The Downside of Capitalism

I am a capitalist in the sense that I believe free and open markets are generally the best way to allocate resources, establish societally beneficial incentives, foster wealth creation and help lift standards of living for all. That is not to say that I believe capitalism is the only and best way, or that free and open markets are the only and best way to do something or bring about a rise in living standards.

In fact capitalism and free markets are two different things (but that is a discussion for another day).

Unfettered capitalism and unfettered free markets are not necessarily the best way to do or achieve something for society. And capitalist forces (incentives) often lead to sub-optimal outcomes (externalities) and a hollowing out of society's moral core.

Case in point. Consumerism and the trend toward consumption. Capitalism and modern societies are structured around and predicated upon the phenomenon of growth which is in turn is predicated upon people consuming more things. In the case of the medical profession it has lead from previously people being cared for by their family doctor (whom they trust and respect) to the professionalization of the business and the running of medical practices as businesses (where doctors are incentivized to "treat" people as clients). In that environment, clients (sick people) are treated as consumers and are sold (in a profit maximizing way as possible) a raft of medical "services". I believe this has changed the nature and the essence of the profession - in a not too positive way. The same forces can be seen in education, accounting, law and financial services (and no doubt many other cottage industries which are now businesses).

I say this somewhat facetiously. In the old days "capitalists" were easy to see. They were the robber barons, the natural resource exploiters, the telecom and transportation moguls. They were the landowners, the industrialists. They were the ones who arb'd the poor. These days everyone is a capitalist. Everyone has drunk the koolaid (of consumerism) - and it is not always for the better.

The "free market" paradox

Now there is no such thing as a pure free market system, just as there is no such thing as a pure egalitarian system.

The capitalist system as we know it is an amalgam of different markets, industries and entities generally constrained by a system of market-based rules, laws and institutions, all of which is married to a social-democratic safety net. The emphasis and balance between free market institutions and govt based redistribution networks varies a little from country to country, but the basic framework is the same across most developed nations.

I find it amusing that some of the most vocal supporters of the TARP, central bank bailout measures, and government stimulus were also some of the greatest proponents of free markets. The belief that you need to abandon the market to save the market is ironic on its face. This speaks to a crack in the free market ideological armor (it will be interesting to see where this leads).

Taking a step back from the bailout, I just find it strange that we generally don't give two thoughts to the irony of a central bank in the midst of "free" financial markets. Faith springs eternal, and the human ability to sustain incongruent positions is pronounced.