Homo Economicus [3]: Capitalism For Capitalists

homo economicus

Homo Economicus is alive and well where capitalism and capitalists are prospering  most:  in the USA. We know that because U.S. GDP is going up, and has been since the 2007-2008 financial crash, That’s the perspective of this Bloomberg piece:  Capitalism Is Working in the U.S.: From Warren Buffett to Jeff Bezos, today’s American capitalists are proving Adam Smith’s claim that free markets produce investment and growth (Nov., 2018)

“So where is capitalism succeeding in a world roiled by kleptocrats, simmering trade wars, and the xenophobia that inspired Brexit? That would be the U.S.

“American free enterprise is achieving the greatest growth in the developed world, posting annual gross domestic product gains since 2009. Within just eight years of the global financial crisis, the U.S. was the only non-emerging-market economy with record GDP. The nation’s growth has exceeded the Group of Eight leading industrial countries’ average every year since 2012, a trend that economists surveyed by Bloomberg forecast to continue through 2020.”

Bloomberg is bullish on American capitalism, but the Nobel prizewinning economist who created the concept of GDP had his reservations about its proper use:

“GDP’s inventor Simon Kuznets was adamant that his measure had nothing to do with wellbeing. But too often we confuse the two… If something has to be sacrificed to get GDP growth moving, whether it be clean air, public services, or equality of opportunity, then so be it.”

“GDP is how we rank countries and judge their performance. It is the denominator of choice. It determines how much a country can borrow and at what rate. But GDP is well past its sell-by date, as people are starting to realise. However brilliant the concept, a measure that was invented in the manufacturing age as a means of fighting the Depression is becoming less and less capable of imparting sensible signals about complex modern economies.

5 Ways GDP Gets It Totally Wrong As A Measure Of Our Success, World Economic Forum (Jan. 17, 2018)

The ideological clash between the two articles cited above couldn’t be more striking.

The Bloomberg’s article extols capitalism as a “moral force” to match the American Revolution:

“The founder of modern capitalism, Adam Smith, published The Wealth of Nations in 1776, the same year 13 colonies declared their independence from Great Britain. It remains the most referenced guide to prosperity because of its moral force: Smith said the freest markets are led by an invisible hand benefiting everyone, not just the individuals and companies motivated by their own profit.”

The article then lauds the big capitalist growth winners — Jeff Bezos, Elon Musk, Warren Buffet, Facebook, Amazon, Paypal, Apple, etc. — singling out Musk for special praise, saying “[Adam] Smith would relish the example of Musk,” who “might be the archetype of Smith’s capitalist,” despite his having to “give up his position as Tesla chairman and pay a $20 million fine to settle fraud charges.”

Finally, after a few paragraphs acknowledging there’s still work to be done, the article soars to a grand finale that quotes Abe Lincoln on upward mobility:

“Quoting Lincoln in her summer 2010 Marquette Law Review essay, Heather Cox Richardson wrote: “A healthy American society worked so that ‘[t]he prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him.’ This was the idea behind free labor, ‘the just and generous, and prosperous system, which opens the way for all—gives hope to all, and energy, and progress, and improvement of condition to all.’ ”

By contrast, the World Economic Forum article is having none of Bloomberg’s enthusiasm:

“GDP is a gross number. It is the sum total of everything we produce over a given period. It includes cars built, Beethoven symphonies played and broadband connections made. But it also counts plastic waste bobbing in the ocean, burglar alarms and petrol consumed while stuck in traffic.

“Kuznets was uneasy about a measure that treated all production equally. He wanted to subtract, rather than add, things he considered detrimental to human wellbeing, such as arms, financial speculation and advertising. You may disagree with his priorities. The point is that GDP makes no distinction. From the perspective of global GDP, Kim Jong-un’s nuclear warheads do just as well as hospital beds or apple pie.

“Pointing out the defects of GDP and even tentatively suggesting alternatives is no longer controversial. Former French President Nicolas Sarkozy commissioned a panel led by Joseph Stiglitz, a Nobel economist, to examine the issue. It was creating a dangerous ‘gulf of incomprehension,’ Sarkozy said, between experts sure of their knowledge and citizens ‘whose experience of life is completely out of sync with the story told by the data.’”

The two articles are talking past each other, which allows both to be correct:  (a) capitalism is in fact good for capitalists, and (b) obsessing over GDP ignores general societal wellbeing. Squeezed between the two is the philanthrocapitalist vision of better world. We looked at that previously; we’ll look again next time.