Right Wing Myths

The following article was forwarded by a friend. The article is reproduced in its entirety with my comments embedded.

Deconstructing Right-Wing Myths About Socialism, Capitalism, and Who The ‘Job Creators’ Are

Conservatives have taken to a new spin on truth, by refashioning definitions of words and terms in order to provoke new connotations. Socialism is now defined as a government take over, Capitalism is now defined as patriotic, and the wealthy are now defined as job creators. But simply redefining these words will not change their true meaning, it is only myth making.

If the author is suggesting that these ideas are new, he is right if by new he means since 1776 when Adam Smith wrote Wealth of Nations. Or the years preceeding this milestone, since surely the ideas were floating around prior to Smith writing them down. And the author's rebuttal of the ideas is not new since the most thorough and enduring critique of the results of capitalism was given by Karl Marx in the late 19th century.

Just because the author disagrees with some aspects of Capitalism does not render the ideas mythical. Just as there is value in some aspects of socialist commentary, so there is value in certain capitalistic aspects. Polarizing the issue will create more mythical dogma than an honest discussion of controlled vs. free economies.

Surely the author is aware that the US economy is a mixed economy. The markets are not "free" in the sense that they are unregulated. A quick examination of the Federal Register will disabuse the reader of any notions that the economy is not at least well regulated and possibly highly or over regulated.

Socialism does not mean the abolition of a free market society, nor does Socialism call for a government takeover of all industry; that is Communism.

It is refreshing to see a reasonable definition of Socialism presented. The classic dictionary definition does identify the "collective or governmental ownership and administration of the means of production and distribution of goods." Those on the left in America tend to use this as evidence that the policies pursued by those on the left are therefore not Socialist. However, the term has somewhat evolved over time and the author makes an important distinction between Communism and Socialism. A better definition may substitute "the most important industries are owned or controlled by the whole community" for ownership of means of production. Certainly Europeans understand this concept since they have parties with the word Socialist in the title and yet they are not advocating the total takeover by government of the means of production. It is possible to regulate or administer industry to the point that Socialism is achieved without actual ownership by the government.

It is difficult to have meaningful conversations about anything if the definitions of terms cannot be agreed upon. To be sure, the right wants less government control moving toward the ideal of capitalism and freer markets while the left wants more government control moving toward the ideal of socialism and egalitarianism. As the author so adroitly points out later in the article (a point that I incessantly make with the hope of fostering meaningful interactions by de-fanging both sides of the issue), "Capitalism is neither right nor wrong, it is simply an economic term." Similarly, socialism is neither right nor wrong, it is simply an economic term. If economic concepts and models cannot be summarized into generalized terms, what hope is there of discussing anything? Growth in thought and understanding cannot be achieved if we must restate a thesis in its entirety and are not allowed to use terms that generally encapsulate an idea or body of ideas.

Therefore I applaud the author’s candor and willingness to view the terms as descriptors rather than pejoratives.

Socialists acknowledge the limitation of a free market and believes that some industries should not be run for profit. Police protection, fire protection, prisons, education, health care, parks, electricity, water supplies, waste and sewage removal, and roadways are just a few examples of industries which should not be run for profit. The reasoning behind this belief is when these industries are operating for profit, not only will prices rise, but corresponding services would then be reserved only for those who can afford them.

This assertion does not account for competition, price setting and other market forces. Certainly, if a producer of goods is solely motivated by profit and is a price setter, this could lead to ever escalating and out of control prices. However, these are two assumptions that are not borne out by experience.

An understanding of price setters and takers is necessary. A company that is able to dictate the price its customers pay for goods and services is a price setter or price maker. All other companies that are competing in a similar market where similar products are readily available elsewhere are price takers. For example, a company that is selling computers cannot set the price arbitrarily high if others are competing for a market share. If it does, it will not sell units because the consumer can go to the competitor and receive a similar product for less. Therefore, the first seller is forced to lower prices to a market clearing price. That is, a mutually agreeable price is reached between buyers and sellers. This price is determined by the cost of manufacture, the perceived value of the product, profit, etc.

Any company that is producing something will necessarily maximize profits for the shareholders. However, this is limited by how much a buyer is willing to pay. If a TV manufacturer decides to include a 100% profit in the price of its TV, the buyer may decide that the added value of having a TV in the home is not worth the price. This desire to price set is mitigated by the market when another company sells the product cheaper – maybe deciding to produce the product with less profit. The second company can undercut the competition and gain a larger portion of the market share. This will have the effect of driving down prices at the first company if they want to stay in business.

Price setting generally occurs with monopolies, companies that are producing something that is so unique that there is no competitor making a similar product, collusion, etc. For these reasons and others, governments are likely to be price setters. (e.g., government monopolies are often established by law for various reasons.) The only relief for the consumer is for him to not purchase the product or service. However, since governments tend to control necessity items and/or items that are mandated by law, the consumer is not as free to make value/price considerations.

The author’s assertion that operating for profit only results in higher prices disregards market forces and empirical evidence to the contrary. It could be just as easily asserted that the monopolistic, regulatory and price control characteristics of government lead to higher prices.

Or more succinctly, no one person should be able to profit over running services, in which everyone benefits from.

The assertion here focuses on "no one person." Corporations do employ CEOs and the like, but shareholders make up a much larger portion of those benefiting from the profits of an organization. The elderly woman who holds stock in her retirement account for a corporation is certainly hoping for profitability to sustain her retirement.

And where does this line of reasoning stop? How is “in which everyone benefits from” defined? What portion of society must benefit to qualify? Certainly the author would therefore condone the socializing of the production and distribution food, heating and air conditioning, automobile, energy (including oil, gas, coal), and many other goods and services. All one has to do to turn control over to government is make the case that “everyone” benefits.

One excellent example of Socialism in action is demonstrated in our banking industry. While most banks operate for the profits of their CEOs,

If the author believes that the sole reason to exist is to operate for the profit of the CEO, there is no refutation possible for this belief. Certainly some take advantage of systems and try to get as much money as possible from the system, this does not therefore justify the tarring of an entire industry. Just as some lawyers appear to be heartless, soulless people that would sue their own grandmothers, this does not therefore mean that all lawyers are evildoers. Most people try to maximize their take for their efforts. Labor unions do exactly this when they lobby to mandate certain rules in the workplace. This does not necessarily obviate their efforts or necessarily make them evildoers.

credit unions are owned and operated by the people. The profits which are not imparted upon CEOs are reflected back to the customer in higher interest rates for investments and lower interest rates for loans. It may be important to point out that credit unions did not run the same risks as banks when our financial bubble burst, and thus did not need to request nor receive any TARP bailout money. Nor have the credit unions contributed to the faulty foreclosures as our banks have.

The credibility of the author is at risk if he is making the case that profits were the primary reason for the "financial bubble." I am no fan of extremely high compensation for executives, especially if it comes by deliberately and intentionally manipulating accounting to hit earnings targets so that senior management can maximize the bonuses and other executive compensation they receive, at the expense of shareholders. But this is exactly the source of the $90M received by Franklin Raines while he was in charge of Fannie Mae. And his support and implementation of policies to ease credit requirements on loans that Fannie Mae purchased from banks that were "a notch below what our current underwriting has required" may have contributed at least as much to the foreclosure problem as his extravagant $90M bilking of borrowers and the $400M civil fine paid by Fannie Mae.

Furthermore, the author has unwittingly made a good case for not socializing banking. He appears to be arguing that by removing bureaucratic control and decentralizing the decision making by placing it in the control of those who are most interested in conservative and judicious use of the assets - the consumer - that tragedy can be averted.

Another example is found in health care. The free market creates for-profit businesses ranging from medications, medical testing, medical treatments, medical research, to hospitals. None of which have lowered the cost of health care through innovation or through competition.

Absent a parallel universe, how can this statement be made with certitude? The medical cost issue is complicated, messy and needs an intervention. However, to assert that competition and innovation are not fostered by free markets strains credulity. Does competition and innovation bring about the lowering of cost in any other arena? Are groceries cheaper, better and more available because of competition? Does this inability of the market to reduce prices only exist in healthcare? And if so, why? It may not exclusively be the free market aspects that are messing up the healthcare industry. Could regulation and rule making play any role? It is likely not all one thing or the other. This is an incredible statement for the author to make.

This is because the demand of which is a basic necessity, or in other words is non-negotiable. Like clean water, oil, and electricity, humans cannot survive without such products or services. The demand of which is a constant, therefore they are not subjected to the Keynes supply and demand curve. When prices go up, demand does not lessen beyond a certain threshold. Americans may forgo a pleasure trip to conserve on gasoline consumption, but their demand for gasoline to take them to and from work is non-negotiable. Where the free market brings economic ups and downs which effects everyone, Socialism believes that there is a limit on the protections a free market provides. And quite simply, some things should not be run for profit, especially at the expense of everyone else.

The author’s primary objection appears to be profit. Profit in and of itself is not evil. I am sure the author allows that some profit is good. Labor unions want profit for the workers. They certainly want profit for the union itself, at the expense of everyone else. That profit is useful since much of that profit is used to influence elections in the form of political contributions and donations that help to elect politicians that create laws that ensure higher profits for the union members and therefore for the union.

This fixation on profit alone is fallacious. Is the author contending that the elimination of profit equates to the elimination of wrongdoing, waste, fraud, incompetence, and a whole host of other human frailties? The Franklin Raines debacle recited earlier should demonstrate that the ability of a company to make a profit is not the sole source of the author’s discomfort since Mr. Raines conducted his dealings in a quasi-governmental organization, under the watchful eye and collusion of OFHEO officials, and is a fellow of the left. If anybody should have been able to avoid this sort of exorbitant behavior, it should have been Mr. Raines and especially the co-conspirators at OFHEO. Failed human character might be a better place to point one’s finger.

If bad character is universal, it will crop up in corporations and government with similar frequencies. If not, are we to believe that something draws the seedy crowd to the private sector with greater frequency? Is it profit? But many would argue that power is more alluring even than filthy lucre. Is power as intoxicating to the politician as profit is to the businessman? And as corrupting?

Would the author argue that only the righteous enter politics while the immoral enter the private business world? Does this explain why, as the author proffers, if profit were removed and the government produced and distributed “some things” that prices would lower and quality rise? How is this squared with all the waste and fraud that leaders say they will excise from Medicare and Medicaid programs in order to lower costs and fund increases in benefits? Since profit couldn’t have produced the waste and fraud, from whence did it burst forth? It is a silly notion to think that corruption, greed, avarice, vice, et al. can be expunged from humankind by simply removing profit.

The Founders sought to minimize corruption and other vice by encouraging healthy religion to attack the moral problems of humanity. This is made clear from statements such as this one by John Adams:

“We have no government armed with power capable of contending with human passions unbridled by morality and religion.”

If the left wants to argue that religion is an antiquated method of moral conditioning that is no longer needed, that is fine. But moral conditioning will need to continue somewhere and somehow. The author is engaging in it when he makes moral judgments about profit. The reality is that if religion is not heavily relied upon as a co-worker in forming a good, just and moral government, then the government itself will have to take on the role of moral conditioner by imposing moral codes in the form of laws. If religion ceases as the primary agent of moral conditioning then government must take up the task. The moralizing of the left about not using government to legislate morality is hard to understand when the only avenue allowed by leftward policy is to have the government fulfill that role and, in fact, legislate morality. (This brings up interesting church and state discussions.)

Merely removing profit from the economic equation will not prevent bad bahavior.

Furthermore, when the author states that “some things should not be run for profit,” who shall decide which things are profit worthy and which aren’t? And if it is immoral to allow profit for this select group of chosen tasks, why would it be moral to allow any industry to function with profit?

Capitalism is an economic term for the free market system which is structured upon the accumulation of money, where the means of production are privately owned and operates for profit. Capitalism is neither right nor wrong, it is simply an economic term.

As noted earlier, kudos to the author for de-fanging the terms and allowing the use of terms as descriptors and not as pejoratives. Similarly, it is OK to discuss aspects of the left in America as socialism in the modern, European socialist sense. It is also OK to discuss the writings and ideas of Marx and draw comparisons between some of his work and aspects of the American left. His ideas are legitimate explanation of a particular political economy. Referencing his work is not intended as an attack of character but rather a reference to a concise explanation of a particular political economy. To note that the left shares the Marxian maxim “From each according to his ability. To each according to his need.” is not to attack the motive and worth of the person of the left, but is rather a concise statement of a fundamental belief and value held by the left. Why isn’t this association embraced and acknowledged by the left just as the right acknowledges Smith’s enlightened self-interest? Why does the left consider somebody that they largely agree with on economic matters to be taboo?

Nor is Capitalism patriotic!

If patriotism is defined as “a feeling a lot of love, respect, and duty toward your country”, then both sides of the issue can of course be patriotic. But, the Howard Zinn view of America, which is widely taught in schools using his textbook “A People’s History of the United States,” is that America has done more bad than good in the world. He thinks that the the policies and values of the Founders would better be replaced with democratic socialism.

It is hard to imagine a person loving and respecting a country that he believes has done so much evil and deserves such widespread condemnation. Could it be said that conservatives are in love with what America has been and would like to preserve its better aspects while progressives are in love with what America could be if it were fundamentally changed? Fundamentally changing America was, after all, one of President Obama’s campaign slogans. Should a conservative be faulted for taking the President at his own word?

Of course liberals can be patriotic. And conservatives that pretend that patriotism is the exclusive province of conservatism are over stating, or perhaps simplifying, an argument. But in light of much of the self-flagellating and America bashing of the left, there might be some nuance here that should be considered and understood. It seems clear that somebody who thinks America is exceptional is in love with Americanism. It is not so clear that the person who is highly critical and angry about American injustices is in love with Americanism.

And, of course each side is going to view support of their preferred political economy as more patriotic since, ostensibly, they support that economic model because they think it is more fair, just, right, better than the other and better reflects American values. And believing that something is a better option certainly would lead to a feeling of love, respect and duty toward the society that it supports.

A system which encourages the accumulation of wealth does not salute a flag, nor is it loyal to a native country. This market system crosses state and national borders in order to provide larger profits for business owners. If labor costs are cheaper overseas, then it is capitalism which will drive businesses out of our country.

The alternative to this is to prevent businesses from seeking cheaper alternatives in other countries. Again, the author assumes that profit is the only criteria considered by businesses. Walmart is a testimony to what the consumer prefers - lower prices. Laws can be passed preventing Walmart from seeking lower costs by mandating that all products sold on their shelves must be produced in America with higher labor costs, but the price of everything will increase in spite of any profiteering that may occur. Profit aside, this protectionist concept will increase prices and defeat the author’s intent. Additionally, forced increases in labor costs imposed by unions have the effect of driving industry overseas to cheaper labor markets in an attempt to control costs. Again, this can be prevented, but at a cost.

If a company finds it cheaper to produce a dangerous product than it is to produce a safe one, it is capitalism which will produce the most profitable option without consideration of customer safety.

Companies that produce unsafe products do not stay in business very long. So any profit realized will be short lived. This line of thinking assumes that businesses are so corrupt or inept that they will continue to produce unsafe product thereby jeopardizing their future profit in spite of what consumers want. This is not to say that unsafe products are not produced by business. They certainly are. But it is not capitalism that is the root of this behavior. Many government bureaucrats have accepted or approved inferior work on the taxpayer's behalf.

Capitalism only seeks profits

This is a trite and irresponsible comment. Would the right be correct to say that socialism only seeks to destroy prosperity?

and will by nature migrate operations towards areas which promotes greater profits. Capitalism has no allegiance to any one country as it operates in a global economy. Again, capitalism has no allegiance with patriotism. Where would a business find themselves most profitable? Would they find a country with extremely lower labor costs to be more profitable for manufacturing than a country with higher labor costs? Would they find a lower taxed area more profitable than an area with high demand for their products? But most of all, wouldn’t it be more patriotic for an American business to spark demand in order to operate, manufacture and sell their goods or services inside America, as opposed to overseas?

This might be ideal, but some onus must be placed with the consumer. Consumers are at least equal players in this interaction. The author will later make the case that consumers are in fact the job creators by creating demand. These demand creators also demand lower prices. And because consumers prefer lower priced items, market feedback pushes business to meet that need. If the author's later argument with regard to job creation is to be taken seriously, then the consumer must be at fault here, not the business that is simply responding to the consumer's demand.

I wonder if the author is in favor of lowering the price of prescription drugs? Or re-importing them from Canada? If so, he is violating his own prescription for lowering prices and counter-acting profit. The prices are higher in America in part because the companies are covering their costs. Other countries don't respect patent law and reproduce the drugs in defiance of the pharmaceutical companies that spent all the money to develop the drug. Profit is part of the equation, but does the author wonder why the pharmaceutical companies aren't sticking Canada with the profit? And if safety is a concern, is the author prepared to trust China with the production of his medicines or would he rather pay a higher price to pay Americans to produce quality drugs. Using the author's reasoning, that would also be more patriotic.

The wealthy are not necessarily the job creators. Poor and desperate innovators have sparked many new business ventures despite their lack of wealth. Many small businesses began out of practically nothing, but only an idea executed inside of their garages. The fact of the matter is that neither wealth nor lower taxes create jobs; only demand creates jobs. This little tidbit of truth is lost in translation when the wealthy are deemed as “Job Creators”. This ploy is used to promote additional tax breaks for those who already have enough and while promoting cuts in public services on those who do not have enough.

When the luxury tax was imposed on yachts and the rich stopped purchasing yachts in America, who lost their jobs? The non-wealthy yacht makers. This is job creation from the demand side. When those garage businesses want to expand their idea and employ the masses, where do they acquire the capital? Even universities must find a sugar daddy to fund their research. It cannot be done without wealth. So those that are good at creating wealth should be encouraged not vilified.

Another tidbit of truth which is diluted in this argument is the inequality of income between the workers and the owners. A manager typically earns 343 times more than an average employee. And while 88% of domestic profits go to corporate bank accounts and CEO bonuses, only 1% of these profits gets applied towards labor. The business owner shoulders no responsibility for producing any product or service.

This reveals a profound lack of understanding about what it takes to run a business, oversight of capital and the difference between physical and intellectual labor. If this statement were absolutely true, wouldn't some good leftist have slapped his forehead and fired all of this needless overhead and let the business run itself? This is not acknowledging the enormous risk of ownership nor the intellectual contribution. Does the author suggest that since Stephen Hawking does no hard labor that his contribution is meaningless? Or that he has no responsibility for producing any product or service? Or that Hawking should not be compensated at a higher rate for his specialized labor?

Rather the business owner invested their money (and in most cases time) into a business which is productive.

Well, when the business is successful. What about the multitude that try and fail? And lose their life savings? Just investing cash does not a successful business make.

Productivity is a result of the balance between the investors, the managers, and the workers. It is a symbiotic relationship, which many Americans cannot conceive of. For where would any business be without any one of these three elements? Despite conservative talking points, even the lowest of employees is an invaluable asset to a business. In a restaurant, an effective business owner knows that the dishwasher and busboys are just as important to their operation as their managers and customers. If you remove the dishwasher and/or busboys from the equation, the business suffers. Yet an effective manager can be absent from their responsibilities and the operation should not be sacrificed.

This is an amazing statement. It is hard to imagine that the author has ever worked in the private sector. But even if he hasn't, even in government good managers are hard to come by. In the case cited, a busboy is an example of low skilled labor. And yes, even though the busboy is integral to the success of the company, the pool of potential candidates for this job is almost limitless. Accountants, however, are not so plentiful. Supply and demand alone suggest that a busboy can be hired at a lower rate than a skilled manager or accountant.

And again, if the manager can be AWOL with no impact to the business, why hasn't somebody other than the author figured this out? Certainly a greedy business owner would realize that he could add the cost of the manger to his profit margin if the manager is as useless as the author suggests.

So which employee should be valued more than the other, the laborer, the manager, or the investor? The answer is neither of the three. For without one, the other two would not have a business operate or a job to tend to. Yet the argument goes that only the wealthy create jobs. Without enough demand, even these jobs won’t last very long.

We should not tax our job creators in a time of economic recession. But we have misidentified exactly who these job creators are. When our recession is being prolonged out of a lack of demand, it is not the business owner who can create jobs. But rather it is the customers who spurn on demand who create jobs. The businesses who pocketed great sums of cash during our economic catastrophe will still be there when we come out of it without the need to create more jobs. But these businesses will find themselves with greater profits when demand picks up again, and that is what will create jobs. So let’s not overburden our true job creators, the customers. In order to spark higher demand, we must effect the largest target market we have at our disposal. It’s not the wealthy who can spark this demand; they only constitute up to 2% of our populace.

It is comforting to see the admission that the wealthy are at most 2% of the population. This group already pays about 38% of ALL income taxes. Even if all of their money were taken, there would not be enough to cover the current levels of indebtedness. And, even though, according to the author, this group doesn't create any jobs, they are free to move their wealth when taxation becomes too onerous. And if that 2% is as worthless and parasitical as the author suggests, it may be an advantage to have them all leave. But then, who would we tax when the group that currently pays 38% of the entire tax burden - and the group who legislators wish to further tax in order to get them to pay their "fair share" - is gone, or stops investing because it makes no economic sense to risk their wealth?

Rather, we should focus our attention on the other 98% of our populace, our struggling middle class and poor. Henry Ford believed that his product meant nothing unless there were customers who were able to purchase it. In order to ensure his company’s success, he paid his laborers more than other businesses, so they may buy his cars. This enabled his employees to comfortably afford to buy Ford products. This sparked higher demand, which in turn produced higher job growth. Which led to Ford’s success story. Henry Ford did not believe in paying the least amount possible for labor, eliminating the minimal wage, or acquisitioning higher profits. Instead he realized the symbiosis between business and labor and between the business and its customer.

He also said "We try to pay a man what he is worth and we are not inclined to keep a man who is not worth more than the minimum wage." His view of symbiosis was largely merit based and did not shrink from releasing those that did not meet his needs for production.

Good businessmen will treat their staff kindly and the best they can. The decision is the business owner's, but I agree with encouraging businesses to treat the employee as good as possible. This leads to satisfied and happy employees. With this aspect of Ford's - and the author's - ideas, I agree.

As for the input of an owner, Ford disagreed with the author's sentiments when he said, "The hours of labor are regulated by the organization of work and by nothing else. It is the rise of the great corporation with its ability to use power, to use accurately designed machinery, and generally to lessen the wastes in time, material, and human energy that made it possible to bring in the eight hour day." Ford thought there was some worth to his input as an innovator, manager and organizer and that the business would not simply run itself with the addition of unending waves of labor.

Ford is a great case study to help understand the difference that an observer's ideology can make. Ford had some good and some bad in what he did. Owing to his ideology, the author is going to see much of what Ford did as supportive of leftward ideals. Everyone does this - me included. We interpret the world through our understandings, beliefs, desires, ideology, etc. Any successes on the part of Ford are going to be chalked up to adherence with the observer's ideals. A leftist and a rightist are both going to look at the same evidence and come to much different conclusions because of their different view of humanity, incentives and other factors.

As the author noted, this doesn't make either one correct or incorrect. But each side does have real and significant ideas on what motivates people in a political economy and the proper role of government. Although it is not likely that ideologues on either side will be persuaded by the other's recital, each side should strive to present their ideas in a rational and respectful way. And for this the author is to be commended.

It is good to understand where each side disagrees with each other. Understanding ideological differences brings clarity to the discussions. And that is a good first step.

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