Why capitalism is so great

It is hard to write about the greatness of capitalism because it seems so obvious, like explaining why one plus one equals two. But there are so many people now who seem to embrace some form of socialism that it does seem necessary to remind them of why capitalism is a much better economic and social system. "Socialism," despite its label, is much worse for society.

Let me start by discussing a principle in Economics 101, which is that people act rationally and do what is best for themselves. For example, consumers who are evaluating two products to determine which to buy will choose the one that best improves their end result, taking into account all the factors they know or want to learn.

The obvious factors are price, performance, quality, safety, and appearance. (If I've forgotten any, add them to the list.)

If you buy from a merchant, you can probably assume that the merchant has already done some of this selecting for you. If they haven't, and you end up dissatisfied with your purchase, you might not go back to the merchant again and the merchant might then go out of business. So buying from a merchant could increase the cost of a product, but it also gives the buyer some assurances, at least implied if not explicit (like a money-back guarantee.)

To have a robust economy, you need to have currency, which is controlled by the government. Barter can work, but is obviously much less efficient than money. What else does the government control in a trade context?

It usually has some oversight for safety. It inspects food, it insists that consumer products be safe, and it can require companies to recall products that are defective. Government also has a legitimate interest in preventing fraud and can impose criminal penalties. It also oversees a civil court system so that disagreements between private parties can be resolved peacefully.

Criminal penalties must be "objective." Government has to follow the "rule of law" and that means that laws must be spelled out and equally enforced. There are laws against fraud and committing fraud must be proven in court "beyond a reasonable doubt," which is a high bar. So unless conduct is outrageous, the government will likely not be involved in a private dispute. This means the parties must be aware and careful in their transactions because if they are not, they might not achieve their goals (buying the best product for their needs at the lowest cost.)

Let's say someone is selling sneakers on the street and has a sign which says "These are the best sneakers money can buy!!!" And let's say there is a picture of Michael Jordan wearing what looks like a pair of the sneakers. A consumer walking by who is in the market for new sneakers may stop and think about making a purchase.

You'd have to be a pretty gullible consumer to think you could purchase the exact same brand of sneakers worn by Michael Jordan inexpensively on a street corner, and if you did your due diligence, you'd quickly discover that the salesman isn't saying that he is selling the exact same sneaker, but maybe the same style or some type of knockoff.

Knowing all this, some people may buy a pair anyway. They may feel that the price is worth it and they may in fact be solving their need and be quite pleased with their purchase. Another buyer might mistakenly think the sneakers are of the same quality as what Jordan wore, despite the obvious exaggeration by the salesman, and be disappointed with the purchase.

In capitalism, there is a cumbersome redress, which is civil court. Few would consider suing the street merchant, but it is an option and the more outrageous the sales claims are, the more likely that a dissatisfied buyer will be so upset as to sue, even if it is just for the principle of the thing.

So one of the things capitalism does through its practice is to educate consumers. They must become good at making buying decisions so that, over time, their success rate for purchases goes up. Capitalism gives consumers the power to make both good and bad decisions, and both can be useful learning experiences.

The beauty of capitalism is that it is mostly free of government regulation. All of the factors that go into that purchasing decision will tend to improve the quality of products in the future, if that is what consumers want. Or it may end up reducing the price of those products if that is what is more desirable. The "marketplace" makes those determinations over thousands and millions of transactions.

What we find is that both outcomes happen. We get some sneakers that are very high quality and expensive, and some that are of low quality and cheap, and then every option in between.

If you are looking for a middle-of-the-road sneaker alternative, you might feel that $50 is what you are willing to pay but you want decent quality. If you are offered $60 sneakers that are good quality or $40 sneakers that are subpar, you have a decision to make. There may be exactly what you want at the next store, or you can make a decision now and not waste more time shopping...or maybe your friends are waiting on the basketball court for you now and you just have to buy something immediately.

There are a million scenarios that could exist over millions of different consumers buying sneakers. Capitalism gives individuals the most freedom to make these choices because it gives people the most options and keeps government mostly out of the process.

What this means is that for every decision, individuals are maximizing their outcomes. Sometimes (not always), that freedom of choice means a lot to someone. And over billions of decisions, that is a lot of improved outcomes.

If capitalism improves one outcome per week for everyone, that is billions and billions of improvements over time. This is why capitalism is better than socialism, because individuals know what they want and capitalism allows them much more choice and many more options than what any central-planning group could ever do. But even in a very mild form of socialism, it is also far better than having restricted choices because those restrictions, over millions of consumers covering billions of transactions, mean that some large percentage of people are worse off, having been denied one or several of their options by the government.

Before I move onto socialism, let me digress for a moment. Let's say the street seller is in New York City. There are many streets with these vendors all over the city, selling all sorts of things. If you stop at the stand to look at the Michael Jordan knockoffs and the price is $50, there is one more factor that you might consider. If you buy from the street merchant, you likely won't be paying sales tax.

The NYC and NY state sales tax is probably a combined 10%. On a $50 pair of sneakers, that is another $5. Not an insignificant sum if you have a close decision to make. You know that if you go to a regular retail store, you will probably be looking at $75 or $100 for a similar (looking) pair of sneakers, and then the tax could be an additional $10. This is an example of how government taxes can distort the free market economy and probably why the police chase these street vendors all over town. And the consequences could even be worse. (Remember Eric Garner, who died when being arrested by NYC cops for selling untaxed "loosie" cigarettes.)

Part Two is Why Socialism is so bad.

Part Two: http://www.actonforum.com/blogs/allenn/why-capitalism-so-great-part-two

Fiscal Conservatism 901

THE VERY FIRST ARTICLE IN THIS SERIES and a list of all articles:

Introduction: http://www.actonforum.com/blogs/allenn/political-philosophy-fiscal-conservatism

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