Don’t Throw Away Your Capitalism Just Yet
The turbulence of the U.S. economy has lots of people railing against capitalism itself, and with good reason: capitalism is inherently turbulent. That’s why the legendary economist Joseph Schumpeter called it “creative destruction.” Not only must eggs be broken to make an omelet, but sometimes people may decide they want their omelets made with no eggs at all.
That said, a lot of people (myself included) nevertheless regard capitalism as the best economic system yet invented. Is it perfect? Hardly. Are there all sorts of flaws, blind spots, unfortunate losers, and undeserving winners? Of course. When I think of capitalism in toto, I think of what Churchill once said about democracy in toto: “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.”
A good way to appreciate your own good but imperfect system is to visit another country’s worse and more imperfect system.
Here’s an example from an interesting book I’m reading, The Gridlock Economy, by Michael Heller, a professor of real-estate law at Columbia:
Nowhere has gridlock been more costly than in countries that banished markets. The Soviet Union had a rich endowment of natural resources and human abilities, but an inside-out economy. In late 1991, as the USSR was crumbling, I traveled to Moscow as part of a World Bank team. Boris Yeltsin‘s new government wanted to know what it would take to create a market economy in a country with no living memory of capitalism.
I was impressed at how socialism got things backward. In the Moscow winter, my friends left their windows open so apartments wouldn’t overheat. Why? Energy was not priced, so there were no thermostats. Everyone commuted long distances to work. Why? Land and transport were not priced, so Moscow had cottages close to the city center and towering apartment buildings in the distant suburbs. Millions were stuck in obsolete housing blocks, but there was no way to redevelop close-in land. These costs became visible as soon as the Russians started pricing land, energy, and other resources at the world market value. Transition was wrenching.
So we would probably all do well to realize that the current noise over rising energy, food, and other prices in the U.S. is in fact the sound of a lot of eggs being broken. Which, in moderation, may turn out to be a good thing for many people. The pain of the moment is real but so too is the strength of the system.
An aside: it used to be customary (and perhaps still is) for Russian parents to put their babies out on the balcony for naps in the wintertime. I was always told this was because of a belief that very cold air is good for a baby. Reading Heller above, it makes me wonder if perhaps those parents were just trying to keep their kids from broiling.