I reviewed “Capitalism, Alone” by Branko Milanovic for the Liberal Currents website.

To supporters of the market economy, the fall of the Berlin Wall nearly thirty years ago was supposed to mean the undisputed triumph of capitalism. But tensions today from increasing inequality, the rise of populism, and the remarkable growth of China have thrown this foregone conclusion into doubt. Did capitalism’s supporters take a premature victory lap? In his recent book Capitalism, Alone, Branko Milanovic argues that while we must resolve some of capitalism’s internal contradictions and countries like China show there is more than one recipe, capitalism is here to stay.

And:

In the end, Milanovic’s greatest contributions in Capitalism, Alone come from his fresh approach to the history of different capitalist countries. His taxonomy of Western countries evolving from classical, social-democratic, and now liberal-meritocratic capitalism helps us put the current state of affairs into better context and think about the ways policy can and cannot improve the system. While he is overconfident in political capitalism as a dominating force in global politics and a sustainable alternative to liberal capitalism, his analysis of the forces and magnitudes of different kinds of inequality give a more nuanced story than is often found in public discussions.

Check it out!

What follows is the fifth installment in a series explaining the context and deeper meaning of all eight songs on my band’s album all about Adam Smith “Silent Revolution.”  Listen to the entire album with audio commentary/explanation here. This song is inspired by text found in Part 3, Chapter 3 of Theory of Moral Sentiments.

Despite our tendency to engage in sympathetic fellow-feeling, it’s abundantly clear that this is not infinite. We do not feel equally connected to everyone across the world. In Smith’s view, this is limited in part by our ability to put ourselves in the situation of others.

He tells us to consider a scenario where, as a Scottish person in the 1700s that hasn’t travelled much, you hear that an earthquake has happened in China:

Let us suppose that the great empire of China, with all its myriads of inhabitants, was suddenly swallowed up by an earthquake…[a man in Europe] would, I imagine express very strongly his sorrow and misfortune of that unhappy people…he would too, perhaps, enter into many reasonings concerning the effects which this disaster might produce upon the commerce of Europe.

So after saying “aw shucks, that’s so sad,” one would go on to thinking about how this might affect the commerce of Europe – in other words, how would it actually affect me? At the end of the day, this Scot wouldn’t lose a wink of sleep over this tragedy. Contrast this to a scenario that is clearly less severe than an earthquake swallowing up tons of Chinese people:

The most frivolous disaster which could befall himself would occasion a more real disturbance. If he was to lose his little finger tomorrow, he would not sleep tonight; but, provided he never saw them, he will snore with the most profound security over the ruin of a hundred millions of his brethren.

Philosophers over the ages observed this pattern in human nature and thought of a variety of remedies to correct this tendency. One group Smith mentions – the Stoics – believed that we should bring down our own feeling of pain and happiness to the level at which we naturally consider those of the anonymous humans we hear about across the globe. Another group – unnamed but implied to be Catholics – suggests that we should feel for others the same way we feel about ourselves; in other words, feel lots and lots of suffering. But Smith thinks neither of these methods gets the point, and is able to rationalize our asymmetric emotions towards our pinky finger and the millions of Chinese people. In his scenario, the Scot has likely never met a Chinese person, never been to China, and only knows vague stories about the country thousands of miles away. To the Scot, hearing of suffering in China is such a distant concept because the Scot finds it nearly impossible to put themselves in the shoes of a Chinese person and understand how this tragedy makes them feel.

Think of the saying “this really hits close to home.” It’s a suggestion that we feel stronger about intense events that happen to those we love, those that live near us, and those that we can relate to better. When a terrorist attack happens in Paris, American social media reacts much differently compared to when a terrorist attack happens in Jakarta. Of course these events are equally tragic in a human sense when lives lost are the same, but Americans are much more likely to know French people, have been to Paris, be ethnically French, or have studied in Paris than to have experienced similar things with Indonesia. If you hear of a school shooting in Iran, how does it make you feel compared to a school shooting in your town?

So maybe reacting to the terrorist attack in Paris differently than the attack in Jakarta can be rationalized by Smith’s conception of a finite level of fellow-feeling, but can we really consider it ethical? Well, here the Impartial Spectator comes back in. Given the tradeoff between our pinky finger and millions of Chinese lives, we would never pick our pinky finger.

“…would a man of humanity be willing to sacrifice the lives of a hundred millions of his brethren, provided he had never seen them…human nature startles with horror at the thought…It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power…the inhabitant of the breast, the man within…calls to us…It is from him only that we learn the real littleness of ourselves, and of whatever relates to ourselves, and the nature misrepresentations of self-love can be corrected only by the eye of the impartial spectator…it is a stronger lover, a more powerful affection, which generally takes place upon such occasions; the love of what is honourable and noble…

The Impartial Spectator thus tempers the absurdity of our self-love and makes us recognize that, although our instinctive fellow-feeling may make the loss of a pinky more intense at first, the honorable and noble thing is to care more about these millions of Chinese lives.

The complete lyrics to Chinese Earthquake:

Far away from where I’m sleeping, tragedy shakes the earth
Myriad of its inhabitants, the Chinese empire swallowed whole
Annihilated in a moment, reflect upon misfortune
But what for European trade? Return to pleasure all the same

He calls to me, the man within, showing a powerful reflection
What’s honorable, neighborly love, my fellow-feelings’s just so limited

But if you told me that tomorrow, my little finger would be gone
I’d lie awake in real disturbance, do you tremble at the thought?

He calls to me, the man within, showing a powerful reflection
What’s honorable, neighborly love, my fellow-feelings’s just so limited

He calls to me, the man within, showing a powerful reflection
What’s honorable, neighborly love, my fellow-feelings’s just so limited

 

Joseph Stiglitz, in Globalization and Its Discontents, was definitely on to something when he criticized developed countries for preaching liberalization of trade and then hypocritically sheltering themselves behinds walls of protectionism. Developed countries subsidize certain goods – think of agricultural subsidies in America – to crowd out foreign competition, or they can enact tariffs that make foreign goods more expensive and have the foreign goods effectively lose their comparative advantage.

President Obama recently practiced such hypocrisy by enacting a 35% tariff on low-grade Chinese car tires. As The Economist points out,

The number of jobs affected is barely a rounding error in measurements of the mighty American workforce…But in geopolitical terms, it is a whopper.

I shant go into much obvious detail about the actual net job gains from free trade, so I’ll elaborate on the second point of The Economist’s point: the political consequences.

The infamous Smoot-Hawley Tariff Act was passed in the midst of the Great Depression in an attempt to revive the American workforce. Accepted economic wisdom regarding Smoot is that it not only didn’t solve unemployment, it made it worse. The same situation could occur with this tariff on tires. China could start a trade war and impose tariffs on American goods. Suddenly, one retaliation leads to another and the walls of inefficient protectionism begin to grow larger.

The possible trade war is also accompanied by the increasingly hypocritical reputation of America in terms of trade liberalization. Why would anyone listen to American recommendations for free trade when they don’t practice it themselves? Whatever happened to Obama’s cry of restoring America’s credibility around the world?

Several news sources have pointed to political pressure from the United Steelworkers Union in order to get support for healthcare reform, but I haven’t seen any concrete evidence for that so I won’t believe it just yet.

Obama should be calling on all countries to lower trade barriers. But he’s got to practice what he preaches.