Tuesday, April 13, 2010

The Morality of Capitalism

In a recent facebook discussion with my cousin, she presented me with the following quote from "The Omnivore’s Dilemma": "A tension has always existed between the capitalist imperative to maximize efficiency at any cost and the moral imperatives of culture, which historically have served as a counterweight to the moral blindness of capitalism - the tendency over time for the economic impulse to erode the moral underpinnings of society." I would challenge that premise as a whole. To say that "a tension has always existed between the capitalist imperative to maximize efficiency at any cost and the moral imperatives of culture, which historically have served as a counterweight to the moral blindness of capitalism - the tendency over time for the economic impulse to erode the moral underpinnings of society" is at once to imply that capitalism is fundamentally immoral (when it is at worst amoral) and that without capitalism we would have a more moral society. I'll address the first issue of the morality of capitalism. I posit that capitalism is at worst amoral. Capitalism doesn't care if you're an atheist, a Christian, a Hindu, a Muslim, a Liberal, a Conservative or any other label people use to identify themselves with a moral or ideological framework. Capitalism's only concern is that you can provide a good or a service in exchange for someone else's goods or services through mutual consent. If there is any moral underpinning to capitalism it is that it is immoral to use physical force, threat of force, or any other form of coercion to obtain the goods and services of others. Capitalism may be morally blind, but it is also justly blind. The second issue: Would we have a more moral society without capitalism? This is a more philosophical question and one that is harder to answer because it is more subjective to what each person uses to define morality. Under capitalism it is easier to fall prey to the sins of greed and envy. The wealthy and the prosperous may become obsessed with obtaining more wealth and without some framework of morality to reign in their baser instincts they may succumb to over indulgence in the vices their wealth allows them to obtain. The Poor in turn fall prey to the sin of Envy in coveting that which their neighbor owns for themselves and could lead to a destructive cycle of wanting, hopelessness, and low self-image. Without a similarly strong moral framework providing the poor with a sense of self worth and hope they may never find the motivation to maximize the gifts they have which be turned into something of value to be traded with their fellow man for something else of personal value for indeed they may have no sense of value other than the glitter of another man's idols. But what morality is there to be found in other systems of economics or government. None that I have seen, but I have certainly seen many that are a lot more unjust. But in context of our debate, your it seemed to me that her prime disagreement with capitalism is that capitalism encourages wasteful and poisonous consumption of natural resources in the pursuit of wealth for a select few at the expense of many and that the only effective counterweight to this unbridled greed is government legislation or regulation in terms of what one can produce, how they can produce it, and how much they profit from its production before they must be forced into giving their "excess" wealth to others. But here I see no more morality or justice than anywhere else, especially in our government. Are capitalists greedy and unconcerned with the little people far removed from their glass towers? Yes, but what makes our federal government any less greedy or detached? Let’s take some examples from our recent economic crisis. The Obama Administration wishes to vilify "greedy corporate bankers" for causing the current economic collapse by trading in securities for risky home loan investments. We agree that home prices were being inflated because there was a larger demand for homes than there was for the number of homes that were available. Why was this? I believe it was because of "Fair Housing Laws" enacted under the Clinton Administration and the federally subsidized lending companies Fannie Mae and Freddy Mac. Under fair housing laws, regular banks were encouraged to make risky loans to people with a higher probability of defaulting on their loans. Similarly Fannie Mae and Freddy Mac were created to make home loans to similarly risky people but the loans are guaranteed by the Federal Government. Fannie and Freddie operate as private businesses but their capital comes from tax dollars and their board of directors is made by political appointment. So now we have a housing market full of over inflated assets because you've artificially increased the number of buyers beyond what the market would have naturally supported. Banks, realizing they could not shoulder the weight of the risky loans themselves bundled all of their home loans up into securities and sold them to larger investment banks. The large investment banks saw it as an investment because as more houses were sold at inflated prices they were able to make larger profits that they assumed would cover their losses even if a certain number of people defaulted on their home loans. In short this was an artificially inflated bubble created by the government and as the economy naturally slowed more people defaulted on their mortgages than the system could support and the whole system came crashing down because the houses were now less worth than the amount of the loans they were purchased for. And what was the federal government's response? Chastise the bankers for making risky loans to begin with even though they were coerced into doing so and bailout the banks that were "too big to fail" with borrowed money from other countries and increasing our national debt.
But it refuses to reign in Fannie and Freddie. Not only does the government continue to permit Fannie and Freddie to make risky loans, but it encourages them to with the use of your tax dollars. Last year Barack Obama signed into law a provision that says no matter how much money Fannie and Freddie lose, the government will cover their losses with federal tax dollars. People want to scream about the bonuses that AIG and others paid out after accepting federal bailout funds? Where was the similar indignation as federal appointees too millions in compensation as the heads of Fannie and Freddie? Those are your dollars and my dollars. The fruit of our labor, lives, and experience. The government owns no assets of its own. It produces nothing of value that anyone is willing to trade for voluntarily. All it can do is coerce and manipulate. That is why our Constitution was designed to reign in government, not people. But it is not perfect. The authority of the Constitution is only as good as our collective belief in it and the willingness of our elected representatives to follow it faithfully. For too long we have accepted the infallibility of our representatives and their actions because we believe in the infallibility of our Constitution. To me, the truly greedy are those who take from others and not only try to tip the playing field to their advantage, but also right the rules and referee game to ensure the outcome they desire. That's true greed.

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