someone else from starting their own business to do it better.

By putting the economy in the hands of government, we are not preventing people from being exploited. We are ensuring it. That is why communist and socialist countries always develop a wealthy ruling class, and the rest of their citizens suffer. We don’t have to debate that fact. It is what has historically happened every single time.

The interventionists are half right though… free markets don’t make people more moral, and they don’t keep rich people from being assholes. But neither does government. It just gives them hired guns (law is force imposed at the point of a gun), and the power and authority to use them. Only with the backing of the law also comes the assumption that their actions are somehow right or just simply because they are executed through the mechanism of the law.

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