Via Economic Policy Journal

David Brooks

New York Times opinion columnist David Brooks took half of a recent column to hail capitalism.

In an essay titled, I Was Once a Socialist. Then I Saw How It Worked, he sounded almost Misesian or Hayekian in explaining how the world was too complex to be centrally planned.

I mean he really presented the hardcore case:

My socialist sympathies didn’t survive long once I became a journalist. I quickly noticed that the government officials I was covering were not capable of planning the society they hoped to create. It wasn’t because they were bad or stupid. The world is just too complicated.

I came to realize that capitalism is really good at doing the one thing socialism is really bad at: creating a learning process to help people figure stuff out. If you want to run a rental car company, capitalism has a whole bevy of market and price signals and feedback loops that tell you what kind of cars people want to rent, where to put your locations, how many cars to order. It has a competitive profit-driven process to motivate you to learn and innovate, every single day.

Socialist planned economies — the common ownership of the means of production — interfere with price and other market signals in a million ways. They suppress or eliminate profit motives that drive people to learn and improve.

It doesn’t matter how big your computers are, the socialist can never gather all relevant data, can never construct the right feedback loops. The state cannot even see the local, irregular, context-driven factors that can have exponential effects. The state cannot predict people’s desires, which sometimes change on a whim. Capitalism creates a relentless learning system. Socialism doesn’t.

The sorts of knowledge that capitalism produces are often not profound, like how to design the best headphone. But that kind of knowledge does produce enormous wealth. Human living standards were pretty much flat for all of human history until capitalism kicked in. Since then, the number of goods and services available to average people has risen by up to 10,000 percent.

If you’ve been around a little while, you’ve noticed that capitalism has brought about the greatest reduction of poverty in human history. In 1981, 42 percent of the world lived in extreme poverty. Now, it’s around 10 percent. More than a billion people have been lifted out of poverty.

You’ve noticed that places that instituted market reforms, like South Korea and Deng Xiaoping’s China, tended to get richer and prouder. Places that moved toward socialism — Britain in the 1970s, Venezuela more recently — tended to get poorer and more miserable.

This is good enough commentary to get him a gig here at EPJ. But the whole column wasn’t as encouraging. The second half went way off the rails. After acknowledging that the economy can’t be planned, he suggested areas where the government needed to plan things:

Today, parts of our capitalist system in the United States are in good shape. Growth is remarkably steady, inflation is low, employment is high, wages for the poorest Americans are rising twice as fast as for high-wage workers.

But capitalism, like all human systems, is always unbalanced one way or another. Over the last generation, capitalism has produced the greatest reduction in global income inequality in history. The downside is that low-skill workers in the U.S. are now competing with workers in Vietnam, India and Malaysia. The reduction of inequality among nations has led to the increase of inequality within rich nations, like the United States.

Also, education levels have not kept pace with technology. More people grow up with inadequate schools, disrupted families and fragmented neighborhoods. They find it harder to acquire the skills to become good capitalists. The market is effectively closed off to them.

These problems are not signs that capitalism is broken. They are signs that we need more and better capitalism. We need a massive infusion of money and reform into our education systems, from infancy through life. Human capital-building is like nutrition: It’s something you have to attend to every day. We need welfare programs that not only subsidize poor people’s consumption but also subsidize their capacity to produce.

We need worker co-ops, which build skills and represent labor at the negotiating table. We need wage subsidies and mobility subsidies, so people can afford to move to opportunity. We need tax subsidies for health care, to make it easier for people to switch jobs. We need a higher earned-income tax credit, to give the working poor financial security so they don’t get swept away amid the creative destruction. We need a carbon tax, to give everyone an incentive to reduce carbon emissions without pretending we know the best way to do it.

A big mistake those of us on the conservative side made was to think that anything that made the government bigger also made the market less dynamic. We failed to distinguish between the supportive state and the regulatory state. The supportive state makes better and more secure capitalists.

Wow, if there was ever a case of the theoretical soundness not being applied to the practical, this is it.

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This is either a case of Brooks not deeply understanding what he wrote in the first half of his column or not having the ability, in the here and now, to go against popular establishment trends.

I would bet it is the second. If you are part of the elite in any way, it is difficult to go against the grain. If you do that too often, you are going to be out looking in. This is too great a danger for most who have been put in a position of New York Times-style influence.

But a half-column deeply sound is still impressive.

This one column puts him leaps and bounds above his Times colleague Paul Krugman.

What can we expect next from Mr. Brooks next?

I will keep on watching and report back if anything interesting develops in his column.

RW