WATERS: Sweet and sour capitalism

Posted by on January 17, 2016

Jim Waters head

Retired University of Kentucky economics professor Marty Solomon in a recent Herald-Leader op-ed demonstrates noted gaps in his understanding of the free-enterprise system, which has done more than any other economic policy in history to tackle poverty.

Solomon defines capitalism as “an economic system that, through competition, drives the prices of goods and services to the lowest possible levels, which benefits the consumer while maximizing profits for the entrepreneur.”

By not even mentioning capitalism’s central tenet – private ownership of assets and all that entails – Solomon offers, at best, an incomplete view. Trying to follow it is like being forced to sit through an entire fuzzy, out-of-focus movie on a theater’s big screen.

This important, but missing aspect in Bernie Sanders’ capitalism “is that owners have the freedom to utilize their assets – be it capital, land, brainpower or other resources – as they see fit, as long as they respect the rights of others,” said John Garen, Gatton Professor of Economics at Solomon’s alma mater.

The answer to enlarging the middle-class pie is not Solomon’s solution – more government tax-and-regulatory activity that confiscates wealth or mandates artificial prices and wages.

Rather, it’s to “enable more private ownership, replete with full-throated competition so that incumbent corporations have to serve their customers to get ahead and maintain profitability,” Garen said.

Solomon’s complaint reflects the Sanders School of Economics’ mistaken notion of free-market capitalism, which actually is its very antithesis.

“Another problem with today’s capitalism is that very wealthy individuals and corporations can legally bribe elected officials to enact laws that provide lopsided economic benefits such as beneficial tax legislation, lucrative government contracts, and relaxation of regulatory requirements on monopolies and environmental stewardship,” he writes.

What he rails against is “crony capitalism,” which occurs when government uses its force, as TV pundit John Stossel once described, to hand out favors to “the chosen few” while harming others in the process.

“It taxes you and me to give money and often special privileges to chosen ones – usually rich people with connections,” Stossel said. “As government grows, it gives out more favors – like handouts to so-called energy companies or union carmakers and bankers on Wall Street. This causes a great deformation and corruption of capitalism.”

Former “Tonight Show” host Jay Leno once highlighted a serious case of cronyism found in the nation’s agricultural policy, which, ironically, presidential candidates Sanders, a Democrat, and Republican Marco Rubio continue to defend.

“The Department of Agriculture wants to use our tax money to buy 400,000 tons of sugar to limit supply and boost prices so sugar producers can pay back government loans that they could default on,” Leno jabbed. “You follow me here on this? We loan them money and now we’re giving them more money so they can pay back our loan. You still wonder why we’re $16 trillion in debt, anybody? Any questions?”


Does Solomon understand that such cronyism is the very opposite of free-market capitalism?

Does he understand that this sugar-subsidizing program forcing middle-class Americans to pay $3 billion more in sugar prices in order to prop up a few wealthy, connected individuals is the result of government doing exactly what he wants more of: controlling markets and establishing price controls?

Solomon speaks of how “the quest for profits and low costs has created an explosion of outsourcing to low-wage countries, resulting in the evaporation of millions of middle-class jobs.”

Yet does he realize that Uncle Sam’s continued abhorrent policy of propping up sugar prices results in confectioners moving abroad because of cheaper sugar?

Does he know that an Iowa State University study reports industries that depend on sugar would gain 17,000 to 20,000 new American jobs by eradicating such cronyism?

The problems Solomon laments about are not the consequences of capitalism, but rather because government has abused its power, pushed the free-enterprise system to the side and created a crony economy in the process.

Jim Waters is president of the Bluegrass Institute, Kentucky’s free-market think tank. Reach him at jwaters@freedomkentucky.com. Read previously published columns at www.bipps.org.

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Jim Waters

Jim Waters

President at Bluegrass Institute
Jim Waters is President of the Bluegrass Institute for Public Policy Solutions, Kentucky’s first and only free market think tank. Jim uses his significant media experience as a reporter, editor and broadcaster at newspapers and radio stations in Kentucky, Indiana and Ohio to grow the institute’s influence in Frankfort and its impact statewide. Jim is often quoted in the state’s major media sources on public policy issues and writes the Bluegrass Beacon, a weekly newspaper column that appears in publications statewide.

  • Rodney Loder

    I’m pretty sure that the Crony idea, is Capitalism dressed up for a witch Hunt.
    In selling short to prolong the 6 year Bullish market affair, concurrent with the Arab Spring.
    The USD goes up, and the US Balance of Trade that has been in defect for half a century goes down, this is contained by the Terms of Trade reflecting ever greater dependence on the US financial institutional global control, China has similar interests to the US, if they worked together between the two of them they could make hay while the Sun shines till lack of resources reverse the Terms of Trade.
    Looks like that is not possible, if the US lose control they virtually have nothing to trade, because the Terms of Trade have been loaded up against everything the US would have to offer if able to offer anything at all without the colossal subsidies, paid for by financial coercoin.
    It’s not Crony Capitalism its the politics hegemony that are driving conflict on every level, China is now realising that they play the game or be consumed by the game.