There is a great essay by Charles Murray in this weekend’s WSJ titled Why Capitalism Has an Image Problem.
He mentions two several reasons for the demise of capitalism in the public’s eyes. Collusive capitalism (crony capitalism) is among them. I agree. I think what happened with the housing crisis was collusive in nature in that the governement basically put out mandates for housing and lenders made it happen. Yes, there was greed involved and yes, banks made stupid loans (or purchased stupid loans from mortgage brokers who had no skin in the game). Then when it all came tumbling down, congress hauled in all the bankers and asked them what happened and newspapers talked about the failure of capitalism (without blaming the government).
Murray makes two other points that I think are very interesting.
The objective changes in capitalism as it is practiced plausibly account for much of the hostility toward capitalism. But they don’t account for the unwillingness of capitalists who are getting rich the old-fashioned way—earning it—to defend themselves.
I assign that timidity to two other causes. First, large numbers of today’s successful capitalists are people of the political left who may think their own work is legitimate but feel no allegiance to capitalism as a system or kinship with capitalists on the other side of the political fence. Furthermore, these capitalists of the left are concentrated where it counts most. The most visible entrepreneurs of the high-tech industry are predominantly liberal. So are most of the people who run the entertainment and news industries. Even leaders of the financial industry increasingly share the politics of George Soros.
I found this next reason for capitalism’s demise even more important:
Another factor is the segregation of capitalism from virtue. Historically, the merits of free enterprise and the obligations of success were intertwined in the national catechism. McGuffey’s Readers, the books on which generations of American children were raised, have plenty of stories treating initiative, hard work and entrepreneurialism as virtues, but just as many stories praising the virtues of self-restraint, personal integrity and concern for those who depend on you. The freedom to act and a stern moral obligation to act in certain ways were seen as two sides of the same American coin. Little of that has survived.
To accept the concept of virtue requires that you believe some ways of behaving are right and others are wrong always and everywhere. That openly judgmental stand is no longer acceptable in America’s schools nor in many American homes. Correspondingly, we have watched the deterioration of the sense of stewardship that once was so widespread among the most successful Americans and the near disappearance of the sense of seemliness that led successful capitalists to be obedient to unenforceable standards of propriety. Many senior figures in the financial world were appalled by what was going on during the run-up to the financial meltdown of 2008. Why were they so silent before and after the catastrophe? Capitalists who behave honorably and with restraint no longer have either the platform or the vocabulary to preach their own standards and to condemn capitalists who behave dishonorably and recklessly.
No. Capitalism is not perfect but it is the best economic system out there. But, it fails when politicians paint people as victims and dole out money in unproductive ways. Unfortunately, that’s the system we have today.