If The US Won't Defend Market Capitalism, No One Will

Yesterday at an event called One Day University, I saw a talk by William Burke-White of Penn and formerly of the Obama state department (I think he was one of many consultants, but I can never figure out seniority from people's biographies - his is here).

Mr. Burke-White was discussing the liberal world order created by the US after WWII and recent decline / threats to this world order and American power.  He discussed five trends or forces driving changes, and you probably can predicts many of them.  He discussed the rise of new world powers (e.g. China), the rise of powerful NGO's (e.g. ISIS) and the expansion of the Internet (which can destabilize traditional powers).  All fine, I have no particular comment on that stuff.  He also discussed climate change, with a picture of Manhattan underwater, and though I am tempted, I won't even respond to that.

What caught my attention was his fifth point -- about income inequality.  He showed a slide with the meme that 8 people (Warren Buffet et al) had more wealth than something like half the world's population put together.   His conclusion was that the liberal world order had failed because so much wealth had been concentrated in a few hands.

Well, if American power and influence is declining in the world and Mr. Burke-White is an example of the thinking of the Obama administration over the last 8 years, I now have a better understanding of why.   Sure there are really rich people.   There were probably 8 really rich guys in 1400 (though they would have all been Kings and Emperors rather than private business people).  The really different, world-changing event over the last 50 years has been the emergence from poverty of over a billion people, as facilitated by market capitalism.  Never before in all of the history of the planet have so many people been pulled out of poverty in such a short time.  Never before has such a large percentage of the globe moved beyond pure subsistence farming.  If the leaders of this country find it impossible to communicate this simple good news, then of course the post-WWII liberal world order is going to struggle.

Look, I understand that baby boomers (a group of which I am barely a member) have a hard time figuring out how to cope with this country's many past missteps.  Yes, we have been ham-handed (and that is generous) in exercising our power and we have often failed to live up to our stated values.  But helping to unleash a wave of market capitalism on the world is among our true successes.   And this is the US's one true source of power, this wave of prosperity we have helped to birth.  Other supposed sources of our power -- a big military and atomic bombs -- are horrifying.  Market capitalism is our one source of strength that is genuinely positive.  If we are staffing the state department with people who don't get this, then no wonder we are losing influence in the world.

  • me

    Thought you'd go a different direction with this - the US has strayed far from championing market based solutions in recent years, and it's a crying shame. Health care - even a little bit of freer markets would do a world of good here. Tariffs and over-regulation - just listen to our President and his desires for international exchanges. Labor and use of money - regulation overhead is at an all time high and now we're hitting the age of 1099's for nearly all transactions.

  • SamWah

    Barack was. And what me said below is what the left wanted.

  • TruthisaPeskyThing

    I have a question that should be answerable fairly easy, but I welcome comments on it. How can we present the reality that market-based economics has not only brought billions out of poverty in the last couple of generations, but also that it has created a tremendous amount of wealth?
    Thirty years ago, I remember challenging an economist who was excited about what the market economy would mean to Eastern Europe -- as well as in several other countries adopting capitalistic principles. I thought that interest rates would be sure to rise as all these places would now be borrowing money, and there would not be enough savings to accommodate all these demands. I was so wrong, as the economist pointed out; capitalism not only borrows funds; it also generates funds and savings through wealth creation. I suspect that one reason for low LONG-TERM interest rates is the unprecedented level of world-wide wealth now looking for a place to put savings.

  • GoneWithTheWind

    If very rich people locked up their wealth in a vault like the Scrooge McDuck character from the comic books then this would matter. But 100% of the money of these very rich people is invested and providing capitol and incentive for business and that is a good thing. Where I do fault how the very rich are treated is the incredibly favorable tax treatment i.e. charitable donations. IMHO there should be no deductions available for this. Any one choosing to give to a charitable or tax exempt organization should do so with their money and not with money that would have been tax revenues.

  • DirtyJobsGuy

    Part of this is the continuing rise of "deals" via government in the US. I used to hear the comment very frequently overseas of how "honest" Americans were in business. It is true as most business dealings are truly on a handshake basis (albeit with contracts coming later). I don't feel that is as true today as while ago. Just treating your counterpart with respect and trust is the best way to spread the idea of markets values. Set asides and other special preferences have continued to rise, injuring all parties here.

  • Dan Wendlick

    One other point is that at least among the Americans on the list, the people he is talking about have "only" money, in that they don't also have the things like private or pseudo-private armies, nor networks of vassals and serfs and slaves on their huge tracts of land. No US general is going to call Bill Gates or Warren Buffet to find out if he should obey an order from the Pentagon.

  • Earl Wertheimer
  • J_W_W

    The scary part is that maybe they do get this but just can't bring themselves to believe in a system without the central control of the elites that values the actions and experiences of every one of the people contributing to this economy.

    They would rather billions starve under their fateful plans, than enable successes for everyone from things they can't really control (like the free market). Yes I know that makes progressives sound evil, and....

  • Jaedo Drax

    Here is an article of that references that statistic: http://fortune.com/2017/01/16/world-richest-men-income-equality/

    Oxfam is once again leading the charge of the envious.

    Rather than working on making the poor, less poor, their solution is to increase taxation, and have governments and NGOs use the money taken from the 'rich' to assist the 'poor' in some fashion, while skimming their cut. To them, the economic pie never gets bigger, so somewhere, some how, the rich are holding these 'poor' people down.

  • CapitalistRoader

    Other supposed sources of our power -- a big military and atomic bombs -- are horrifying.

    I remember an interview of a West Berlin woman back in the 80s, during the height of the anti-nuclear weapons demonstrations. She said that nuclear weapons were responsible for keeping Germany out of war for the past 37 years, for which she was grateful.

    Thanks to Trump, finally other Europeans now are waking up to the fact that the kindness of US taxpayers and military personnel is the only thing keeping Russia from rolling in and upsetting their expensive welfare states. That's good. Admitting to yourself that you have a problem is the first step in any addiction recovery process.

  • Q46

    "...about income inequality. He showed a slide with the meme that 8 people (Warren Buffet et al) had more wealth..."

    There it is! Right there.

    This is the problem with these knuckle head - income and wealth are not the same thing and they do not know the difference.

    Someone who earns $50 000 and burns it is not as wealthy as someone who earns $50 and buys a pair of shoes with it.

    But speaking of wealth - what does Mr Burke-White think these rich folk do with their wealth, keep it in shoe boxes under the bed? The wealth is invested in company shares, corporate bonds, on deposit, in pension funds, etc... in other words their wealth is redistributed around the economy providing benefits for everyone and allowing others to generate their own wealth.

    Of course Mr Burke-White and those of his ilk believe that wealth would be better in their hands to be redistributed to buy votes and favours.

  • Q46

    Recent years?

    The US has been increasingly protectionist since the 1816 Dallas tariff with the explicit purpose of protecting US manufactured items from overseas competition.

    FDR and his New Deal put protectionism into overdrive and Congress has never looked back since!

  • Jesse Nelson

    Funny that the article also trots out the familiar argument that Bill is paying less in tax than his secretary....even if this were so, it's in no small part due to the fact that he's giving the money away, therefore naturally paying no tax. Apparently the #1 issue these people have is a lack of government control over wealth and where that wealth goes, even if the owners of that wealth give it away and don't benefit in any way from it. Private benelovence is of little consequence, government is the proper respository for wealth and directing it to the proper purposes.

  • MJ

    How can we present the reality that market-based economics has not only brought billions out of poverty in the last couple of generations, but also that it has created a tremendous amount of wealth?

    You just have to keep hammering home the point that economic production and exchange, along with the related process of wealth creation, is not a zero-sum process. Gates, Buffett or Carlos Slim becoming wealthier doesn't have to come at the expense of the income of poor people. In fact, that wealth creation often enriches the lives the of the poor in multiple ways. It generates additional employment opportunities, generates additional capital which can be extended to low-income entrepreneurs (there are many great individual stories of how this has played out in African countries like Kenya), and also creates products which enrich the lives of poor people -- improvements in cell phone/smart phone technology is one of the easier examples to grasp.

    Trade is a two-way exchange, and both parties would not consent to it if they did not both feel that it would improve their lot.

  • MJ

    The irony of this is also the fact that Bill and others like him are giving away large shares of their fortune to charitable organizations that are far more effective at directly assisting the poor than governments are typically able to -- especially in lower-income countries.

  • Ugasailor

    Warren - "If we are staffing the state department with people who don't get this, then no wonder we are losing influence in the world."

    How about ALL the government officials (local, state, Federal) that don't possess this basic knowledge?

  • Patrick

    I didn't see this event, and if it's true that Burke-White's "conclusion was that the liberal world order had failed because so much wealth had been concentrated in a few hands," then I agree with Warren's concerns. On the other hand, in the context of threats to world/American stability, he's absolutely right to include income inequality right near the top. We've already seen significant disruption in the US and UK from 99 percenters, Bernistas, Brexiters, and Trump voters. What happens when the Chinese masses, who are still living in pretty dire poverty helped along by a state that allocates resources toward cheap exports (see Warren's trade post the same day), get fed up?

    There's something about the transition from subsistence living to being a consumer that instills a powerful thirst to consume. And I think it IS a failing of the liberal world order that it's generated so many consumers who are angry and frustrated that they don't get what they perceive to be a big enough piece of the pie. There's not an easy answer (nor is there an easy answer to any of the other top five threats Burke-White enumerated), but angry, often under-educated would-be consumers will take hope from where they can find it... and so far, the liberal world order seems to be failing to give them hope within the system. Better messaging has to be part of the answer--but even if every angry would-be consumer heard the message that they haven't died from Malaria or Smallpox and hey, inequality's probably no worse than it was in 1400... I don't think it's enough. I agree that market capitalism has been a huge win for the world, but it needs to either deliver far more standard-of-living improvements to far more people or convince many of those people to be content with less. I've yet to hear from someone with a convincingly strong plan to achieve either of these goals.

  • CC

    Wealth inequality makes people jealous but it does not otherwise affect them that Warren Buffet is super rich. Most of the wealth of the super rich is necessarily in ownership of businesses. The only way to own a business is to make money, and this means you hire people. The rich can afford to open new stores, buy the latest gadgets for their business, hire more people. Without excess capital there is no growth.

  • tfowler

    Since its a measure of financial net worth and not income, anyone with no debt is all by himself "richer" than a decent portion of the world's population. A doctor with a six figure income but a lot of debt is "poorer" than a homeless person who owns nothing and has little income (maybe no income by many ways of measuring it) but owes nothing.

  • TruthisaPeskyThing

    I am not at all impressed with Hans Rosling. He had vivid graphics and wry humor, but his analysis was horrible. Two quick examples:

    First, he uses infant mortality as a measure of a nation's achievements in health. If one does so, one needs to remember a few things -- such as the U.S. counts deaths from premature deliveries in a manner that other countries do not, so America's infant mortality is going to be higher. Then Rosling goes on to say that other countries who now have the economic achievement that America achieved 80 years ago now have infant mortality rates lower than what the U.S. had 80 years ago -- so the U.S. has put too much emphasis on economics and not enough on health. The shallowness of that thinking is astounding -- 80 years ago, the wealth of the U.S. allowed it to pioneer health advances which benefit other countries now. If the US had sacrificed its economics years ago for health focus, we would not have the health that we have now.

    Second, Mr. Rosling talks about how we have destroyed the world's growing economy has "wrecked" the environment because of CO2 emissions. Such oblivion to reality does not sit well with me.