Socialism defined by rage to replace Capitalism defined by greed?

I think it has become important to re-interpret Adam Smith or interpret him correctly. About eleven days ago, this blog had posted about an article in Aeon on the visibly famous Adam Smith for his ‘invisible hand’. It turns out that he was not a big fan of ‘Invisible hand’ and certainly, not in isolation or independent of social norms and values. The blog post had also referred to a review by John Kay of a book by the British Conservative MP Jesse Norman.

It turns out that a good summary of his book is provided by Jesse Norman himself in an article he had penned for FT in June this year (ht: Gulzar Natarajan).

He wants to dispel five myths or point out five facts about Adam Smith and his famous work, ‘The Wealth of Nations’ (a short hand, no doubt):

(1) ‘Wealth of Nations’ is important because Smith is the first person to put markets at the centre of economics.

(2) “Markets are living institutions embedded in specific cultures and mediated by social norms and trust.” (verbatim quote from Jesse Norman’s article)

(3) What matters to a market economy is not empty rhetoric but the reality of effective competition and its most important feature is that companies internalise their costs. Something that banks are terribly adept at passing on, for example. Privatisation of gains and socialisation of losses is the anti-thesis of free markets.

(4) “Markets constitute a socially constructed and evolving order that exists and must exist not by divine right but because it serves the public good”. Again, a verbatim quote. This is important because once imperfections – that exist – are allowed, many of the supposed benefits of free markets (for public good) disappear.

(5) “Both individual markets and the free market order itself rely on the state.”

These five key aspects or elements of a market order are very important for its very survival and existence. Slowly,  the ‘capitalism defined by greed’ is being replaced by ‘socialism defined by rage’. It will be hard to choose between the two as to which is the bigger evil. Very hard.

Bagehot has a timely warning on the leftward lurch in British politics:

The compensation of the average boss of a FTSE 100 company increased by 11% in 2017, to £3.9m, while the pay of the average worker failed to keep up with inflation. Banking in Britain is a game played by insiders who enjoy a large implicit subsidy from taxpayers, who have to bail them out if they get into trouble. The same banks have little connection with the real economy: only about 10% of their lending is to businesses outside commercial property. Global companies such as Amazon and Google get away with paying little tax by the ruthless use of tax havens and transfer pricing.

No political party or leader in the world is able to convince or persuade businesses to understand that capitalism without conscience is a crime. By the time they realise it, it may well be too late. The world is responding or reacting, accordingly.

Reuters has a story out on the popularity of the incarcerated Brazilian leader Lula da Silva. It is unlikely he will become President. But, his party candidate might win, under his blessing or on ‘imported popularity’. But, PT, unlike in 2002-08 will be clearly Left-oriented.

In South Africa, there is fear about takeover of land from white farmers. Most of the media report might be slanted and that the South African government might be pursuing reasonable policies. Or, may be not. But, it may well be impossible to divine the truth for quite some time. Headlines mention the Zimbabwe parallel, of course. See here for the issues at stake.

Summary: Land can be taken over without compensation but such takeover can be challenged too in courts.

In America, Bernie Sanders and Elizabeth Warren are the most popular Democratic party leaders. Alexandria Ocasio-Cortez, the young democratic socialist firebrand ousted established Rep. Joe Crowley in the New York House Democratic primary in June.

These are enough warning signs. Capitalists must admit to their follies and reform themselves.

Higher taxes for higher incomes and for capital gains are in order. Higher wages are in order too. The march of artificial intelligence that takes away jobs and psychological security must be slowed and reversed, if possible. Eroding self-worth lowers life expectancy and the living begin to live unhealthily too.

If capitalists fail to read the tea leaves correctly and ignore warning signs, it may be too late. They may be swept away and the world will have replaced one form of lawlessness with another.

7 thoughts on “Socialism defined by rage to replace Capitalism defined by greed?

  1. Very true – most intellectuals read Smith piecemeal and make a mess of it. Reading a para of smith without the context of discussion that precedes and even sometimes the chapters that follow destroys the whole argument. Same case with Keynes too. Neo-Keynesians have got Keynes more wrong than Keynesians who themselves got him wrong. And for that matter Marx (& Engels his (their) diagnosis was spot-on the prescription was terrible).

    Maybe IFMR should make real economics the focus of study.

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  2. Your writing provides lucid clarity to the truths of the economic world without being trapped in the compulsions of a particular position. How can any ideology persist in a static way amidst the vibrant chaos of the world. Thank you for being a clear mirror instead of a loud voice.

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  3. I am a regular reader of your blog/livemint article. We have had conversation about Trump earlier. For some reason my email to baretalk@livemint.com bounced. so, I am posting my comment on your recent livemint article here.

    Let me be clear – I am not a citizen in the US. So I don’t have to choose. I see there is a lot to complain about both parties here. But your unabashed support of Trump worries me. Your latest article on Trump is in line with what Fox News is broadcasting. If I didn’t see your name and read the piece I would have attributed it to Tucker Carlson or someone like him.

    The reason for my email is – why are you not holding Trump to any moral standard. I am not arguing liberals are correct. I agree with you that they are over reacting to everything Trump does. But nobody in mainstream democrats are talking of impeachment because any such effort will help Trump. But how can you not question a person like Trump for his morally reprehensible behavior. Senator McCain died and Trump did not lower the flag because of his spat with him (that Trump started). Yes, his infidelity is nobody’s business but he lied multiple times about it. If he is lying about such meaningless things why should anybody trust him about anything else. It would have been great if the first day the story broke he told what happened. He lied every time he talked about it. This is ok for you?

    It simply is mind boggling that you keep talking in support of Trump in response to extreme liberal reaction (except for a cursory criticism of his interest rates). My question to you is simply – forget the the liberals – do you support a man of such lose morals and poor decorum just because he supports your world view?

    Thanks for reading my email.

    Naveen

    PS: Congratulations on your new position at Sri City. Best wishes for the new journey.

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    1. Thank you for writing. Yes, we have had conversations before. Thank you for your kind wishes too. I am not an unabashed admirer of Trump. It is that you make light of the things that I find objectionable in Trump and I am not taking seriously what you expect me to take seriously. That is fine. We are not expected to hold similar views.

      I evaluate him only on his promise of draining the swamp. He is not doing that. On that, I hold him accountable. Not just in this column but in an earlier column too (‘https://www.livemint.com/Opinion/BANBIyU0vpTcNAU5KwhDiP/What-binds-Donald-Trump-and-his-critics.html) and in my blog posts.

      He was elected to change the global order that had ceased to be a public good long ago. He is executing it only partially, at best. That is my gripe.

      I did not expect him to either uphold (nothing much left to uphold) society’s moral standards nor set an inspiring example or be a role model for teenage boys.

      Nor is his behaviour any different from world leaders before and after him, including in India. It will, no doubt, be nice to have political leaders who are upright too morally. But, I have ceased to expect that long ago. I had that sentence in but I took it out in the final draft of my MINT column, I think.

      If I start naming names, then it will divert attention from the topic at hand.

      A Federal agency snooping on an opposition candidate, an elected government authorising such snooping on the basis of a hit-job done by a foreign ex-intelligence man, paid for by a rival political party and hiding that information from public are all immoral in public life. That is more important to me than private peccadilloes. You don’t seem to take them seriously. Again, that is fine because that is your prerogative.

      I agree with Kimberley Strassel in WSJ who wrote that justice cannot be one-sided (‘When justice is partial’. WSJ, August 24, 2018).

      In any case, I also believe that there is little added value in repeating a message which scores are comfortable carrying or disseminating. Plenty of people are happy to speak on Trump’s morality or, more precisely, the lack of it.

      I do not feel the need to lend my voice to it.

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