Pethokoukis, Economics, U.S. Economy

A JP Morgan economist (in effect) responds to Pope Francis

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Pope Francis has offered a sharp critique and challenge to market capitalism and its proponents, focusing on materialist consumerism and rising inequality within nations. While the pope’s comments are excellent cause for reflection, they should not obscure the reality that innovative free enterprise is the greatest wealth generator ever discovered and the economic system most supportive of human freedom and flourishing.

In a new research note, JP Morgan Chase economist James Glassman doesn’t mention Pope Francis by name, but clearly — at least to me — had his comments in mind as he addressed the record of market economies:

Those concerned about global poverty have more to be thankful today than to complain about. The commonly-heard complaints that today’s economic systems fail to address the plight of the poor ignore several fundamental facts.

Poverty is not a modern phenomenon. Second, the developed economies are still recovering from deep recessions and in time will reach their full potential. That is, of course, why central bank policies remain so stimulative. Those hurt by the recession will be restored as the developed economies continue to recover. And third, despite the cyclical problems of the developed economies, the average global living standard is at a record high—the highest known in the records compiled by economists and still climbing, thanks to the support from the developed economies.

In other words, market-oriented economic systems are doing more to cure global poverty than any other effort in the past. …

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Unflattering opinions about market-oriented economies see in the successes of some a system that rewards the survival of the fittest with benefits that only trickle down to others, glossing over the interdependence of economic actors that is fundamental to modern economic systems. Technological innovation often is portrayed as a destroyer of jobs rather than a creator of new economic frontiers. The benefits that come in the form of new jobs and industries and higher living standards are usually too difficult to visualize.

Technological innovation enables economies to do more with less. It’s the “less” that negative views about technology tend to fixate on. Yet, policy actions and new opportunities created by innovation create jobs for the displaced and it is the “more” that at the end of the day lifts a nation’s living standard. And because the distribution of income has widened in the last several decades, many assume this is an inevitable feature of free-market economies that calls for intervention from time to time.

For sure, times are challenging for many, owing to the trauma associated with our latest business cycle that thankfully is gradually passing, the rapid pace of technological change that has displaced many jobs, as it has for almost three centuries, and new competition from abroad as others attempt to replicate what the developed economies have done.

Nonetheless, in most cases, our hardships don’t compare with those our predecessors faced even in the past century, recalling the stories of those who lived through the Great Depression or were uprooted by the chaos of war and social upheaval in Europe and Asia in the first half of the 20th century.

We are fortunate. So are those who live and work in Western Europe, Canada, Japan, Taiwan, Israel, New Zealand, Australia, South Korea, parts of the oil-rich Middle East. Nonetheless, we account for only one billion of the world’s seven billion, or less than 15 percent of the world’s population.

Now others have a chance, because their governments have embarked on aggressive development agenda and are able to move forward quickly by opening their borders to the international business community and stabilize their currencies to those in the developed economies. China and India, in particular, are an example that is indirectly benefiting their neighbors and inspiring others.

The widening distribution of income in the US and other developed economies is attracting considerable attention. It would be unsettling, and destabilizing, if the global “economic pie” were static and one group were benefiting at the expense of others. Instead, what likely is driving the distribution of income is the wealth of opportunity that is associated with an expanding global “economic pie” and that because it is occurring at an eye-popping pace has uneven benefits. The global community has much to be thankful for and modern market-oriented economies deserve considerable credit for the battle against global poverty.

And this note about the chart at the top: “Estimates of World GDP, 1 Million BC – Present,” J. Bradford De Long, Department of Economics, University of California at Berkeley, 1998. JPMorgan Chase & Co., 2000 to the present.”

53 thoughts on “A JP Morgan economist (in effect) responds to Pope Francis

  1. Sorry – but per capita is not the correct measure. That’s the point. Look at median. A classic strawman. Also the slope changed significantly for the worse coincidentaly with massive deregulation of the Reagon era. Poor argument.

    • Yes, an obsessive pursuit (or the love) of money is the root of all evil according to the Bible. However, that’s not capitalism. The Bible is describing a human failing, not a characteristic of an economic system. Human failings of greed, fraud, dishonesty, deception, etc. are present in ALL economic systems which history has seen thus far simply because humans are involved. Capitalism is the only economic system which actually can channel greed into socially desirable outcomes.
      Remember, that one of the characteristics of a free market is that transactions are voluntary. If your product doesn’t please me, I’m not required to buy it. I don’t really care whether you are greedy or not. If you deliver shoddy products, you will not be in business very long. Those who deliver good products will, and society benefits.

      • If one accepted the assertion that capitalism is “the only” system which can channel greed for positive outcomes (a dubious prospect), one would have then make another large mistake in thinking that because it ‘can’ therefore it ‘does’.

        Look around you. See the obsessive greed. Check the data showing how less than 1% are benefitting. The clear evidence has been shown for some time. It is regrettable that some would pretend the data has not existed for quite some time that only a very very select few are benefitting from the economic gains.

        (Most Americans, for just one easy example, still eat at McDonald’s, make payments on a Toyota, are strapped with a mortgage, can’t quite a job for fear of losing healthcare, have the burden of student loans for their kids. Or worse! While there exists a class of capitalist owners sucking up all the gains to enrich themselves while spurring on the masses toward ever more consumption. Exactly as Francis referred to. And that’s just the United States. His vision was global.)

        • “If one accepted the assertion that capitalism is “the only” system which can channel greed for positive outcomes (a dubious prospect), one would have then make another large mistake in thinking that because it ‘can’ therefore it ‘does’.”

          I described for you how it does in my post. If you disagree then let’s hear which alternate economic system also has the same characteristic, describe how it works to channel greed positively.

          “Look around you. See the obsessive greed. Check the data showing how less than 1% are benefitting. The clear evidence has been shown for some time. It is regrettable that some would pretend the data has not existed for quite some time that only a very very select few are benefitting from the economic gains.”

          I would suggest you first define your data. The data you mention are not static “flesh and blood people” the data refers to a statistical category. The people who made up this category 5-10 years ago are not the same people who are in the category today, nor the same people who will make up the 1% at some later date. People move in and out of the various income categories over time. I’m concerned about “flesh and blood” people not abstract statistical categories.
          Second, there was an AEI article just a few weeks ago pointing out the fallacy of your claim using the statistical categories you refer to. The data do show the rich have benefited more, but it also showed that all income groups have benefited.

          “While there exists a class of capitalist owners sucking up all the gains to enrich themselves while spurring on the masses toward ever more consumption.”

          Much of the out sized gains in the last few years have come about as a result of the growth of capitalism and free markets in China, India, and other previously impoverished areas. World GDP (the pie) has gotten bigger. As these people move out of poverty into middle class they buy I-phones, computers, cars, and a myriad of other consumer products. And yes, the companies that create and market these products will become wealthier. But, there is no empirical evidence that the additional wealth was “sucked up” from anyone. World GDP has increased in real terms thousands of percent per capita over the last 200 years, where did all this wealth come from? Was it taken from someone else? By what mechanism?

          Since a core tenet of capitalism is voluntary exchange, by what mechanism did these evil capitalists “spur on” the masses to somehow act against their own best interest?

          “Exactly as Francis referred to. And that’s just the United States. His vision was global.”

          His vision is cloudy. He does not understand how capitalism works and I suspect neither do you. Most of the evil attributed to capitalism is created by governments and their intrusion and perversion of capitalist principles.

          • You have done no such thing. You have not described, in any fashion, at all, how capitalism supposedly “does” channel greed. You merely asserted it. Now you claim your assertion as proof. That’s preposterous.

            In fact, you give up the whole charade when you later confess that you don’t care if capitalists are greedy. You just want the shiny plastic widget they advertised to you for years across all media. If it results in the poor being trampled upon rather than helped, you do not care by your own admission.

            The data has been well publicized in nearly every media outlet from Fox News to World Worker’s Daily. I regret to learn that apparently your sole source of information is AEI whose very credibility with data is being question by the majority of respondents to this very post.

            But since you claim to be unaware of the oft-cited facts, we have an enormous gap in income inequality which is strangling America’s economy, as the greedy choke on their very largess. And it’s getting worse. The pace of disparity is increasing more dramatically than any time in nearly 100 years.

            It may be all well that AEI suggests the typical American making barely enough to scrap by, with the help of income assistance, technically earned a single bread crumb more in the last year while the richest 1% gained yet another private islands’ worth of income. To suggest that we somehow have all benefitted is patently absurd. The typical American makes less than ever, while less than 1% abscond with all the proceeds gained through corrupt practice and tax evasion.

            In this particular instance, the Pope’s vision is not cloudy. Not in the least. He sees through your lies and deception about the modern serfdom, cloaked in a blustery flag-waving defense, pretending to not be aware of the well-documented facts circulating for years across all popular media and economic information sources, hiding behind insane technical extrapolations of some obscure and irrelevant detail in an attempt to deter those who point out the emperor has no clothes. He sees the mass suffering ignored by a privileged few who are content to hide in their castles, relishing the feudal system they’ve bought while pretending to the world is righteous and free.

            Poppycock!

        • Look around you. See the obsessive greed. Check the data showing how less than 1% are benefitting. The clear evidence has been shown for some time“…

          ROFLMAO!

          Way to go Robin “Sean” Hood…

  2. you have to love the euphemism: “The widening distribution of income in the US and other developed economies is attracting considerable attention.”

    let’s talk straight. the income inequality in this country is the worst it’s been in 80 years, since the roaring 20′s. almost all the benefits in recent years have gone to the 1%, everyone else has fallen behind. the system has gotten out of whack, and of course, those who are benefitting disproportionately do not want any changes.

    that’s understandable, but the benefits of our capitalistic society need to be more evenly distributed for the system to continue to function. otherwise, the worker bees will throw in the towel and say what’s the point of all this hard work.

  3. RE: Danny

    Free market capitalism (aka democratic capitalism) is not, and never has been, defined as the pursuit of money. Rather, it is best defined (cf Adam Smith) as the freedom to pursue one’s private interests — the operative word being ‘freedom’. Lefties are largely confused on this point and conflate democratic capitalism with unfettered, libertine, capitalism — which includes crony capitalism of the kind practiced here in the U.S. and from the Pope’s home country, Argentina. The pope is, quite simply, ignorant of economic history.

    In democratic capitalism, states establish institutions that enforce contracts and punish cheaters and criminals. Such institutions, until relatively recently, were never envisioned as a means to further social goals (e.g., by offering tax deductions to favored groups). To achieve social goals via economic means necessarily requires the abrogation of someone’s liberty to pursue their private interests.

    Getting back to the Bible, that book is neither historical nor economic. It is moral. The Scriptures clearly and forthrightly say we are not to elevate our economic interests above that of God’s moral will, but otherwise we are free to get rich. One is quite free to pursue the acquisition of material wealth so long as one’s pursuit enriches their neighbor and/or does not damage to their neighbor broadly construed. For example, the rich men and women of Microsoft became wealthy because they provided needed goods and services. The pursuit of their private interests (to make money selling softare) uplifted the economy of the world in ways that are immeasurably greater than we can know.

    Michael

    • Michael,
      “…the rich men and women of Microsoft became wealthy because they provided needed goods and services.”

      At what price? Because the true cost of producing the software is not trasnparent to others, who have been nonetheless forced to think that software is essential for their own work no matter the cost, sellers of the software were able to make huge amounts of profits. In the name of freedom, capitalism cannot stop with ‘caveat emptor,’ but has to be regulated so that the profits sought are fair and reasonable, and that there is no monopoly preventing competition. And such ‘free’ capitalism inevitably creates bubbles because those who pay for the exorbitant profits then try to pass on their costs to others. How does one prevent it from beocming unstable?

      • profits are regulated…. by competition, which is the only honest device for regulating prices. If we were to rely on fair and reasonable, exactly who would determine pricing? Bureaucrats? Precisely why citizens of the former Soviet Union stood for hours in line to be allowed to buy bread and shoes.

        • Thank you for the false dichotomy. We are not forced to decide between “a few corporations dominate a feudal system” and “Stalin will put us all in prison”. We have more options than these two scenarios. It is time to stop pretending that the world will end if we meaningfully reduce income inequality.

        • Gary,

          But if there were in fact such competition, there wouldn’t be such super rich people in the first place. Companies try to do everything possible to stifle competition. Through elected representatives, a government of the people can demand more transparency on costs and profits. Relying on competition may sound better in theory, but it takes a long time for genuine competition in practice.

          • This faith in your elected representative is touching.To paraphrase Mencken, representative Democracy is the belief that you and your wife together have more influence with the govt than the single vote of Mr .
            Agreed,competition is not perfect and the market is riddled with the problem that it works only by trial and error. And your solution to it is representative democracy? What makes people in an office which has a nameplate saying ‘US congressman’ suddenly overcome their human failings and become responsible knowledgeable shepherds of prices in the economy?

          • This is in answer to Pravin ( the blog doesn’t give me the option to respond right under his comment).

            I only brought up representative democracy because Gary pejoratively asks ‘bureaucrats?’ Right wing people often say decisions shouldn’t be left to ‘unelected bureaucrats.’

            I don’t put too much faith in the ability of Congressmen to solve the problem. Ideed, I am all for entrepreneurs to have a great deal of freedom to earn rewards for their innovations, but I am for people to be more proactive in using their own freedoms to challenge them to keep the prices low. The Microsoft case is illustrative for me in that after the initial phase of radical innovation, for which the entrepreneur deserves to earn great margins, it is often unfair practices that allow them to continue to maintain high margins. People should resist that in an organized way, and though it is ideal for NGOs to do it, in the absence of such NGOs operating on a large scale, people can and should rally around the government to help them do it.

  4. Saying capitalism has made the world better off assumes that there isn’t an alternative method that hasn’t been developed fully yet that would lead to a better distribution of income.

  5. The Bible is also quite clear about how one is to raise money. Don’t short-change your workers’ wages. Deal honestly and fairly. Don’t look after your own interests while leaving the poor to rot. Don’t use your wealth (or lack of it) to distort justice. Don’t grow wealthy on the suffering of the poor.

    The point the Pope was making was that as we grow wealthier, we must be sure that added wealth accrues to all levels of society. There should be declining income inequality with growing per-capita GDP, which is only possible through guided market forces.

    • The point the Pope was making was that as we grow wealthier, we must be sure that added wealth accrues to all levels of society“…

      Proving that the Pope’s grip on reality is tenuous at best…

  6. One should wonder if Mr, Glassman happens to have lived in you know… the real world… ever. For starters, I’m astonished at the remarks revolving around Western Europe. I advise Mr. Glassman to please go visit Spain and Portugal where unemployment is astronomically high and try and read his own notes with a straight face. An absolute joke of the highest order. It is beyond unintelligible to make comments of this sort. Namely, because they so blatantly shun the fight of the worker vs. machine, which will continue to be the ultimate creator of poverty in the ultimate years. I’m all about supporting thought with data, but this really shows the lack of connectivity to the world that some of these analysts have.

  7. I’m sorry but those of you who argue, either implicitly or explicitly, that the disparity in wealth distribution is due to capitalism and that “we” must therefore regulate profits to ensure a more “fair” distribution seem unaware of history, politics, or both. With just a modicum of reflection history shows that achieving equality of outcome (what lefties mean by “fair”) is impossible in a free society. F.A. Hayak said it best when he explained why economic systems based on equality of outcomes do not work — I quote:

    “From the fact that people are very different it follows that, if we treat them equally, the result must be inequality in their actual position, and that the only way to place them in an equal position would be to treat them differently. Equality before the law and material equality are therefore not only different but are in conflict with each other; and we can achieve either one or the other, but not both at the same time.”

    Lefties are unable to grok this simple logic. Equality of outcome is a lefty value because the State must necessarily choose between who is to enjoy the fruits of someone else’s labor. In the lefty world, in which equality of outcome is primary, the state must be coercive and far reaching. Is it any surprise that all lefty economic systems have never, ever succeeded in lifting the poor from poverty. Just the opposite in fact.

    Equality of opportunity, by contrast, is a conservative value because all the state need do to guarantee equality of opportunity is ensure that laws against embezzlement, theft, misrepresentation, etc., are everywhere uniformly enforced. So long as Jones and Smith are on equal terms before the law, the government need not get involved and both will prosper as their skill, means, motivation, and luck warrant.

    Michael

    • If equality of opportunity is a conservative value, one might expect to see it somewhere in some form. Instead, Michael goes home to his gated community, adjacent to good shopping, great schools, gleaming hospitals, vigilant police and prosperous office parks, and sleeps just fine, thank you, because inner city Americans are in charge of their own fate.

      • Inner city Americans are objectively NOT in charge of their own fates. For example, the state controls the schools they are (and are not) allowed to attend. While President Obama sends his daughters to private schools, he and his fellow democrats pulled the funding from the charter school serving the black community in and around D.C. Mustn’t give the poor the hand up.

        Zoning laws and rent control regulate where a poor person is allowed to live, the result of which are balkanized urban ghettos, riddled with crime, from which escape is nigh on impossible. Minimum wage laws, beloved by government control advocates, hike wages to a level such that companies can no-longer afford to hire low-skilled, entry-level teenagers.

        Government support for unions both private and public prevent otherwise healthy, skilled but poor citizens from getting non-union jobs. In New York City and Washington DC, those bastions of concern for the poor, WalMart has been prohibited from establishing local stores. This is a double whammy — it precludes the new jobs, largely unskilled, from seeing the light of day AND stifles the market for low-cost goods and services.

        Need I go on?

        Finally, you don’t see many examples of equality of opportunity because lefties do not permit it, not because conservatives don’t try to get it established. For example, equality of opportunity does not exist in lefty enclaves such as academia, union-shop blue collar industries, and the local, state and federal government agencies. Equality of opportunity is largely absent in the deep blue cities of Chicago, New York City, L.A., and Washington D.C. because to support equality of opportunity would mean giving up control thereby allowing poor people to make more of their own decisions, God forbid!

        One final point: To Mr. Mason (or any other lefty out there), rather than personal attacks, I would be interested in your critical thoughts on the Hayak quote. How do you answer the clear logic of his statement? Where is he wrong?

        Michael

        • It’s Hayek not Hayak and the Austrian School is a fig leaf for conservatives who won’t spend a dime on the other America. The paper mill closes in your part of Maine. Bad luck for the plant’s engineers. Worse luck for workers who lack the assets and skills to start over elsewhere. Kiss of death for their kids whose strapped schools won’t match up to Michael Jr’s suburban wonder plus math camp, SAT prep, 529 plan…. But, hey, Michael Sr says equal opportunity is a conservative virtue so it must exist.

          • It’s Hayek not Hayak and the Austrian School is a fig leaf for conservatives who won’t spend a dime on the other America“…

            Nice of you todd that you want to advise other people how to spend their money, money you didn’t earn or those other people either…

          • Sshh, Juandos. Mr P insists, and produces experts who insist that conservatives are happy to finish the work free markets can’t quite get done, namely help the poor. Then you blow their cover.

      • Todd, in case you haven’t noticed, we are all to a great extent in charge of our own fate. If we are not, then who is?
        I don’t want to speak for Michael, but Conservatives are usually in favor of improving equality of opportunity. Conservatives favor widespread school choice, where govt. funding is tied to the child and the parent can send the child to any school. This would allow inner city moms to send their kids to any school, not just the failing inner city school. For the kids/parents so motivated, a better education is a start to better opportunities. Of course the liberals would not approve of such a plan since that would deprive them of campaign funds and some of their public employee union voting block.
        A more robust economy would make both more jobs and better jobs available.(more opportunity) Conservatives favor actions that improve the economy for all. We are not very concerned if a few more people get rich, we are more concerned that the middle class and the poor have more and better opportunities. There is no way to have a robust economy where only the middle class and poor benefit. Libs seem to be more intent on punishing the rich than helping the less fortunate.

        • Punish the rich? The question before us is should we continue to favor job creators who are not creating jobs, or at least not in this country. You can’t have a robust economy until everyone is back to work. Supply is not the problem. There is literally trillions in idle cash waiting for at least a flicker of demand.

    • Please widen your horizons to become more familiar with other economies who manage to have a socialist-capitalist blend not entirely unlikely America, but manage to provide equality before the law, far more equitable income distribution, far better social services, and the like.

      It takes willful burying of one’s head in the sand to pretend we cannot create better outcomes with our version of capitalism when others have already demonstrated it can be done. The primary obstacle to achieving better outcomes, unfortunately, is the greed of less than 1% and their captured rabble of ideologically-driven deniers.

      We can certainly do better. That’s what the Pope points out.

      • Sean,

        I challenge you to cite a single “socialist-capitalist” country whose economy is as vibrant as ours — even in today’s doldrums. I’m not sure what countries you have in mind, but in Europe, competition is rigorously rooted out when favored companies are threatened by American upstarts like Microsoft and Boeing. Europe has what the Pope’s Argentina has — Crony capitalism. An economic system not remotely related to what Adam Smith and Milton Friedman wrote about.

        In Europe, gasoline is well over twice the price that we enjoy, unemployment never fluctuates from the mid-teens with the youth unemployment bordering on 70% in some European countries. Houses? Forget it. The economies of most European countries (e.g., Norway and Sweden) force one to live in apartment hives.

        Michael

        • Wow, you are seriously misinformed. Pick a economic statistic — youth unemployment, labor force participation, high school completion, GDP per capita — and the US is routinely scorched by Germany, Denmark and Norway, and topped in most categories by Sweden, Canada, Australia and Switzerland. Fuel costs aren’t as punishing as you think. The fleet fuel economy average in Europe is pushing 50 mpg, and a weak dollar meant much less inflation there than here (crude oil is priced in dollars.)
          House sizes are a function of population density. Hold off on the USA chant there as well. http://www.smh.com.au/business/property/australian-homes-still-the-worlds-biggest-20110822-1j5ev.html

          • Todd, a couple of data points. From a wikipedia list of OECD Countries by GDP per capita adjusted by Purchasing Power (cost of living in that country).The U.S. is 4th, behind Norway and Sweden but ahead of Australia, Sweden, Denmark, Canada, and Germany.

            Eurozone youth unemployment rate – 24.4%
            U.S. youth unemployment rate – 16.0%

            So you are incorrect in some of your assertions.

            In any event, I don’t believe that comparing a few statistics of the type cited proves the point either way. It would take a very detailed analysis of many factors before one could claim that country A is definitely “better” than country B. Also, there is likely more than one definition of better.

          • Youth unemployment as per CIA World Factbook 2012
            US 17.6 percent
            Canada 15.3 percent
            Australia 11.6 percent
            Denmark 11.2 percent
            Germany 11 percent
            Austria 10 percent
            Norway 9.2 percent
            Switzerland 8.2 percent
            Netherlands 6.6 percent

            I believe it was Michael who was asserting national superiority. My only point is that Michael is badly mistaken.

            What’s alarming in these numbers is that only the Dutch have a reasonable result. Well, that and the US’ rank of 63rd in the world in creating opportunity for youth.

          • BTW, the US ranks 10th in the world in nominal GDP per capita although, as kjerry notes, an adjustment for purchase power parity puts the US at or near the top. Thing is, a fair chunk of that PPP is unearned, derived from the simple fact of being the largest consumer market on the planet.
            To the eternal frustration of Canadians, even Chryslers made in Brampton Ont sell for about 15 percent less in the US. We have the most competitive car market in the world because ours is the largest car market in the world. Slim margins are the price of entry for foreign manufacturers. China holds $1.3 trillion in US treasuries at negative interest rates for the express reason of keeping its export prices low in the US.
            That advantage will slip away eventually, as soon as 2030 in some estimates of China’s rise. Sooner if the right can’t shake its delusions of grandeur.

        • Would you like to play the game of only looking at the last 12 months, which necessarily fluctuates for any given economy? We can revisit annually to see which particular horse has a nose’s lead at that point time.

          Or are you open to considering longer periods of data? I’d think you’d find the case for several European countries to be rather compelling.

          Are we judging the health of a society on the price of gas? I wouldn’t find that a good basis. Several European countries own more cars per capita than America. Hardly the sign of an economy in doldrums.

          Microsoft and Boeing are anything but start ups. Your characterization of these predatory monopolists is false. They are mature corporations making enough coin to turn Caesar jealous. Both companies are routinely fined here and abroad for egregious business practices. If you’re looking for an ethical stalwart to carry your moral banner, I suggest you look further. Their own behavior warrants zero sympathy.

          Home ownership rates in the United States are lower than about a dozen European countries. Average home sizes vary, but most European living is more efficient than sprawling American suburbs. To suggest people live in apartment hives reveals that you don’t travel much. Besides, I doubt you consider the “apartment hives” of New York City to be a symbol of squalor.

          Have you any more spurious conjecture so easily dismissed?

  8. Michael,

    Suppose I say Bill Gates deserves $100 million rich, or even $500 million rich, but not $600 billion rich. Where do I demand equality of outcome? Hayek is irrelevant.

    “…both will prosper as their skill, means, motivation, and luck warrant.”

    And when “luck” plays an outsized role in “success” or “wealth” then such success doesn’t deserve society’s admiration.

    • Ted,

      Your argument rests on an assumption I do not accept. You implicitly advance equality of outcome in your premise when you write, “Suppose I say Bill Gates …”. People, like you, who make judgments as to what Bill Gates deserves (even in a hypothetical) assume that the outcome of Bill Gates’s enterprise is subject to the judgment of how much is too much. Such thinking reveals little or no knowledge of what democratic capitalism is all about and a set of ideas uninformed by serious engagement.

      Under democratic capitalism, Bill Gates gets remuneration only for that which others FREELY choose to give him in return for his goods and services. Lefties routinely misconstrue this point. The “free” of free market does not mean unfettered or caveat emptor. Rather, the “free” in free market refers to the notion that customers are free to choose what to buy and how much to pay.

      Coercion nowhere plays a role as it does (and must) in the lefty ideal of economic systems that attempt to achieve equality of outcome. In democratic captalism there is no institution empowered to judge what someone “deserves”, or how much is too much. Bill Gates is free to make as much money as he possibly can provided his earnings are the result of others FREELY choosing to buy his product.

      Now, if Bill Gates acquires his wealth by crooked means, that’s an entirely different story and it’s why democratic capitalism requires the establishment of courts and other institutions to ensure that contracts and other laws are reasonable, just, and equally enforced. Under democratic capitalism, markets are NOT unfettered and buyers and sellers are not free to do anything they like.

      I would commend Adam Smith and Milton Freidman to your attention.

      Finally, society’s admiration is not in view in this thread and you’re bringing it up it up is simply a red herring. I refuse to bite.

      Michael

      • Ummm, that Microsoft in 1999 was found to monopolize PC software in US District Court and ultimately settled requires quote marks rather than capital letters, as in consumers who “freely” choose to buy Bill’s goods and services. I’m ambivalent about the whole fracas because standards are necessary in tech, but I wonder if most MSFT customers thought, as I did, that Bill charged too much and delivered too little.

        • Linux and Apple were both around in 1999. Freely means you were not coerced. It matters not what you thought regarding the value of the product. If it had value to you compared to your next best alternative, buy it, if not don’t buy it. No one was coerced to buy it.

          • Microsoft was found guilty of violating the Sherman Antitrust Act and held liable for violating the antitrust laws in 19 states. NEXT!

        • but I wonder if most MSFT customers thought, as I did, that Bill charged too much and delivered too little“…

          No one was forced to buy a computer with Microsoft software on it.- so if those people feel they were overcharged they had only themselve to blame for buying the product in the first place…

          • In fact, people were forced to buy MS software. EVERY retail PC based on an Intel x86 processor after the mid to late ’80s, when IBM and Radio Shack bowed out, came loaded with Windows whether you wanted it or not, and MS’ charges were imbedded in its price.

      • Michael,

        Don’t forget that Gates’ wealth is tied to stock performance–in other words, market’s expectation of high profits and pricing power, not the actual sale of goods and services.

        I know my Adam Smith or Milton Friedman well.
        Maybe you need to read Paul Krugman. And Friedman’s work has been discredited a lot by the great recession.

        And guess what? When the housing market bubble burst and the great recession ensued, cutting close to the bone, it was the very proponents of ‘democratic capitalism’ and ‘free’ markets who went with the begging bowl to the Govt. So much for the defense of free market capitalism.

        • Ted,

          “Don’t forget that Gates’ wealth is tied to stock performance–in other words, market’s expectation of high profits and pricing power, not the actual sale of goods and services.”

          This is nonsense. Where, exactly, do profits come from if not from the actual sale of goods and services

          “I know my Adam Smith or Milton Friedman well.
          Maybe you need to read Paul Krugman. And Friedman’s work has been discredited a lot by the great recession.”

          Please enlighten me as to who has discredited Friedman’s work.

          “And guess what? When the housing market bubble burst and the great recession ensued, cutting close to the bone, it was the very proponents of ‘democratic capitalism’ and ‘free’ markets who went with the begging bowl to the Govt. So much for the defense of free market capitalism.”

          No one on this thread is defending these characters. The “too big to fail ” banks are part of the govt. Federal Reserve System (yes I know the Fed is independent, but the big banks are the conduit through which monetary policy is pursued and as such are appendages of the Fed). Likewise with Fannie and Freddie, the govt. sponsored enterprises. These entities are not capitalist enterprises. Any entity, govt. connected or independent, which does not bear the risk of loss for its decisions is not operating in a capitalist environment. These are great examples of Crony Capitalist, sheltered by govt. from the normal forces of market risk and competition.

          • Milton Friedman’s work assumed that there was a constant demand for money and thus a clear link between the growth in the money supply and inflation. Near the end of his life, working on Monetarism 2.0, Friedman acknowledged that one couldn’t assume constant demand in the short run (i.e. velocity is at times more important than quantity.)

            Monetarists seem to have missed this correction. We see ineffective nods to the quantitative Friedman on both sides of the Atlantic. The ECB is staunchly monetarist and a major part of the problem in Europe. http://research.stlouisfed.org/publications/review/12/05/153-186Hall.pdf

            In the US the Fed is printing money 24/7 but can’t get banks to lend it or consumers to spend it. In my cost benefit analysis, the Fed is on the riskier path, gaining a modest short-term benefit at the expense of a major long-term risk.

            Perhaps it is the confluence of politics and economics that makes the latter so insistent on their version of the One and Only True Way, despite clear evidence that different ills call for different palliatives. All I can say is thank heaven economists aren’t running medicine. Leeches make me squirm.

          • kjerry,

            I don’t have much time so will be brief.
            “Where, exactly, do profits come from if not from the actual sale of goods and services.”

            I am talking about the fact that markets can be irrational for very long periods; for instance even before there is any real sale and income, many companies are valued highly based on irrational expectations. Look at current valuations of Twitter for instance. By the time some people realize that those ‘expectations’ were unwarranted, some others have already made their fortunes. Microsoft founders similarly got rich during the early phase of such irrational expectations and later diversified their holdings.

            On Friedman, I was referring to Krugman’s critique of Friedman on the need for fiscal stimulus.

  9. Todd,
    I don’t disagree with anything you’ve said. You’ve described quite well how I too see our current situation.

    The fact that some monetarist have missed (or misconstrued) Friedman’s subsequent work and have applied solutions purporting to be based on Friedman’s work, doesn’t make it Friedman’s. I guess this is what I meant with my challenge as to who, exactly has conclusively discredited him.

    I think you are correct that different ills call for different responses.

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