Opinions

Capitalism: Still Working


So far so good with the ongoing U.S. experiment in expanded economic liberty. Americans are confident about their financial prospects and enjoying a strong jobs market. And it shows. The Journal’s Harriet Torry reports today:

The Journal’s Justin Lahart adds that “while there were some special factors that helped boost the overall number—higher gasoline prices increased service-station sales and hurricane-related sales helped hardware stores—business was generally good all over. Clothing stores and sporting goods stores both registered sales growth of 0.5% on the month, for example, and department store sales were up 1.3%.”

Despite a weakening global economy and concerns about how President Trump’s trade stare-down with Chinese dictator Xi Jinping is going to end, the U.S. economy appears to be logging another solid quarter.

Yet polls find that young adults in the U.S., perhaps scarred by a decade of financial crisis and then sluggish growth, are disturbingly open to socialist central planning of the economy. Vermont’s socialist Sen. Bernie Sanders is the most influential policy maker in the Democratic party, though he’s still not a member. Now, having succeeded in centrally planning Amazon’s warehouse wages, Mr. Sanders wants to do the same to

Walmart
.

Yet history counsels deep skepticism regarding claims that such government coercion will lead to higher living standards.

Modern readers may naturally think of contemporary economists like Paul Krugman when they think of botched economic forecasts. But Mr. Krugman’s errors look rather small compared to those made by the inventor of socialism. Columbia University b-school professor Charles Calomiris writes:

It is worth remembering that Karl Marx regarded socialism as an economic necessity that would emerge out of the ashes of capitalism precisely because capitalism would fail to sustain wealth creation. Marx made many specific, and erroneous, predictions about capitalism, including its declining profitability and rising unemployment. His analysis did not consider permanent economic growth in a capitalist system to be a possibility. And his “historical materialist” view of political choice claimed the rich and powerful would never share power voluntarily with their economic lessers, or create social safety nets. Writing in the mid-19th century, Marx fundamentally failed to understand the huge changes in technology, political suffrage, or social safety net policies that were occurring around him.

Only 135 years after the death of Marx, profits are surging in the world’s largest economy. Lindsey Bell of CFRA Research notes that third-quarter earnings growth of 28.3% for S+P 500 companies is among the best in decades. Ms. Bell adds that “the overall sales growth rate of 9.3% for the S&P 500 in the quarter was impressive as top-line momentum continued for the fourth quarter in a row. In the second quarter, sales were 10.3% higher year-over-year, up from about 9% in the prior two quarters and significantly higher than the average growth rate of 4.0% since the emergence from the Great Recession.”

Marx doesn’t just own the biggest blown earnings call in the history of markets. Prof. Calomiris notes that many of Marx’s other predictions also turned out be catastrophically off target:

Not only has socialist theory been wrong about the economic and political fruits of capitalism, it failed to see the problems that arise in socialist governments. Socialism’s record has been pain, not gain, especially for the poor. Socialism produced mass starvation in eastern Europe and China, as it undermined the ability of farmers to grow and market their crops. In less extreme incarnations, such as the UK in the decades after World War II and before Margaret Thatcher, it stunted growth. In most cases, socialism’s monopoly on economic control also fomented corruption by government officials, as was especially apparent in Latin American and African socialist regimes. The adverse economic consequences of socialism led the Scandinavian countries to dial back their versions of socialism in the past decades.

The good news is that despite the resurgence of Marxist chic among young people in the U.S., people seeking the wealth that American youngsters can take for granted already know that Marxism doesn’t work. Mr. Calomiris adds:

Socialism has been abandoned in virtually all of the developing world. Countries today do not seek to emulate the disasters of North Korea, Cuba, or Venezuela. They also avoid high taxation of the rich. That reflects the recognition that countries compete with each other for capital. Expropriating the rich tends to make them leave, and when they leave they take their wealth with them.

This philosophical shift in the developing world is a major change since the 1980s when socialism was still fashionable among some. The shift away from socialist thinking was grounded in the growing body of empirical evidence about the kinds of policies that produced growth and poverty alleviation—that is, policies that used markets as a lever of economic development. Now developing countries such as Mexico, Brazil, Colombia, Chile, India, China, South Africa, Vietnam, Thailand, and Indonesia are known as “emerging economies,” a description that recognizes their need to emerge from state control of their economies through privatization, free trade, and the creation of viable private financial intermediaries to promote growth and poverty alleviation. All around the developing world, socialism is understood as a false promise, an ideological opium that repressive elites use to retain and expand power. Capitalism, in contrast, is seen as the force that has lifted over a billion people out of poverty worldwide since 1990.

Indeed it has. And as for the alternative, this column will go out on a limb and predict that Marx will continue to be wrong for the next 135 years.

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In Other News

But He’s Got Great Instincts
“Japan cybersecurity and Olympics minister: ‘I’ve never used a computer’,” Reuters, November 14

And He May Be the Happiest Person in Japan
“A new study finds that cutting your time on social media to 30 minutes a day reduces your risk of depression and loneliness,” Business Insider, Nov. 12

Better Call Yoshitaka
“Cybersecurity ‘moonshot’ panel sends recommendations to White House,” The Hill, Nov. 15

Still Another Cyber Threat
“Why Amazon tech bros will ruin the NYC dating scene,” New York Post, Nov. 15

Good Thing Foreign Cyber Threats Are Receding
“Macron to Trump: ‘I do not do policy or diplomacy by tweets’,” Politico,
Nov. 15

Why Not Give All the Other Genders a Chance?
“Insurgents seek female challenger to replace Pelosi,” The Hill, Nov. 15

Peace Agreement Definitely Right Around the Corner
“Palestinian police chief suspended for helping Israelis fix flat tire,” Associated Press, Nov. 15

Alternative Headline: Trump Names Entrepreneur Fluent in Afrikaans and Xhosa as South Africa Ambassador
“Trump Names Handbag Designer and Mar-a-Lago Club Member as South Africa Ambassador,” Newsweek, Nov. 15

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Follow James Freeman on Twitter.

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(Teresa Vozzo helps compile Best of the Web. Thanks to Irene DeBlasio and Monty Krieger.)

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Mr. Freeman is the co-author of “Borrowed Time,” now available from HarperBusiness.





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