2013-12-11

Capitalism's Collapse: A Response To David Simon, Part II

Yesterday, I wrote about Josef Schumpeter's view of the "inevitable" collapse of capitalism under its own weight. It's been about a century since Schumpeter published his ideas, and capitalism still appears to be going strong. Personal incomes have been increasing globally, at a fairly steady rate, since the dawn of the Industrial Revolution. Economic freedom has heralded in the kind of personal freedom and personal wealth that even the emperors of the greatest empires in human history would marvel at the riches possessed by the average middle class family. One could even argue that the middle class in the developing world is better off now than the aristocrats were just five hundred years ago. Capitalism has been an inarguable boon to humanity, with no signs of it slowing down any time soon.

But you wouldn't know that from reading David Simon's piece in The Guardian. In his distastefully long diatribe, he sets out the idea that there are "two Americas," presumably one prosperous and one destitute. Simon also implies that this the direct result of an "abandonment" of social services in favor of unfettered market capitalism. More on that in a moment.

First, however, I'd like to criticize Simon for being horrendously vague. I've criticized shotgun theories before: essentially they are theories that sound good if you maintain vague enough language that you don't have to commit to any specific thesis statement.

The problem with slippery screeds like Simon's is that they imply a lot without saying a great deal. That is one reason why suggested that some may mistake Simon's point for being a Schumpeterian one. It's hard to say exactly why it's not, though, because Simon is far too vague to really pin down. But this vaguery itself is fallacious and wrong, and I'm calling him out right here.

Having said that, I'd like to refute those points he did manage to present somewhat concretely.

Where Simon Is Totally Wrong, Point-By-Point

Error #1:
Are there "two Americas," or "two Wests?" If the latter and not the former, then what is Simon's point? He begins by making the claim that there are two Americas: rich and poor. Here's how he puts it:
There's no barbed wire around West Baltimore or around East Baltimore, around Pimlico, the areas in my city that have been utterly divorced from the American experience that I know. But there might as well be. We've somehow managed to march on to two separate futures and I think you're seeing this more and more in the west. I don't think it's unique to America.
True enough, there are rich and poor neighborhoods in Baltimore, and pretty much every city in the world. Simon even goes so far as to say it's not an American problem. (Then why are we talking about "two Americas?")

It is an undeniable fact that there are rich and poor people in every city. However, Simon fails to appeal to any sort of data, study, or metric by which we might establish that this observation is indicative of a widespread class divide, much less one that is tied to any economic system. To wit, Simon says, "you're seeing this more and more in the west." Does he mean to include Sweden? Germany? Spain? All of the countries have very different economic systems. In short, Simon fails to really tie what "you're seeing" to any particular sort of economic policy. This alone is enough to call his entire article into question.

Error #2: Das Kapital Has Been Thoroughly Refuted
Next, Simon makes a claim that I thoroughly refuted in yesterday's post. In the interest of completion, here's Simon:
I'm not a Marxist in the sense that I don't think Marxism has a very specific clinical answer to what ails us economically. I think Marx was a much better diagnostician than he was a clinician. He was good at figuring out what was wrong or what could be wrong with capitalism if it wasn't attended to and much less credible when it comes to how you might solve that. 
You know if you've read Capital or if you've got the Cliff Notes, you know that his imaginings of how classical Marxism – of how his logic would work when applied – kind of devolve into such nonsense as the withering away of the state and platitudes like that. But he was really sharp about what goes wrong when capital wins unequivocally, when it gets everything it asks for.
And here's what I said yesterday (*footnote omitted for brevity - read the whole thing):
To really wrap your head around this error, consider a farmer who plants a potato seed. According to the argument laid out by Marx and Engels in Das Kapital, that potato is worth more money (i.e. has a higher intrinsic value) if it is planted using a man's bare hands than if the farmer has access to a hoe and a little bag of seeds attached to his belt. That's because the hoe and the bag are both forms of productive capital. What is a 1-hour job with your bare hands becomes a 15-minute job with a hoe. 15 minutes is 25% of an hour. The value of the resulting potato is thus 25% less than it was prior to the investment in productive capital. 
The problem gets worse as the farmer modernizes even further. He buys a larger plot of land and starts using heavy farm machinery to plant and sow potatoes. A day's work used to yield him several bushels of potatoes. Now he produces thousands. More production, but less labor input, in the Marxist model, means that the potatoes themselves are less valuable. That's obviously not correct*.
Error #3: Capitalism Has Only Been Successful By The Metric Of Profit
If Simon's understanding of economic theory is antiquated, his ability to view the vast improvements in human progress that have come with capitalism is delusionally weak. Look what he says next:
That may be the ultimate tragedy of capitalism in our time, that it has achieved its dominance without regard to a social compact, without being connected to any other metric for human progress.
Here is my opportunity to discuss the vast improvements in quality of life that have occurred in the United States and elsewhere over just the past 30 years, much less the past century. But instead, I'll just demonstrate that Simon himself does not even believe this, for he contradicts himself elsewhere in the same article when he says:
[Capitalism] took a working class that had no discretionary income at the beginning of the century, which was working on subsistence wages. It turned it into a consumer class that not only had money to buy all the stuff that they needed to live but enough to buy a bunch of shit that they wanted but didn't need, and that was the engine that drove us.
Sure, he says it in a snarky way, but what he really means is that capitalism made life better off for everyone over the course of the 20th Century.

Error #4: Conflating "Capital" With "Profit"
Here's a technical point, and a bit of a cheap shot, but since I'm committed to refuting Simon's every error, I include it in the interest of completion. Simon says "that capital is the metric, that profit is the metric by which we're going to measure the health of our society is one of the fundamental mistakes of the last 30 years." Capital and profit are two entirely different things. Follow the links for an explanation.

Error #5: Ascribing Wealth To Wealth Redistribution:
Next Simon makes a claim that I've commonly heard among leftists in general. In its pure form, the claim is that labor laws and social safety nets generate wealth. But, not only is that mathematically impossible, it's not even the point of the social safety net. The purpose of social welfare is to care for the needy, not make them rich. Simon briefly forgets this when he writes (emphases mine):
It wasn't just that we could supply stuff, or that we had the factories or know-how or capital, it was that we created our own demand and started exporting that demand throughout the west. And the standard of living made it possible to manufacture stuff at an incredible rate and sell it. 
And how did we do that? We did that by not giving in to either side. That was the new deal. That was the great society. That was all of that argument about collective bargaining and union wages and it was an argument that meant neither side gets to win.
Note that there is no ambiguity in the cause-effect relationship Simon is suggesting. His claim is that the cause of "not giving in to either side" - i.e. creating social welfare alongside market capitalism - resulted in the effect of "creating our own demand and exporting it throughout the west."

To really grasp the error of that claim (if you haven't yet already), accept for the sake of argument that social welfare "stimulates demand" by placing money in the hands of people who don't already have it. Then, ask yourself how on Earth we'd be able to export our social welfare?! It sounds good, but it's conceptually vacuous.

Error #6: America Abandoned The Idea That Social Welfare Matters
Simon writes, "Ultimately we abandoned that and believed in the idea of trickle-down and the idea of the market economy and the market knows best[.]" But did we abandon it?

Here's a graph of US Federal outlays since 1973. You tell me.
Source: http://www.cbo.gov/publication/44507
And I should add that defense spending has actually been decreasing as a share of US budget expenditures for some time now. So, in short, no, America has not "abandoned that." Social welfare is very much a part of today's American system. Go mull over the CBO numbers yourself, if you don't believe me.

Error #7: Libertarians Claim That Simon Is Not Connected To Society
Well, technically Simon didn't actually specify who was telling him what, but here's how he put it:
People are saying I don't need anything but my own ability to earn a profit. I'm not connected to society. I don't care how the road got built, I don't care where the firefighter comes from, I don't care who educates the kids other than my kids. I am me. It's the triumph of the self. I am me, hear me roar.
It would be hard for me to claim that "people" aren't telling David Simon any of that - I don't know what people have been telling David Simon. But I do know something about libertarianism, and it is not at all like he says it is.

Of course, in order to refute this, all I need to do is demonstrate that libertarians don't actually believe what Simon says they believe. So here's a link to a Michael Munger blog post entitled "the Case for Cooperation."

Libertarians aren't hermits. Indeed, it was always the argument of free market libertarians that the more wealth a society produces, the better the standard of living for everyone in that society. From Simon's vantage point, perhaps he's focusing a lot on the suffering of some of America's poor - and I agree that there are poor people in the United States.

But America's poor live a life so much better than the poor elsewhere that Simon's claim is basically ridiculous. For example, Timothy Taylor recently highlighted the fact that by some metrics, the United States actually enjoys a 0% poverty rate. Previously here on the blog, I have written about the kind of suffering experienced by the international poor. In short, Simon's claim that American capitalism elevates some at the expense of others is completely untenable when you assess the empirical evidence.

Error #8: Group Health Insurance Is Socialism
Perhaps the most bizarre and embarrassing claim Simon makes is this one:
What do you think group health insurance is? You know you ask these guys, "Do you have group health insurance where you …?" "Oh yeah, I get …" you know, "my law firm …" So when you get sick you're able to afford the treatment. 
The treatment comes because you have enough people in your law firm so you're able to get health insurance enough for them to stay healthy. So the actuarial tables work and all of you, when you do get sick, are able to have the resources there to get better because you're relying on the idea of the group. Yeah. And they nod their heads, and you go "Brother, that's socialism. You know it is."
At this point I wonder: Should I even bother refuting this claim? Is there merit in arguing against a claim so outlandish and opposed to the basic definitions of the words "socialism" and "capitalism" that it is basically nonsensical?

Well, I guess I'll leave it at this: The most charitable interpretation of Simon's health insurance argument is that he sees socialism as being any group activity, while perhaps he views libertarianism as being any individual activity. What we end up with is a fallacy of equivocation: (1) Socialism is group-oriented economic activity; (2) Group health insurance plans are group-oriented economic activity; Therefore, (3) Group health insurance plans are socialism.

In short, the argument relies on the incorrect notion that any group-oriented economic activity is socialism. Not so.

Conclusion
By now, it should be easy to see that David Simon's economic ideas are outdated, incorrect, and based largely on intellectual error. Ordinarily, it would be pointless to invest so much time in refuting such a terribly written piece. But Simon is "entitled to his opinion," and I'm "entitled to mine." That's a jibe at those of you who think by refuting his every claim I'm somehow suggesting that he isn't entitled to feel that way.

Naturally, he's entitled to feel however he feels. What's he's not entitled to do is claim something to be true that is actually false; hence, my two blog posts on the topic.

See, folks like Simon like to strike with a rapid-fire of incorrect information and ambiguous language in hopes that no one will actually take them to task on their every point. I consider it somewhat amusing, then, to invest some of my time engaged in the kind of activity required to refute his nonsense.

One last thing: Unlike David Simon, I didn't get paid for writing my article.