Rice Bowl Capitalism

“Dark and difficult times lie ahead. Soon we must all face the choice between what is right and what is easy.” – Albus Dumbledore, Harry Potter and the Goblet of Fire

I promise, I’ll stop writing “letters to the editor” here and actually get back to something a bit more uplifting … perhaps tomorrow. For now, I have to comment on a Newsweek article by Elinor Clift titled “Social Safety Net Greases the Wheels of Capitalism.”

Miss Clift travels down an anecdotal path hoping to convince the reader that social safety nets, like Social Security and Medicare, are actually good things from an economic point of view. (Note, we can certainly argue whether they are good morally, and I think perhaps they are not, but for now we will stick closely to the simple economic formulation.) Her chariot for this trip is a former Republican staffer for John Boehner, who is now teaching business classes in China. It’s not a bad read, but the arguments fall a bit short – I’ll give you first the economic stand and then the political.

Economics: social safety nets give people a sense of, well, safety. A sense that they don’t have to save every penny for potential future costs, particularly medical and retirement. Thus, they can spend more now, and that is good for the economy. She notes that the Chinese safety net, which was once called “the iron rice bowl” has cracked and dissipated, forcing Chinese citizens to save like mad in order to defend against future calamities.

Several obvious counter-points come to mind. The first is to simply dispel the notion that miss Clift, and many others hold that spending is good for the economy – not on its own. I’ve heard a number of people say that this is a “consumer driven economy.” There is no such thing. There are consumer driven bubbles, but not consumer driven economies. Economies must be based on some measurable productivity of goods or services. We can be fairly broad with the definition of “goods and services” – but spending never qualifies as one. This is not the basis of an economy.

The second point goes directly to her anecdote. If social safety nets are such a good thing, offering such tremendous economic benefit, then why did China’s fail? Perhaps the answer is simply that social safety nets produce negative economic benefit by transferring resources from productive activities to non-productive activities. When you break the feedback loop between a person’s production and their benefit (or their well being), you break the incentive to work hard and innovate. (Yes, there are religious principles that allow one to work hard in the absence of such a feedback loop – see Colossians 3:23 – but these would only apply to practitioners of said religion, and only ardent ones at that; not to a society as a whole.)

As to the existence of safety nets in general, I too would say they are a good thing. This is why we invented insurance so long ago – so no one person would have to bear full risk of every potential calamity. We could spread the risks out and share them amongst each other. But, these all required buy-in from the risk participants – and elective buy-in at that (no forced memberships). These safety nets worked quite well (and quite efficiently) for those who chose to participate. However, when the government stands in to back-fill every failure, there is no need to develop such private safety nets.

Miss Clift picks up again with a sort of moral argumentation when she goes on to talk about the political groundswell of the Tea Party and the general ideals of conservatism that are in opposition to government-run safety nets. (Both economic and moral opposition at that.) The crux of the dialogue revolves around the notion that voters don’t want to see “essential services” threatened or cut, and will react against them.

It is this point that gave rise to the lead quote from the Harry Potter series. (I have not read the books – but I have seen the movies.) Miss Clift holds that programmatic inertia is both morally and economically sound. That is, because this is the way things are, and a number of people don’t want them to change, they have moral standing (and perhaps economic standing).

Anyone with a modicum of historical understanding could see that this is fraudulent. There was once in this very country, a scant 150 years ago, a major opposition to any movement or legislation that would give all men equal rights under the law, and free those who were previously enslaved. The practice of slavery had inertia – it was in effect at the time. It had popular support (in the South). And yet it was brazenly immoral. A similar argument holds quite well for the practices of Nazi Germany and Stalinist Russia.

We do not always have it right. We cannot assume that the current state is the best and moral one (or even the best one economically). To do so is prideful, arrogant, and ultimately blind to the available lessons of the past.

If miss Clift wants to argue for federally-run social safety nets, that’s fine – but she should make better arguments.

As for me, I think we may well find a helpful ally in Eleanor Clift. If she truly believes that government-style safety nets are economically better (again, laying aside the moral discussion for a moment) then I propose a simple test. Let us eliminate all federal safety nets – and let the several states enact their own. If what she says is correct, the states will naturally choose to apply more and more safety nets to their society, and their state economies will continue to benefit. This will further attract the best and brightest individuals to participate in the booming economy, and all other states will be forced to adopt similar programs just to keep up. With this, we will no longer need any debate whatsoever of the benefit or validity of these programs. No, the proof will be in the pudding, and the result will be obvious to all.

Somehow I doubt miss Clift will support such a move. Somehow, I suspect she knows the answer. States that refuse to shift resources from productive to non-productive roles will be the ones that prosper, attracting the best and the brightest, and forcing other states to abandon their programs. The free market will decide quite quickly what is best – and I suspect it will not go well for the progressives.

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