Friday Interview: Debunking Arguments That Capitalism Is Unfair | Eastern North Carolina Now

    Publisher's note: The authors of this post are the staff of the Carolina Journal, John Hood Publisher.

Economist Rose explains system of free markets leads to better results


David Rose
    RALEIGH — Critics often label capitalism as unfair. They say a system based on free markets and limited government control leads to wide disparities among the rich and poor. David Rose, professor of economics at the University of Missouri at St. Louis, challenges that argument. Rose discussed the fairness of capitalism with a John Locke Foundation audience earlier this year. He also spoke with Mitch Kokai for Carolina Journal Radio. (Click here to find a station near you or to learn about the weekly CJ Radio podcast.)

    Kokai: Starting with the very basic question, the title of your lecture, "Is capitalism unfair?"

    Rose: I don't believe that it's fundamentally unfair. Now, let's dispense with some obvious things. If you have a capitalistic society, and people are engaged in business as we normally think of in a capitalistic society, will there be some people who are behaving in shabby ways, and producing unfair outcomes? Absolutely, that's going to happen.

    But that's going to happen no matter what kind of society you're talking about. It's a mistake to say that because bad things happen in a capitalistic type of environment, that it's caused by capitalism. Just as it would be unfair to say that all the bad things that happened in the Soviet Union, say circa 1970, is all because of communism or socialism.

    That's not fair. Some of that is just because of power-hungry people taking advantage of it. So let's just wipe away that. Of course, some things about capitalism are unfair, but that's really confusing the ultimate paradigm with what's going on within it.

    Now, the real question in this, is capitalism inherently unfair? Is it the kind of thing that's going to produce that [unfairness]? And I think that many people tend to think that capitalism is inherently unfair because they equate fairness with equality.

    So if you treat equality and fairness as being one and the same, and then you observe unequal outcomes, you're going to say, "Oh, well, whatever produced those unequal outcomes is unfair." And there's no question that capitalism does not produce equal outcomes. Some people make a whole lot more money than others. Some people end up with a great deal more wealth than others.

    So I think that ... that's where the problem comes in. If you equate fairness with equal outcomes, then you're going to correctly conclude that capitalism is unfair, but it's because you have an incorrect premise.

    Kokai: If we set aside that premise, that fairness would mean equal outcomes for all, why is capitalism something that we should look at in a more favorable view than those who say, "Oh, it's unfair so we need to get rid of it"?

    Rose: Well, when we worry about things like fairness, what are we worried about most? Are we worried that the 10th-richest person on the planet doesn't feel bad compared to the first-richest on the planet? We're not worried about that. That's not what we're worried about on fairness or equality.

    What we're worried about when we're worried about fairness and equality is we're worried about people at the bottom who have so little that they suffer serious meaningful deprivation — true misery. They actually do go hungry from time to time. They actually are cold and wet. They actually might have a broken arm and not have it set for three days. OK? Now that — that's why we worry about fairness. We don't worry about Bill Gates being sore about George Soros having more money than him.

    What does that have to do with your question? Well, any system that dramatically reduces the number of people who suffer genuine, absolute material deprivation — [they are] hungry, don't get enough clean water, can't get a simple antibiotic when they're suffering from a sinus infection — being in a situation where keeping them to a minimum or minimizing the amount of time they're in that situation, that's a good system.

    Capitalism is the best system on the planet that we know of. I am open-minded to new systems, but of the ones we know of, capitalism is the one that gives the most people the greatest chance to stay out of that zone of genuine material deprivation.

    Societies that are capitalist, and have been capitalist for a long time, find that even their poorest people in their societies get plenty to eat, their kids get free education, they get health care, and so on and so forth. I think that's where if you're really worried about the people that need to be worried about, capitalism does a better job taking care of those people.

    Kokai: Is it safe to say that by opening the doors through capitalism to people making lots of money, that we have greater opportunities to help those who are at the low end because of all that money that's flowing to the people who are making a lot of money?

    Rose: Yeah. I mean, there are positive things for people at the lower rungs going on in several directions. First of all, you can't give away money you don't have. And a system that allows people to make a lot of money produces a surplus that they can then use to, literally, directly help poor people in a way that we normally think of.

    Now, that's important. But I don't think that's anywhere near as important as the less-direct approach or less-direct effect, I should say, which is that in a capitalistic society, the economy is growing rapidly. People have very strong incentives to come up with new and better ways to do things. So total output per person rises more rapidly than under any other kind of system.

    What that means, then, is that people who are able to capture a lot of those rents are very highly talented people. They have skills that are highly sought after. Those people don't want to make that money and then bury it in their backyard. They want to buy stuff. They want to go places. They want to do things. Well, all of those things increase the demand for labor of people who do things like run hotels or own restaurants and so on and so forth.

    And, you know, if you go back 50 years, 100 hundred years, many of these jobs would've been pretty unpleasant kind of jobs. But today, they're really not. And as long as a person is paid really well to wait tables or paid really well to be a cook in a nice restaurant, or paid really well to work behind a desk at a fancy hotel — these are not bad jobs. And people can have a good life doing the kinds of things that, you know, depends upon each person's personality, but some people are very personal and like those sorts of things.

    ... I don't want to get into what's best for people, but my point simply is that the kinds of things that the people who make a lot of money in a capitalist system, that they want to do, they're willing to pay other people to do it, and as other people — poorer people — get more money, their willingness to do these things goes down, which means you have to pay them ever more.

    Which is one reason why if you go to a place like the United States and walk around in a poor neighborhood, you don't see a lot of agony. Many people are actually having a good time, doing things they want to do. I'm not making light of poor people, even in America, but my point is they are not to be confused with poor people in truly impoverished countries.
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