- - Sunday, January 5, 2014


Communism as an economic idea died because it had no incentives for anyone other than the politicians who, of course lived outside the economic rules of their society. The lack of incentives, combined with human nature, killed the work ethic. Money became worthless because there was nothing to buy. Laborers engaged in ever-poorer workmanship. State-owned and -managed companies were able to survive only because the public was forced to buy their shoddy goods. In the end, many in Russia suffered. The Russian slogan of the 1970s, “We pretend to work and they pretend to pay us,” was telling.

In a perfect world, where people are never selfish, communism and socialism might work. The problem with communism, socialism and Marxism is that their view of human nature is incorrect. Each depletes economic virtue practically across the board.

Those on the top are there largely because of cronies or family ties, and they often stay in power via corruption and exploitation of the poor. Dynamic virtue rarely will be found in such a class of people.

Then there are the majorities, who are more than those on the fringe of society. They also include the lower and middle classes. They have no incentive to work; rather, their lives are caught up in an illusion. They are provided with the crafty ruse that the lives they are living are on par with the middle classes of the rest of the world. They believe that their government is not buying them off, but that this system is more honorable.

In a perfect world, where people are never selfish, communism might work. However, this is simply inconsistent with human nature. People, whether because of biology, evolution or God’s will, work to better their own lives and to provide for their own families and loved ones. No amount of evangelizing, idealizing or governmental coercion can change this simple fact about Economic Man.

But what about capitalism? Can it and should it survive? A system of incentives that emphasizes the work ethic and education is the only realistic way to ensure speedy, perpetual innovation and creativity. All other systems have proved to be failures in this regard. However, the Great Recession raised the issue of capitalism’s viability, especially in the hybrid form that combines it with socialist elements.

The main ill of capitalism is that it treats failure as the defeat it is. In a society that practices grade inflation but lacks personal responsibility, everything is somebody else’s fault. Shouldn’t failure also get a trophy? When we start to reward failure, we begin the process of not acknowledging the importance of success.

When the government underwrites whole markets, capitalism cannot work and we begin to lose track of the “real” values of the products within that market. In a capitalist system, “stimulation” of the markets is the same as stimulant recreational drugs to a human being — it creates an unrealistic euphoria, which is short-lived and painful when the effects fade. False stimulation masks reality rather than dealing with it. But the pain of the way things really are eventually returns — no matter if the stimulant is repeated because, in the end, the government will collapse under the burden of propping up every failed or failing business.

We saw this during and after the Great Recession in the last years of the 00s. When it comes to assigning blame for the debacle, some say the lack of regulation was the main culprit — that what happened is Exhibit A in the case against free market economics. Greed at the top by white-collar, high-society types who live in Manhattan penthouses brought the economy to the proverbial screeching halt. They neither create nor build anything, but instead come up with ingenious ways to shuffle paper and stocks and other financial instruments in order to profit from unsuspecting and ignorant and diffuse shareholders.

Others insist this is a simplistic and incomplete picture of what happened. Sure, creative financial profiteers devised financial instruments like “credit default swaps” to earn money not from building or creating anything, but simply by having made a transaction. But, free market defenders ask: Why were they creating these complex financial instruments? Was it not the existence of millions of subprime loans in the first place that led to the perceived need for the insurance against their failure default that credit default swaps were created to provide? And why were so many subprime loans on the market in the first place? Is it not the federal government, through a Federal Reserve that artificially determines the price of money — essentially a “price control” — by setting interest rates? What if the Fed set interest rates artificially low, thereby qualifying far too many folks for homes they could ill afford? And was it not also another government policy that so many who weren’t able to get prime loans on a home were suddenly eligible for subprime loans on homes they really shouldn’t have been buying?

A free market opponent might fire back that it was greedy predatory lenders who created the mess, not those who bought homes from them and certainly not Congress. But no one was forced to buy a home to make these purchases at gunpoint. In the age of the Internet, I find it hard to believe that folks who were told that taking an adjustable-rate mortgage was a good move didn’t check out that claim on the Web. Within minutes, these buyers, who were allegedly duped into purchasing homes, could have been armed with the truth about these risky loans. Or maybe they decided to take a shot anyway — in which case I still have to wonder why we feel sorry for the losses of their homes.

• Armstrong Williams is the author of the book “Reawakening Virtues.” Join him from 4-5 a.m. and 6-7 p.m. daily on Sirius/XM Power 128. Become a fan on Facebook and follow him on Twitter.



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