I recently assigned Milton Friedman’s classic article “The Social Responsibility of Business is to Increase its Profits” to one of my more advanced classes, which got me thinking about Friedman’s argument for the first time in a while. Then, just the other day, Matt Yglesias wrote this:

[Friedman’s argument] implies that a business executive has not only the right as a citizen of a democratic country but a moral obligation to dedicate his energy and that of the firm he manages toward erecting regulatory barriers to competition and to begging for bailouts and subsidies…. [A]n entrepreneur who’s obsessed with creating great products is… guilty of some kind of ethical failing… my point is basically that for the system to work you need some kind of thicker ethics than “greed is good.”

From the very same article that Yglesias links to, Friedman makes it clear that he recognizes this. He concludes with this quote from his book Capitalism and Freedom: “there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.

Friedman may be partially to blame for the initial appearance of a disagreement on this point, since he chose to advance his position (in terms of what he emphasizes in this article and in interviews on the subject) by basically saying “businesses should try to be greedy and increase profits” without necessarily following up with the obvious caveat that this is only a tenable position if businesses are conforming to certain basic rules.

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Egalitarians often point to wealth inequality as a sign that society is not doing enough to improve the conditions of the poorest. But inequality and standard of living are completely different and should be treated as two separate issues.

I remember in my AP political science class we were told that psychology tests proved that people – despite what they believed – were more concerned about relative wealth than absolute wealth. In other words, picture these two situations: I get $40 and you get $70 in situation A. In situation B, I get $30 and you get $45. In Situation A, we both have more money. We are both wealthier in absolute terms. In situation B, the inequality of our respective wealths is less, but our absolute wealth is lower; on the other hand, my relative wealth is better in B than in situation A.

I think – or at least I hope – that we all can agree that situation A is a preferred outcome, since both of us have more money which means a better standard of living (in the material sense).

One of the biggest fallacies about economics is that it is a zero-sum game. What I mean by this is that if I become ten dollars richer, I have taken it away from someone else. In other words, Bill Gates having X billions of dollars means that we are X billions of dollars poorer. Au contraire!

Market economies thrive on quite the opposite; the total amount of wealth in society is never a fixed amount. The idea is, at least in theory, that instead of artificially redistributing the “slices of pie,” making “the pie” bigger is a better way to help the worst-off in society (as Rawls himself even admitted). History, I believe, is on my side when comparing capitalism with extreme socialism or communism: the poor in the Soviet Union, East Germany, North Korea, or any African socialist utopia are much worse off than in America. In the last few decades, China and India have lifted hundreds of millions of people out of poverty by embracing market reforms. At the same time, wealth inequality has increased. Shouldn’t that be considered a necessary evil instead of something to combat, at the possible expense of further growth?

In my internship this summer for an education think tank, I remember reading a great piece (though I can’t find it now) arguing that achievement gaps shouldn’t be considered as much as proficiency gaps between races/income groups. In other words, instead of caring about the difference in test scores between rich kids and poor kids, we should just be making sure that every child is proficient in all the necessary areas. Caring about the achievement gap can create a false sense of progress, as Carson noted in a previous post, because if the best-off people actually decrease their well-being the inequality has gone down without actually improving the standard of living for the worst-off.

Ok, so that’s my first point: absolute wealth should be considered over relative wealth. But the measurements by which we look at inequality also need to be reconsidered. Will Wilkinson recently wrote an excellent paper questioning the often-reported rise inequality in the United States, saying that, among other things:

  1. The level of real economic inequality is lower than popular treatments of the issue have led many of us to think.
  2. The level of economic inequality is an unreliable indicator of a society’s justice or injustice.
  3. Inequality distracts us from real injustices that are given too little attention.

Check it out if you’ve got time.

An example of a pie that can represent wealth distribution

An example of a pie that can represent wealth distribution

I just got back home from seeing Michael Moore’s  Capitalism: A Love Story, and I almost walked out (I probably would have, had I not been watching with my mom and brother).  I’m not a Michael Moore hater; I actually kind of liked some parts of Bowling for Columbine and Fahrenheit 9/11.  But this was just awful.  The gonzo stunts that Moore has become known for were uninspired duplicates of scenes from his previous films, and he didn’t have any particularly funny jokes.  Humor took a backseat in this film to Moore’s incredibly misguided critique of capitalism.

Moore highlights some tragic, probably legitimate injustices in the movie (although their presentation is surely slanted), but the movie overall is not just misleading; it’s a truly despicable piece of trash that makes people who watch it stupider and reduces the quality of public discourse.

As W. Jerome wrote last month, Moore conflates capitalism with corporatism throughout the film.  Among the vignettes that Moore uses to condemn capitalism are a judge who takes cash payments to imprison juveniles and increase profits of his detention facility owning friends, legislators and cabinet officials who get special deals on home loans, and former Wall Street executives who use their powerful posts in the treasury department to funnel taxpayer money to their old employers.  Moore uses the word “capitalism” to refer generally to “things that are evil” (he even says, “capitalism is an evil, and you can’t regulate evil”).

For reference, here is Wikipedia’s definition of capitalism: “an economic and social system in which the means of production (also known as capital) are privately controlled; labor, goods and capital are traded in a market; profits are distributed to owners or invested in new technologies and industries; and wages are paid to labor.”  Moore uses this movie to obscure for his viewers what the word “capitalism” actually means.  Therefore, when a free-market friendly person defends capitalism, people who have seen Capitalism: A Love Story will attribute a different meaning to that person’s words than that person herself intends.  It’s impossible to have a meaningful, productive conversation when the participants are literally not speaking the same language.  Moore cultivates confusion on a topic which badly needs conceptual clarification.

There is nothing wrong with a critique of free market economics (see?  I can’t even use the word capitalism here, because I’m afraid that it will be unclear!) on its merits, but Moore’s movie is nothing of the sort.    And I’m honestly ashamed (although not at all surprised) that one of my beloved home state’s senators (Bernie Sanders) makes a cameo appearance.  Yuck.

No, I haven’t seen Capitalism: A Love Story yet, so I can’t give an honest review of it. But I have gathered a few things from the people who personally have seen the movie. First of all, Moore concludes it with:

Capitalism is an evil, and you can’t regulate an evil.

Woo, doggies. I really like capitalism.

One teaser for the movie is this video:

There, Mikey, is mistake #1. Capitalism’s passionate and true defenders were against bailouts. They also are against giving any specific private entities like corporations special preferences. There’s a huge difference between crony capitalism and the true capitalism that I and other libertarians argue for.

Honestly, I probably won’t see the movie. But I thought I should write about such a glaring mistake.