I’m probably further to the right in terms of economics than most folk here, in that I don’t think capitalism is unconditionally evil. To the best of my knowledge, countries practicing regulated capitalism after the end of the Second World War experienced the highest median increase in standard of living of any nations at the time, or since.

The core idea of capitalism is that people who make good decisions about allocating resources should be allowed to allocate more resources. There are two big problems with this, which is why the ‘regulated’ bit is important.

The first is that, quite often, decisions are good as a result of luck, rather than judgement. In another thread someone pointed me to a model of markets as a game where you can bet up to 10% of your total money on a coin toss. There’s some nice modelling that shows that this eventually ends up with wealth concentration. Imagine everyone starts with $100. If you win in the first round, you have $110. The loser had $90. You play again and they win. You have $101, they have $99. This trend continues: being lucky early gives more money than being lucky later.

This was addressed with very high marginal tax rates on unusually high incomes, with wealth taxes, and with high concentrations of wealth. The idea behind these is that people who are actually making good choices will have to keep doing so, people who were just lucky will rapidly regress towards median wealth.

The second is that markets are really good at optimising, but not always for the goal that you have in mind. Markets will always tend towards optimal distribution of resources for the incentives that are implicit in how the market operates. If you want the goal to be in the interests of the majority of the population, you need to constantly nudge the scales. You need tax incentives for companies that do the right things and regulatory penalties for companies that don’t. And you need to recognise that some domains are natural monopolies and, no matter how hard you try, you cannot turn them into functional markets.

@david_chisnall karl marx himself, as far as i know, regarded capitalism as the best economic system _yet_

@david_chisnall unfortunately over time big companies corrupt the mechanisms setup to regulate them…not sure there’s a genuine solution to that long term or if that’s just the inevitable end state

@starchturrets Which is why high (and gradually increasing) corporation taxes were originally proposed. They make each stage of growth harder, which makes companies that are almost big enough to act as monopolies unable to compete with smaller companies that have lower tax rates. In particular, this incentivises investment in the smaller companies (it’s much easier for them to to grow), which starves the big companies of capital.

Unfortunately, someone convinced politicians that having a load of megacorps was a sign of a successful economy. It’s depressing to see so many EU politicians say ‘where is the European Microsoft / Google?’ The fact that companies of that scale don’t exist is a feature. The right question is ‘where are the dozen companies that compete in this one market where Microsoft is dominant in the USA?’

@whitequark

I have to admit it’s been almost 30 years since I read Marx, but I believe he regarded it as a step towards socialism, which was a step towards communism. One of the early criticisms of the Soviet Union was that they tried to jump staging over all of the middle steps which, even if they hadn’t been run but a bunch of people who belonged in prison not government, would not have worked.

That said, while Marx was hugely influential and still an interesting read, I think there have been two very important shifts in economic thinking since his time.

The first was to start modelling things using game theory and, especially, to think in terms of incentives. A lot of Marx’s ideas fall down here because they create incentives that allow sociopaths to win. The rapid descent of the USSR into oligarchy was retroactively predicted by these models. This is also my biggest gripe with the FSF. When you model something like the GPL with these tools (which existed before the FSF was formed) then it’s obvious why it doesn’t work.

The second, which is much more recent, is to realise that humans are not robots and that very few of them are sociopaths (it turns out that sociopaths were massively over represented at some influential economics departments in the 20th century, and experiments conducted on their students are not reproducible on the general population. Ho hum). People will behave contrary to their own personal self interest for a variety of reasons. You can’t model economics without also modelling psychology. As someone whose route to economics was via psychology, I meet this with a resounding ‘well, duh’, but a lot of the beliefs in the 20th century was that large groups of humans would behave in a way that let you average out psychology and treat groups of humans as if they were composed entirely of rational entities.

@david_chisnall oh this explains a lot about economics departments!

@david_chisnall the third is that power accumulates with wealth, so as capitalists accumulate wealth they are able to use their consequent power to tip the scales even further in their favour and away from ideal market functioning, and it becomes harder to do anything to tip the scales back. the system eats itself

@hailey This is only a problem if sustained accumulation of wealth is possible. If the tax system makes accumulation of wealth progressively harder the more you have, you can creat asymptotic limits.

The other of my centre-right opinions is that a solid progressive taxation system is a much more humane alternative to Mme La Guillotine.

@david_chisnall Speaking as an anti-capitalist, I'd agree with all of this (except maybe the 'standard of living' thing because the methods of measurement are a bit sketchy there), but I'd argue there's a third problem that's missing here: the non-isolation between wealth and regulatory power.

This model assumes that the regulatory power stands above wealth in the hierarchy, and while this is initially true - and I'm going to assume that the regulatory power is benevolent here - this doesn't remain true because wealth and influence gained through capitalism can be traded back for regulatory power due to the social value assigned to wealth (which needs to be there for capitalism to 'work' as a concept, or the driving incentive disappears).

But what that means is that if you have regulators keeping capitalists in check, and capitalists slowly amassing wealth and influence that they can use to adjust the regulators, it's only a matter of time until they slowly chip away at the regulatory layer to reduce the restrictions and nudging, which then improves their wealth acquisition, and so on, until eventual regulatory capture. And incentive-wise, this is entirely consistent with capitalism's theory of operation.

So as far as I can see, 'controlled/regulated capitalism' will always turn into uncontrolled capitalism eventually; it can only ever work temporarily, and this matches the actual timeline of events.

@joepie91 @david_chisnall

This is a really good point; but of course regulatory power doesn't have to be compromised, there are democratic mechanisms that can control that tendency but the rich have dismantled them - most of the rich know the need a from of regulatory capitalism (there is no capitalism without the rule of law), but they want *different* regulations from the rest of us - their capture of the political process has been to affect that end

@david_chisnall the key word being "regulated".

@JorisMeys @david_chisnall Yep. Externalities. The role of standards. Regulatory capture.

"Capitalism is a great servant, but a dangerous master"

@david_chisnall the problem is that it is possible. Look at the world. The trouble with such lines of thought is that it presupposes that capitalism is a designed system, and we can simply tweak the design parameters to get back on course. But it’s not designed, it evolved from feudalism when the industrial revolution reshaped the British economy - and of course the power stayed with the ruling class through that transition. Thinkers like Smith and later Hayek and Friedman retconned that history into the idealised view of capitalism we have today. But that idealised view is not the reality of the system we have. (bonus: Smith’s ideas were far more theological than many know - he suggested the invisible hand was *literally* the hand of god)

@david_chisnall Good post. Nothing inherently wrong with capitalism; and there's a dearth of realistic alternatives to consider. Big caveat, but when operated well it's the best way we know to do things.
The corruption starts as soon as someone talks of "free markets". There's no such thing, there are always rules and that's where the detail and the difference between good and bad lies, and BS like "trickle down". The law says a company has to maximise return for shareholders. Needs changed!

@pa27 Most of the people who talk about free markets don’t know what one is. It is a real term in economics and there are a set of properties that they exhibit and a set of preconditions. One of them is no information asymmetry, for example: buyers must have full knowledge of the quality of the goods that they are buying. Another is that there must be multiple suppliers for any good who are not colluding. To the extent that they ever exist in the real world, free markets exist only in heavily regulated settings. Which, coincidentally, is the exact opposite of what ‘free market’ advocates encourage.

@david_chisnall

That need for constant nudging is the problem. It requires a understanding who is well-equipped to figure out the need of the population at large, the benefits and harms of the regulated activities and a power imbalance in which the regulators have more power than the regulated.

Which isn't far off public ownership.

@CTHW

@EricLawton @CTHW

Public ownership has its own problems. It’s easy to fall into ‘jobs for the boys’ cronyism, and to lose any incentives for efficiency. Again, see the USSR and Maoist China for how staggeringly badly it can be managed (and see a few modern nationalised railways for how well it can work with the right set of incentives and management structures). As with a functioning market, it needs constant vigilance to prevent it from falling into one of the failure modes.