How Capitalism Will Save Us (73 page)

12
Protectionism kills more jobs than it saves
. People who buy into capitalism’s bad rap miss the bigger picture of the benefits of global trade. They focus myopically on certain “jobs being shipped overseas.” Meanwhile, in the past three decades up until the recession, the opportunities created by global trade helped keep America’s overall unemployment levels at record lows. Remember the lesson of the Smoot-Hawley Tariff. It didn’t save jobs in the 1930s. Instead we got a terrible global trade war and a long Depression. After World War II, many nations of the world came together to liberalize global trade and put such destructive policies in history’s rearview mirror. The lesson? Protectionism kills an economy. Free trade means not less but more job creation, competition, innovation. Relatively few jobs in the Real World are lost because of outsourcing or offshoring.

13
It’s easier to see the destruction that occurs in free markets than the creation and growth that are simultaneously taking place
. People who decry the destruction of jobs and industries that occur in capitalism’s open markets are missing the bigger picture of the creation that also takes place—often because it happens elsewhere in the economy. For example, automotive manufacturing jobs “shipped overseas” are denounced as “irreplaceable” losses, while thousands of well-paying manufacturing jobs are simultaneously being created by foreign automakers building facilities in the United States. The development of the iPod and iTunes undoubtedly destroyed some jobs—but it created thousands of others, not only in the Internet industry, but also in retailing and manufacturing. Even in good economic times, there is “churn,” the destruction and creation of jobs, as new technologies and industries displace others in open markets. If this process of “creative destruction” could not take place, the economy and society would not advance. We’d still be using typewriters instead of computers and making operator-assisted calls instead of using cell phones and cheaper automatic landlines.

14
Only government, with its immense market power, is capable of causing systemic economic upheaval on the scale of history’s greatest economic failures
. Through its ability to tax, regulate, and control the supply of money, as well as its political influence, government has more market power than many Wal-Marts and Googles put together. The creative destruction of free-market capitalism can create job losses and disruption within specific economic sectors. But only the actions of government have the kind of impact on the national—indeed, global—economy capable of causing a systemic meltdown on the scale of the Great Depression of the 1930s, the Great Inflation of the 1970s, and the economic crisis and recession of 2008–2009. Yet politicians and others who buy into the bad rap on capitalism almost always blame these traumas on “unfettered markets”—responding with still more government “solutions” that only make matters worse.

Bottom line: Trust we the people. We
are
the economy!

W
e are deeply grateful to the following individuals for helping to make this book a reality. The encouragement and enthusiasm of our agent, the spirited Larry Kirshbaum, were critical in pushing this project forward. At Crown, John Mahaney’s superb editorial instincts and deft judgment were indispensable. His colleague Jo Rodgers also earns our gratitude. All three represent the publishing industry’s gold standard.

This project required extensive research. Juliette Fairley spent countless hours fact-checking the manuscript. Deroy Murdock provided invaluable recommendations for a first-rate editorial research and checking team that included the tireless Jacob Laksin, as well as Ilya Laksin, RiShawn Biddle, and David Feith. Scott Bistayi, Elizabeth Gravitt, and Susan Radlauer cheerfully handled numerous requests for information. Audrey Wecera painstakingly helped prepare this manuscript.

Rich Karlgaard’s insights on entrepreneurial innovation were inspiring and invaluable. Over the years, George Gilder has provided profound insights into the moral basis of entrepreneurial capitalism. Without the ever-patient assistance of Jackie DeMaria and Maureen Murray, Steve would never have been able to find the time for this project. Steve is also grateful for the moral support of Merrill Vaughn and the always wise counsel of Bill Dal Col.

On a personal note, we would like to express our profound appreciation to our families, without whose encouragement and patience this project would have been well-nigh impossible.

1.
Committee on Oversight and Government Reform, “The Financial Crisis and the Role of Federal Regulators,” hearing, 10:00 a.m., Thursday, October 23, 2008.
http://oversight.house.gov/story.asp?id=2256
.

2.
Joseph Alois Schumpeter,
Capitalism, Socialism and Democracy
, 5th ed. (New York: Routledge), originally published in 1976, p. 143.

3.
Business and Media Institute, “Bad Company: For the American Businessman, Primetime Is Crimetime,” special report, June 21, 2006.
http://www.businessandmedia.org/specialreports/2006/badcompany/
badcompany_execsum.asp

4.
Stephen Moore and Julian L. Simon, “The Greatest Century That Ever Was: 25 Miraculous Trends of the Past 100 Years,” Cato Institute Policy Analysis No. 364, December 15, 1999.
http://www.cato.org/pubs/pas/pa-364es.html
.

5.
Schumpeter,
Capitalism, Socialism and Democracy
, p. 143.

6.
Ibid.

7.
Thomas Sowell, “Is Anti-Semitism Generic?”
Hoover Digest
, no. 3, 2005.
http://www.hoover.org/publications/digest/2931421.html
.

8.
Ibid.

9.
George Roche, “Education and the Free Society,”
The Freeman
, vol. 46, May 5, 1996.
http://www.thefreemanonline.org/featured/education-and-the-free-society-2/
.

10.
Bryan Caplan,
The Myth of the Rational Voter: Why Democracies Choose Bad Policies
(Princeton University Press, 2007), ch. 3, pp. 30, 36, 40, 44. See also Wikipedia summary,
http://en.wikipedia.org/wiki/index.html?curid=13081323
.

11.
The Fortune Encyclopedia of Economics
(Time Warner, 1993), David Henderson, ed., pp. 636–39.
http://www.lewrockwell.com/rothbard/rothbard106.html
.

12.
Leonard E. Read, “I, Pencil: My Family Tree as told to Leonard E. Read,”
The Freeman
, December 1958.
http://www.econlib.org/library/Essays/rdPncl1.html
. First published in the December 1958 issue of
The Freeman
, it was reprinted in
The Freeman
in May 1996 and as a pamphlet entitled “I, Pencil” in May 1998.

13.
Read’s influential story, “I, Pencil,” has over the years inspired others to imagine in a similar vein what would happen if government—or a single individual—attempted to make a pencil.

14.
Rob Walker, “The Guts of a New Machine,”
New York Times Magazine
, November 30, 2003.
http://www.nytimes.com/2003/11/30/magazine/the-guts-of-a-new-machine.html
.

15.
Fredrik Reinfeldt, Prime Minister of Sweden, “The New Swedish Model: A Reform Agenda for Growth and the Environment,” address delivered at the London School of Economics and Political Science, February 26, 2008.
http://www.sweden.gov.se/sb/d/10296/a/99193
.

16.
John Mackey, “Winning the Battle for Freedom and Prosperity,”
Liberty
, June 2006, Vol. 20, No. 6.
http://libertyunbound.com/archive/2006_06/mackey-winning.html
.

17.
David Mamet, “Why I Am No Longer a ‘Brain-Dead Liberal,’ ”
Village Voice
, March 11, 2008.
http://www.villagevoice.com/2008-03-11/news/why-i-am-no-longer-a-brain-dead-liberal/2
.

18.
Milton Friedman, “The Hong Kong Experiment,”
Hoover Digest
, no. 3, 1998 (reprinted from
National Review
, December 31, 1997, from an article entitled “The Real Lesson of Hong Kong.”)
http://web.archive.org/web/20060220030940/
www.hooverdigest.org/983/friedman.html
.

19.
Andrew P. Morriss, “Freedom Works: The Case of Hong Kong,”
The Freeman
, November 2008, vol. 58, no. 9.
http://www.thefreemanonline.org/featured/freedom-works-the-case-of-hong-kong/
.

1.
Michael Novak, “Wealth and Virtue: The Moral Case for Capitalism,”
National Review Online
. Text of a speech delivered before the Mont Pelerin Society in Sri Lanka, January 11, 2004.
http://www.nationalreview.com/novak/novak200402180913.asp
.

2.
Milton Friedman and Rose Friedman,
Free to Choose: A Personal Statement
(New York: Harcourt, 1980).
Free to Choose
was also a PBS television series. See
http://www.ideachannel.tv/;andhttp://en.wikipedia.org/wiki/Free_to_Choose
.

3.
Novak, “Wealth and Virtue.”

4.
Walter E. Williams, “The Argument for Free Markets: Morality vs. Efficiency,”
Cato Journal
, vol. 15, nos. 2–3, fall/winter 1996.
http://www.cato.org/pubs/journal/cj15n2-3-3.html
.

5.
Charles H. Green, “Charles H. Green’s Trust Matters” blog, October 31, 2007.
http://trustedadvisor.com/trustmatters/255/Weve-Got-the-Hamburgers-a-Customer-Service-Classic
.

6.
Ayaan Hirsi Ali, “Does the Free Market Corrode Moral Character? Not at All.” Essay written for the John Templeton Foundation, October 1, 2008.
http://www.aei.org/article/28734
or
http://www.templeton.org/market/
.

7.
Ibid.

8.
EBay’s seller ratings are critical to maintaining trust in this system. When problems surfaced with the reliability of a small percentage of sellers, eBay responded immediately with a more detailed seller-rating system in order to protect its brand. Its efforts have helped to maintain users’ faith in eBay and keep the company in business.

9.
Sen. Bernie Sanders (Ind-VT), “No on Nussle,”
Huffington Post
, September 3, 2007.
http://www.huffingtonpost.com/rep-bernie-sanders/no-on-nussle_b_62902.html
.

10.
Doug Bandow, “Demonizing Drugmakers: The Political Assault on the Pharmaceutical Industry,” Cato Policy Analysis No. 475, May 8, 2003.

11.
Kerry Capell, “Europe Pays a High Price for Cheap Drugs,”
BusinessWeek
, February 17, 2003.
http://www.businessweek.com/magazine/content/03_07/b3820139_mz034.htm
.

12.
Gerald P. O’Driscoll Jr., “Subprime Monetary Policy.” Originally appeared in
The Freeman: Ideas on Liberty
, November 2007.
http://www.cato.org/pub_display.php?pub_id=8849
.

13.
Stephen Koepp, “Having It All, Then Throwing It All Away,”
Time
, June 24, 2001.
http://www.time.com/time/magazine/article/0,9171,146704,00.html
.

14.
Ibid.

15.
David Adams, “Cuba’s Economy Rife with Corruption,”
St. Petersburg Times
, January 15, 2007.
http://www.sptimes.com/2007/01/15/Worldandnation/
Cuba_s_economy_rife_w.shtml
.

16.
Ibid.

17.
Paul Rosenzweig, “The Over-Criminalization of Social and Economic Conduct,” Heritage Foundation Legal Memorandum and Executive Summary, April 17, 2003.

18.
2009 Index of Economic Freedom from the Heritage Foundation and the
Wall Street Journal
.
http://www.heritage.org/Index/Country/Russia
. Russia’s economic freedom score is 50.8, making its economy the 146th freest in the 2009 Index. Its score is one point higher than last year, reflecting improved scores in four of the ten economic freedoms, especially trade freedom. Russia is ranked forty-first out of forty-three countries in the Europe region, and its overall score is below the world average. Russia scored lowest on Property Rights (25 compared with a global average of 44.0) and Freedom from Corruption (23 compared with a 40.3 global average).

19.
“Interview with Grigory Yavlinsky,”
Moskovsky Komsomolets
, September 2, 2003. Yavlinsky was chairman of the YABLOKO party from 1993 to 2008.
http://eng.yabloko.ru/Publ/2003/PAPERS/9/030902_mosk_koms.html

20.
Heritage Foundation and
Wall Street Journal
, 2009 Index of Economic Freedom.
http://www.heritage.org/Index/Country/Russia
.

21.
Arch Puddington, “Freedom in the World 2009: Setbacks and Resilience,” Freedom House.
http://www.freedomhouse.org/template.cfm?page=130&year=2009
.

22.
Daniel Griswold, “Trade, Democracy, and Peace: The Virtuous Cycle,” speech to the Peace Through Trade Conference, World Trade Centers Association, Oslo, Norway, April 20, 2007.
http://www.freetrade.org/node/681
.

23.
Ibid.

24.
Ibid.

25.
Howard W. French, “In Chinese Boomtown, Middle Class Pushes Back,”
New York Times
, December 18, 2006.
http://query.nytimes.com/gst/fullpage.html?res=9401E3DA1331
F93BA25751C1A9609C8B63.

26.
Andrew Jacobs, “In China, Child’s Day Without the Children,”
New York Times
, Sunday, June 1, 2008.
http://www.nytimes.com/2008/06/01/world/asia/01iht-quake.4.13375989.html
.

27.
According to the Bureau of Labor Statistics.

28.
Jerry Kirkpatrick,
In Defense of Advertising: Arguments from Reason, Ethical Egoism, and Laissez-Faire Capitalism
(Westport, Conn.: Quorum Books, 1994), p. 21. PDF ebook available at
http://www.tljbooks.com/ebook.html
.

29.
John Kenneth Galbraith,
The Affluent Society
(New York: Mariner Books, 1998; 40thanniversary edition), p. 223.

30.
Radley Balko, “Don’t Blame SpongeBob for Child Obesity,”
FOXNews.com
, February 21, 2005. Radley Balko was a policy analyst for the Cato Institute specializing in vice and civil liberties issues. He is a columnist for
FOXNews.com
.
http://www.cato.org/pub_display.php?pub_id=3696
.

31.
Kirkpatrick,
In Defense of Advertising
, p. 17.

32.
Ibid, p. 31.

33.
Jane Gross, “Millionaire’s Mega-Mansion Shocks Even the Hamptons,”
New York Times
, Sunday, August 23, 1998.
http://www.nytimes.com/1998/08/23/nyregion/
millionaire-s-mega-mansion-shocks-even-the-hamptons.html
.

34.
Ibid.

35.
Rita Healy and P. G. Sittenfeld, “Making McMansion Owners Pay,”
Time
, July 12, 2007.
http://www.time.com/time/nation/article/0,8599,1643151,00.html
.

36.
Dinesh D’Souza,
The Virtue of Prosperity: Finding Values in an Age of Technoaffluence
(New York: Free Press, 2001), p. 73.

37.
Ibid, p. 74.

38.
“And Luxury for All,”
Wired
, January 2005.

39.
Randy Cohen, “When Layoffs Are Immoral,”
New York Times Magazine
, May 26, 2009.
http://ethicist.blogs.nytimes.com/2009/05/26/when-layoffs-are-immoral/
.

40.
Ibid.

41.
“Layoffs and CEO Compensation,” University of Arkansas press release, October 3, 2006.
http://dailyheadlines.uark.edu/9365.htm
.

42.
Pietro Garibaldi and Paolo Mauro, “Job Creation: Why Some Countries Do Better,” working paper, International Monetary Fund (2000).
http://www.imf.org/external/pubs/ft/issues/issues20/index.htm

43.
Cohen, “When Layoffs Are Immoral.”

44.
Bob Sutton, “When Layoffs Are Immoral: Randy Cohen in the
New York Times
,” posted on his blog, “Work Matters.”
http://bobsutton.typepad.com/my_weblog/2009/05/
when-layoffs-are-immoral-randy-cohen-in-the-new-york-times.html
.

45.
Ibid.

46.
Mark Thornton, “Alcohol Prohibition Was a Failure,” Cato Institute Policy Analysis, no. 157, July 17, 1991.
http://www.cato.org/pub_display.php?pub_id=1017
.

1.
W. Michael Cox and Richard Alm, “The Great Job Machine,”
New York Times
, November 7, 2003.
http://www.nytimes.com/2003/11/07/opinion/the-great-job-machine.html
.

2.
Daniel Gross, “What Makes a Nation More Productive? It’s Not Just Technology,”
New York Times
, December 25, 2005.
http://www.nytimes.com/2005/12/25/business/yourmoney/25view.html?pagewanted=print
.

3.
Jeff Jacoby, “Frank’s Fingerprints Are All Over the Financial Fiasco,”
Boston Globe
, September 28, 2008.
http://www.boston.com/bostonglobe/editorial_opinion/
oped/articles/2008/09/28/franks_fingerprints_are
_all_over_the_financial_fiasco/
.

4.
Barney Frank, Committee on Financial Services Letter Addressing Predatory Lending, March 29, 2007.
http://www.americansecuritization.com/story.aspx?id=1589
.

5.
Rick Klein, “McCain Blames Greed for Wall St. Mess; Obama Blames GOP,” ABC News, September 16, 2008.
http://abcnews.go.com/Politics/5050/story?id=5812268&page=1
.

6.
Bureau of Labor Statistics, “Employment Situation,” July 2, 2009.
http://www.bls.gov/news.release/empsit.htm

7.
Bureau of Labor Statistics, “Business Employment Dynamics Summary,” May 19, 2009.
http://www.bls.gov/news.release/cewbd.nr0.htm
.

8.
Clair Brown, John C. Haltiwanger, and Julia I. Lane,
Economic Turbulence: Is a Volatile Economy Good for America?
(University of Chicago Press, 2006).

9.
Cox and Alm, “The Great Job Machine.”

10.
Ibid.

11.
Clayton M. Christensen,
The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail
(Cambridge, Mass.: Harvard Business Press, 1997). Introduction, pp. x–xvii.

12.
Ibid.

13.
Ibid.

14.
Ibid.

15.
Clayton Christensen, Thomas Craig, and Stuart Hart, “The Great Disruption,”
Foreign Affairs
, p. 84.
http://www.self.org/news/Great_Disruption.pdf
.