Market Update – July 31st
I read a really interesting piece that was recently in The Wall Street Journal. It was titled, “Why Capitalism Has an Image Problem” and it was written by Charles Murray. Murray is a libertarian (and that comes out toward the end of his piece). Regardless of your political persuasion, he has interesting thoughts concerning how our values have changed. Here’s the quick summary (and much of this is lifted verbatim or is my best attempt to very closely paraphrase Murray’s work)…
1. Historically, societies that embraced capitalism moved from being impoverished (with a small group of wealth at the top) to having more widespread wealth.
2. Capitalism has lifted the world out of poverty because it gives people a chance to get rich by creating value and reaping the rewards.
3. Yet, capitalism has become an accusation. (Governor Romney’s background has arguably hurt him in this campaign as much as it has helped him.) The assumption has become that if you are rich, it’s because you’ve made someone else poorer.
4. Two factors have led to this change in mood: collusive capitalism (including crony capitalism and the government) and great fortunes made in the market.
5. Crony capitalism refers to people at the top taking care of each other (e.g., the Board of Directors overpaying the CEO). The bigger issue (in collusive capitalism) is the government – which makes rules that create (or destroy) entire industries. They also pass laws that affect a single company (changing the competitive landscape). This has become apparent to Americans.
6. Americans applaud people who get rich by creating products and services. But, we have a problem with hedge fund managers becoming wealthy. Allocating capital is important, but it’s obscure.
7. The question then becomes why the non-financial capitalists (who created a product or service) don’t defend themselves. He argues that there are two reasons: (A) many are simply liberal;and (B) capitalism has been separated from virtue.
8. With respect to capitalism being separated from virtue…we used to believe (and teach) initiative, hard work and entrepreneurialism as virtues. At the same time, we would praise the virtues of self-restraint, personal integrity and concern for those who depend on you. You had freedom to act, but you also had a moral obligation to act in certain ways. We’ve lost the ability to believe that some things are right and others are wrong.
9. We have seen deterioration in the sense of stewardship among the most successful Americans. When so many bad things were happening (leading up to our financial crisis), many business leaders knew what was going on…why didn’t they say anything?
10. Murray then went on to argue that economic liberty is part of the exercise of liberty and the pursuit of happiness. Government ultimately erects barriers that make starting a business or running a business harder (particularly for individuals and small businesses). Over the past 50 years, we’ve accumulated a complex regulatory system, irrational liability law and a corrupt tax code.
11. In order to reverse these problems, we need to restore our most important values: personal integrity, a sense of seemliness and concern for those who depend on us. If we can do this, the middle class will realize that the wealthy are not the enemy. Equally important, it is “necessary to remind the most successful among us that their obligations are not to be measured in terms of their tax bills. Their principled stewardship can nurture and restore our heritage of liberty. Their indifference to that heritage can destroy it.”
Have a great week.
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