Capitalism is an Omnivore

 

Omnivorous Capitalism
How to Think about Capitalism

If you don’t lock your food in bear canisters in the backcountry of the Sierras, chances are you’ll wake in the middle of the night to the grunting, scratching sounds of an ursus americanus sifting through your foodstuffs.

 

If you ignore the rangers’ warnings and make the mistake of keeping food in your tent with you—or even something that smells like it might be food, like, say, a cherry-flavored Chap Stick—you might find that the thin nylon wall that keeps out mosquitoes does very little against a couple of inches of bear claw (the non-pastry kind).

 

And that’s what capitalism is like.

 

In its purest state, capitalism is voracious. And it’s merciless. Its end is dominance even if it has to exclude fairness and pity, like a bear just out of hibernation whose only thought is putting on weight with whatever sustenance it can find.

 

Don’t get me wrong. Capitalism the best system there is. It motivates innovation. It rewards the right risks and excellence. It leads to creation, production and development. It forces profitability or extinction.

 

And it supports society. The best way to seed productivity is by rewarding effort, and without productivity society itself will fail for lack of nourishment.

 

But don’t expect a capitalistic system to act in a way that benefits anything other than profits. The only time capitalism behaves altruistically is if it’s good for the bottom line.

 

Here are some examples that I’m hearing frequently that are disconnected from capitalism’s omnivorous nature:

 

1.     Companies are profiting, so they should hire people because so many are unemployed.

A company hires people for one of two reasons. Either (1) The company determines that the individual will generate production that will exceed the hired individual’s overhead and thereby contribute to profits (eventually if not immediately), or (2) The company can’t meet the demand for its products or services at current staffing levels, and would generate more profit if it had more workers. If you know of another reason, I’d like to hear it.

 

2.     Companies should pay their fair share of taxes, not take advantage of tax shelters.

I’m as angry as the next taxpayer when I find out a company born and raised in the US pays less in taxes than I do because they’re using an offshore tax haven. But if the company’s tax strategies are legal, maximizing after-tax profit is what they’re supposed to do. A company shouldn’t be blamed for using a tax strategy any more than I should be blamed for claiming a home mortgage interest deduction. Capitalism seeks the maximum profit, not the benefit of the government.

 

Look, we want the bears to prosper. Because the bears have cubs and fertilize the ground and keep the wild berry population in check and weed out the weak and infirm. In their proper state, they contribute to the balance of the ecosystem.

 

We just don’t want them to rip our tents apart.

 

You see my point. Capitalism needs governors. I didn’t say it needs meddling or stifling or punishing. But if we give it complete autonomy its appetite will compel it to stretch and grow and absorb and eat anything in its path without regard for the greater good.

 

So we try to manage this with laws. Anti-trust. Fair practices. Consumer protection. If capitalism didn’t have such an appetite, these wouldn’t be necessary.

 

But laws aren’t enough when an entire economy is at stake. And laws can’t anticipate the infinite ingenuities and permutations the capitalist ecosystem evolves. Legal solutions always seem to be too late, too limited, and ineffective in forestalling catastrophic outcomes. If my premise about omnivorous capitalism is accurate, we can’t rely on whistle-blowers or appeals to conscience. Laws will have to be augmented by something that impacts the appetite for profit or we’ll have more problems like the ones that have gotten us into this recession.

 

What’s bothering you about this issue? Have our ethics have failed us, and if so, where? Is a failure of ethics responsible for the recession—in part or in whole? What can we do better to grow our economy in a way that benefits more than just a few? What governors can we apply to promote fair play and protect the disadvantaged without stifling the capitalist system that’s the engine keeping our streets paved and our children educated and our families defended? That’s possible, isn’t it?

 

I know you aren’t satisfied with things the way they are. Are you?

 

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5 Comments

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  1. Steve Stuckey September 6, 2011 at 9:46 pm #

    When I was a kid I went Trick-or-Treating with a buddy. We came to a house with the lights turned off but a bowl of candy bars sitting on the porch with a note that said “Take One Please”. I reached down, dutifully took one candy bar and turned to leave. My buddy reached down, picked up the bowl and dumped ALL of the candy bars into his bag without a second thought. He didn’t care whether it was right or wrong. He only cared that he could get away with it.

    That’s why we have government regulation.

  2. Michael Berrier September 6, 2011 at 10:03 pm #

    Steve, I’m going to resist asking what profession your friend chose.

  3. Steve Stuckey September 7, 2011 at 9:57 am #

    I think he’s in the derivatives group at Goldman (used to be in energy trading at Enron I think). ;-)

  4. lee November 27, 2011 at 7:22 pm #

    I am a conservative who supported deregulation of the banking industry. Now I think deregulation was a huge mistake and the Glass-Steagall Act should be restored and hedge funds should be more regulated or even banned. Glass-Steagall prevented banks from owning securities firms and expanding to multiple states. While I once thought this law was anti-business and outdated, I now realize regulation is necessary to keep the banking industry safe by keeping banks from growing too big. Glass-Steagall is a proven law that protected the American financial industry well for 70 years and needs to be brought back immediately.

    The financial crisis of 2008 and the current economic problems are partly due to the repeal of Glass-Steagall and the failure to regulate hedge funds. I am certain the world economy cannot risk another meltdown now. There is simply not enough money to bail out governments and banks of the world again.

    The Dodd-Frank Act was enacted as replacement for Glass-Stegall, but I believe this new law is weak and doesn’t go far enough to prevent banks from owning investment companies, controlling banks from growing too big, and regulating derivatives enough. Bank of America, a bank, now owns Merrill Lynch, a brokerage firm, for example. Merrill Lynch recently moved $75 trillion of derivatives to the FDIC insured Bank of America side. If these derivatives
    fail, Bank of America will be affected, and how will the US government bail them out? The
    derivatives market is $600 trillion, but the economy of the ENTIRE world is only $74 trillion.

    http://www.bloomberg.com/news/2011-10-18/bofa-said-to-split-regulators-over-moving-merrill-derivatives-to-bank-unit.html

    http://articles.boston.com/2010-03-12/business/29329389_1_derivatives-gary-gensler-regulator

    https://www.cia.gov/library/publications/the-world-factbook/geos/countrytemplate_xx.html

    Billionaire Warren Buffet called derivatives “weapons of mass destruction” and Newt Gingrich thinks repealing Glass-Steagall was a big mistake.

    http://www.economist.com/node/12274112

    http://news.yahoo.com/newts-15-seconds-sun-094500280.html

    Normally I am an optimist who doesn’t go around saying the sky is falling like a paranoid Chicken Little, but from my reading from trusted mainstream sources I have become quite worried about the economy. If I understood the risks of derivatives and debt in 2007 and said something, no one would have believed me. Now I hope people will listen when experts say the government needs to better regulate the financial industry.

    Businesses and banks may say that regulation slows the economy, but I think that if the Glass-Steagall Act is not restored and hedge funds are not more closely regulated, there will soon be no economy at all. While I realize restoring Glass-Steagall and regulating derivatives is complex and difficult, I believe making a law is easier than repealing one.

    I suggest reading “The Big Short” by Michael Lewis for a readable introduction to the financial crisis and why the banking industry needs to be regulated.

    Restoring Glass-Steagall and regulating derivatives is a urgent problem and is not a issue that can wait to be fixed. I cannot stress this enough. Write to your elected officials, talk with your friends, and contact the media urging the government to make Glass-Steagall a law again and ask legislators to better regulate hedge funds.

    “Too big to fail” is simply too big.

    • Michael Berrier November 27, 2011 at 9:55 pm #

      Thanks for the thoughtful comments, Lee. Keep them coming.

      I’ll check out the links and “The Big Short.” I think you and I are generally in agreement, but my view is that the problem isn’t banking per se, but the growth and influence of the mega-banks. Since 2008 the biggest banks have grown dramatically, and so has their clout in DC. Neither party seems to have the fortitude or will to face them down and force them to take on increased capitalization or reduced risk, even though the “too big to fail” banks are becoming “too big to save,” if they haven’t already. Aside from the housing bubble, the systemic problems that led to 2008 still exist and may be worse because of the increased size of the mega-banks. I sincerely hope their exposure in Europe doesn’t create the need for another bailout.

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