Christianity and Capitalism

Every so often it is my distinct misfortune to read or hear someone wax eloquent about the evils of capitalism and imply, suggest, or say outright that Jesus was a socialist, or that He would have favored socialism, or that the early Christians practiced some form of socialism, or that capitalism somehow violates Christian teaching.

It's aggravating as the dickens. Aggravating because it reveals, at the least, appalling ignorance of history, economics, and the Scriptures; or worse, familiarity with one or more of those subjects combined with a serious deficiency in analytical thinking; or, worst of all, outright mendacity and lying. Combine this with the usual syrupy, dripping condescension that accompanies the commentary and you have a perfect recipe for annoying anyone who's devoted, say, 60 seconds of serious thought to the subject.

For what, exactly, is capitalism? It is often said that it is an economic system, but this really isn't the case. Capitalism, beloved, is nothing more--and nothing less--than the economics resulting from people--the mass of people, not merely elites--having both documented property rights and liberty. To the extent you deny the people liberty, or the right to administer their property and the fruits of their labor as they see fit, you depart from capitalism and pitch your tent in the Land of the Planned Economy, aka Socialism. Some prefer to deny those rights in toto; they are communists or socialists (Or fascists, for that matter. Surely you weren't unaware that fascism is but a variety of socialism?) Some prefer to deny them in part; they are liberals. Some prefer to deny them on an ad hoc basis as benefits them personally; they are political hacks, thieves, and liars.

Those who seek to guard and secure Man's God-given rights are commonly called "conservatives" these days.

It floors me that anyone even modestly familiar with Holy Writ would suggest that it does not recognize either the right to liberty or the right to property. How, if a man has not a right to life, do the Scriptures say, "Thou shalt do no murder"? And if a man has a right to life, how can anyone say that it is legitimate for another man to deny him the free use thereof, that is to say, to deny him his liberty? How can anyone be said to have a right to something if he has no right to control the disposition thereof? And if there is no right to property, how is it that the Scriptures say, "Thou shalt not steal," and "Let him who stole, steal no more?" How can any man steal what does not belong to anyone? The commands implicitly recognize the right to property.

And if the Scriptures recognize the rights to liberty and property, beloved, they recognize capitalism, for that is all that results when men have both!

These are amongst the rights the Founders of our country had in mind when they referred to certain unalienable rights granted from the Creator. Rights given by the Creator of mankind and which may therefore not be legitimately denied by men to men. It is largely the denial of such rights that constitutes injustice. Against this, the Scriptures warn us, and tell us that guarding against it is the proper role of the state. Hence, the Founders assertion that it is to secure such rights that governments are instituted among Men.

So much is obvious, as I said, to anyone willing to give the matter a few seconds of serious, analytical thought. I therefore do not hesitate to say that those who do not understand this have, at the least, simply not bothered to engage the material seriously. But there is more.

Consider, beloved, the track records of capitalism and the varieties of socialism. Capitalism has a track record of promoting liberty and economic growth and prosperity for masses of people. To this minute, it is the only economic--for lack of a better word, "system"--with a demonstrable track record of lifting millions of people out of poverty. (As an aside, the evils sometimes ascribed to capitalism are actually the evils resulting from greed, which usually results in the abuse or denial of property rights or liberty, and hence do not result from "capitalism" at all.) Socialism, on the other hand, especially when you consider that fascism and communism are but varieties thereof, has a track record of impoverishing and murdering hundreds of millions of people.

One is left shocked, stunned, in disbelief, at the notion that anyone could seriously suggest that a "system" that demonstrably lifts people out of slavery and destitution is somehow less charitable--and therefore less in accord with Christian beliefs--than a system that routinely enslaves, impoverishes, and murders people. But that is the position that people who take seriously the idea that Christianity is, or somehow should be, a socialist faith, are left with.

Ignorance can be cured. Here are some suggestions:

The Holy Bible
Money, Greed, and God
The Victory of Reason
The Theory of Moral Sentiments
The Wealth of Nations
The Mystery of Capital

Why Scientific "Consensus" Means So Little

Anyone familiar with the subject will not find the following material from the prologue to Good Calories, Bad Calories: Challenging the Conventional Wisdom on Diet, Weight Control, and Disease unfamiliar:

...the argument can be made that, to fully understand obesity alone, researchers should have a working familiarity with the literature in clinical treatment of obesity in humans, body-weight regulation in animals, mammalian reproduction, endocrinology, metabolism, anthropology, exercise physiology, and perhaps human psychology, not to mention having a critical understanding and familiarity with the nuances of clinical trials and observational epidemiology. Most researchers and clinicians barely have time to read the journals in their own subspecialty or sub-sub-specialty, let alone the dozens of significant journals that cover the other disciplines involved. This is a primary reason why the relevant science is plagued with misconceptions propagated about some of the most basic notions. Researchers will be suitably scientific and critical when addressing the limitations of their own experiments, and then will cite something as gospel because that's what they were taught in medical school, however many years earlier, or because they read it in The New England Journal of Medicine. Speculations, assumptions, and erroneous interpretations of the evidence then become truth by virtue of constant repetition.

By "the subject," of course, I did not mean the study of obesity. That just happens to be the example discussed. By "the subject," I meant scientific "consensus."

Look, I'm fairly familiar with bright, well-educated people. I spent years in Mensa before I got tired of it (When I was first a member, it was fascinating. People from all walks of life and with all sorts of interests were involved. Now--at least last time I tried it--nobody attends the meetings without spending the whole time talking about computers.); my family is just chock-full of them. Radiologists, engineers, lawyers, and so forth.

I know bright people. I mean, I know how they think, how they act, and so forth. And I will tell you wholeheartedly that as a rule, if you get them off "their" subject(s), they don't know any more than the next man.

Seriously.

Just for example, I've got an uncle who is really quite a high-level electrical engineer. I mean, this guy's tops, flies back and forth to Europe with some regularity because Nokia uses him as a consultant. One time, I was discussing taxation with him, and got to discussing the Fair Tax in particular. As I was explaining the subject, it gradually became clear that a fair amount of it just wasn't registering, and eventually he said, "I really don't know much about economics."

Of course he doesn't. He doesn't have time. He's flying back and forth to Europe, for goodness sake, to consult with Nokia. Who has time to read The Fair Tax Book?

Now, I know economics is one of the soft sciences at best, but you take my point. Highly specialized personnel often--remarkably often--do not know as much about things in general as you think they do. More often than you might think, when they say something, they are relying on information that they either half-remember, or don't fully understand, or haven't checked out in detail.

When someone says, "Scientists say," or refers to the "scientific consensus," take it with a grain of salt.

On the Edge of the Abyss?

Pat Buchanan makes you wonder:

Irish rage at having to suffer to save Europe’s bondholders of Irish banks, the anarchy in England, riots in France to protest a rise in the retirement age to 62, the violence that wracked Greece, the precarious condition of Portugal and Spain, the anger of Germans at having to bail out their profligate EU partners — raise the question:

Can Europe’s welfare states be downsized without violence surging, governments falling and populists coming to power who will default on debts rather than force the masses that elected them to suffer to save the bank investors?

Can European democracy deal with the gathering storm?

Is not a national default and a collapse of banks across Europe inevitable? And could such a collapse be contained in Europe when America’s big banks are all transnational institutions?

No doubt about it, rough seas are ahead. America still has a lot going for it--I may go into detail sometime, but not today, I should be getting ready for work--that will enable it to come through the crisis in better shape than Europe, I think,though that may not be saying much.

Crap. All this pain and crisis because people wanted to live way beyond their means and wanted government to make it possible.

Pat Buchanan on the Fed and QE2

Not much I can add to this, methinks. You'd serve yourself well by reading the whole thing.

If it is the first responsibility of the Federal Reserve to protect the dollars that Americans earn and save, is it not dereliction of duty for the Fed to pursue a policy to bleed value from those dollars? For that is what Chairman Ben Bernanke is up to with his QE2, or “quantitative easing.”

Translation: The Fed is committed to buy $600 billion in bonds from banks and pay for them by printing money that will then be deposited in those banks. The more dollars that flood into the economy, the less every one of them is worth.

Bernanke is not just risking inflation. He is inducing inflation.

[snip]

The other Chinese complaint is that they lent us trillions to buy Chinese goods and now we are robbing them by depreciating the dollar-denominated Treasury bonds they accepted in return for their goods.

Pay back your banker in Monopoly money, and you will find you are soon unable to borrow from anyone anywhere.

[snip]

The Fed...retains a confidence that it does not deserve, when one considers that, when it was created in 1913, a $20 bill could be exchanged for a $20 gold piece.

Today, it takes seventy $20 bills to buy a $20 gold piece, which means the dollar can buy in 2010 what you could get for 2 pennies in 1910. Quite a record for a central bank set up to protect the dollar.

Well, it was ostensibly set up to protect the dollar. Before you fall for that one, maybe you ought to find out what Andrew Jackson thought of the idea of a central bank.

The American Thinker on Free Trade Again

I really enjoyed this post. The author puts objections to free trade into a small, well-managed space. You really ought to go read the whole thing, but since I know you're not actually like to do so, here's a sample, with my comments interspersed:

Free trade sounds nice. Protectionism sounds ugly. Free trade sounds capitalist. Protectionism sounds Marxist. So it is worthy of note that free trade was actually viewed by Karl Marx as a strategic force, a tool with which to undermine capitalism as an economic model:

But, in general, the protective system of our day is conservative, while the free trade system is destructive. It breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution. It is in this revolutionary sense alone, gentlemen that I vote in favor of free trade [i].

Marx was not far from wrong. After nearly fifty years of progressive tariff reductions, America has suffered significant economic losses. This comes as a surprise to many Americans, for years inebriated with the free trade mantra.

This is because America does the "free" while the rest of the world does something else. China, for example, manipulates its currency and engages in persistent dumping, driving down Chinese prices and displacing domestic American industries.

Amen, and amen! There are few things that annoy me more than listening to or reading someone extol the benefits of free trade without so much as noticing the elephant in the room: free trade does not actually exist! Other nations protect their markets.

The results of such one-sided free trade have been catastrophic for America. Consider that in the last fifty years, U.S. tariffs have gone from 40 percent of the price of goods to 5 percent [iv]. Over the same period, manufacturing as a share of employment has fallen from 30 percent to 11 percent and is still falling.

I swear, as God is my witness, every free trade economist that I have read writes as though any idiot can do manufacturing, or as if it is somehow a low-class form of employment.

My ***. Look, I've done manufacturing. I rather like it. I started at one factory by running a large set of industrial sheet-metal shears, then operating a CNC laser cutter, then moving on to a machine shop where I spent my days operating CNC mills and lathes and my nights learning more about how it's done. When I was laid off and moved into other fields, I wasn't even close to being a full-fledged machinist, despite having been in the field for close to two years and going to school for most of that time. It takes time, time and experience, to be a good manufacturing employee. Oh, anybody, or almost anybody, can drive a small forklift, to be sure, but to be a machinist? A fab (fabrication) worker? A welder? A tool-and-die maker? Those guys don't just fall off the trees. When we lose manufacturing jobs, those guys eventually have to move on to something else. Their skills deteriorate, and for the most part, are lost to the country.

God forbid we should have to rebuild our manufacturing in a big-*** hurry. I'm not sure we could do it.

The late Milton Friedman was a committed free trade proponent. In a stunning dismissal of traditional economic theory, Friedman once remarked, "Who is hurt and who benefits ... U.S. consumers benefit. They get cheap TV sets or automobiles ... Should we complain about such a program of reverse foreign aid?"

That may sound good for the short-term, but, as classic economist Friedrich List wrote,

The forces of production are the tree on which wealth grows...The tree which bears the fruit is of itself of greater value than the fruit itself...The prosperity of a nation is not...greater in the proportion in which it has amassed more wealth (i.e. values of exchange), but in the proportion with which it has more developed its powers of production.

Manufacturing matters. Service jobs, the primary source of U.S. employment, depend on capital inputs from manufacturing even if said manufacturing is foreign. This presents problems should foreign manufacturing undergo shocks or disturbances that disrupt supply lines and, by extension, the sole source of employment for most Americans. Dependence on foreign manufacturing is inherently dangerous, since it is out of U.S. control.

The loss of manufacturing is not a trivial matter, and it has national security implications. It must be the ultimate oxymoron that Communist China is now the "arsenal of democracy." China is a strategic enemy and has threatened open nuclear war on America's homeland, and yet CFIUS has cleared the sale of factories to China responsible for producing the rare-earth magnets used in American laser-guided munitions. What happens if America ever needs to fight China?

Or, what if, God forbid, America ever needs to fight some country with which China is at all friendly?

Service economies can't issue ultimatums; only industrial economies can do that.

It is on this basis that free trade arguments fall apart. In a world with no nations, where national governments are not accountable for the economic and political security of their people, doctrines like "comparative advantage" would have validity.

Again, amen, and amen! As long as nations exist, trade wars will be just that--trade wars. And nations that refuse to protect their own people are derelict in their duties.

Refusing to protect the American economy when other nations are using manipulative "protectionist" devices is not competition, but economic suicide.

Free trade cannot work when some play by the rules and others do not. While competition and openness are desirable in ideal circumstances, reasonable protectionism has proven effective and is indeed necessary to preserve American economic strength.

This whole subject is one of the things that genuinely concerns me about the crop of "conservatives" that we are about to send to Congress. I flatly guarantee you that the vast majority of them know next to nothing about this subject and will back free trade most of the time because, if they have heard anything about it at all, they have heard it from the open-borders/free trade/free-movement-of-goods-and-people, libertarian-leaning economists that dominate most of the economic discussion in the Republican Party. You would not believe the number of "conservative" writers who pen such inanities as "free trade is a bedrock conservative principle," when it is no such thing. It might well be a bedrock libertarian principle, but whilst libertarianism and conservatism do have their areas of overlap, they are not the same thing. It is sheer idiocy to tell a nation that grew to greatness, in part, by protecting its markets, that doing the opposite is somehow "conservative," yet we have more than a few conservatives who will do just that. It's mind-boggling.

Lastly, I must point out--again--that yes, I'm aware that tariffs are not perfect and do have their flaws and negative effects. Personally, I favor the Fair Tax, which, like a tariff, is a consumption tax and will have much the same effect as a tariff, though it is likely to eliminate some of the negative effects associated with tariffs. However, if I can't get the Fair Tax, bringing back tariffs, coupled with a great lowering of income tax rates, would be something I completely support.

The American Thinker on Trade Policy

---

The post from which this material is quoted was published some little time ago, maybe as long as a month. The whole thing is worth reading. Not that I agree with every jot and every tittle, but it is worth your time.

---

In the trade war between the mercantilist countries and the U.S., China and the other mercantilists intervene in our markets by manipulating the price of the dollar, as compared to their currencies, so that our goods are overpriced and their goods are underpriced in world markets. In the meantime they keep our products out of their markets through various tariff and non-tariff barriers.

There are three positions on trade when a country is being punched-out by mercantilists:

1. Unilateral Free Trade. This is the Republican establishment's pacifist strategy of just taking the punches to afford an example to the rest of the world. This has been U.S. policy for three decades.
2. Protectionism. This is liberal Democrats' "industrial policy" strategy of protecting government-preferred industries with tariffs and subsidies. Pres. GW Bush did it with respect to steel and was forced by the WTO to back down. Pres. Obama did it with respect to tires produced in China and succeeded in enforcing it.
3. Balanced Trade. This is the conservative pro-free-market strategy of balancing exports with imports in order to defeat the mercantilist strategy of maximizing exports and minimizing imports. It takes advantage of a special WTO rule that lets trade deficit countries impose import duties or limitations in order to bring trade into reasonable balance. China, the largest of the mercantilist countries, only lets its people buy 27¢ of American products for every $1 we buy from them. They use a variety of tariff and non-tariff barriers to keep out American products, forcing American companies to locate their factories in China in order to sell to the growing Chinese market.

I don't think the writer has it exactly right here, but he makes the fundamental point, one that I have been making over and over again since I first began to read about this issue:

Free Trade, as envisioned by so may libertarian-leaning economists, does not actually exist. It is strictly a theoretical construct. Other countries find ways to protect their markets. Personally, I am dead set against subsidies, but tariffs--I did think it mildly amusing that the writer seemd to think "tariffs" were "bad" and "import duties" were okay, despite them being much the same thing. Shoot, I think they are exactly the same thing, and there is nothing, per se, wrong with them.

I am not unaware that tariffs/import duties come with certain problems. My personal preference would be to institute the Fair Tax, which would have much the same effect as tariffs when it comes to trade, that is, it would create a massive tax advantage to manufacturing in the United States, but it should allow us to avoid some of the problems commonly associated with tariffs. However, if I can't get the Fair Tax, enacting tariffs (accompanied by big cuts in income tax rates) would be far preferable to what the writer calls "unilateral free trade." That is just wishful thinking masquerading as a trade policy.

I Vaguely Remembered Something About Chile...

...and Star Parker, bless her soul, reminded me. Emphasis is mine:

Chile stands out as an example of achievements only possible when people commit to freedom and free markets.

It boasts the highest per capita GDP in South America and the third highest in the Western Hemisphere. Last December it became the first South American country to be invited to join the exclusive club of the world’s top industrialized nations, the OECD – Organization for Economic Cooperation and Development.

But back just a little less than 40 years ago, Chile was a typical, poor South American nation, with intrusive government and sluggish growth.

How was it transformed?

Read a short essay called “How the Power of Ideas Can Transform a Country,” by one of the leaders that made it happen – Jose Pinera.

He relates how, in the mid- 1950s, the Catholic University of Chile signed a cooperation agreement with the Department of Economics of the University of Chicago, then home to the world’s top free market economists, including the legendary Milton Friedman.

Thus began the education of a generation of young Chileans in the wisdom of economic freedom. Beginning in the late 1970s, these young leaders, with newly minted PhDs, helped implement new economic reforms in Chile protecting private property and promoting free trade.

A graph showing annual economic growth in Chile over the last hundred years looks like a hockey stick. From the early part of the twentieth century until 1980, the line is flat, averaging less than one percent growth per year. But beginning 1980, growth takes off in a vertical surge, averaging over 4% per year.

One of the most sweeping reforms, done by Jose Pinera, then Chile’s Minister of Social Security, was the transformation of Chile’s government Social Security system, identical to what we now have in the U.S., to a system of individually owned private retirement accounts. Chile’s payroll tax based government system was broken and bankrupt, as ours is today.

The reform, enacted in November 1980, restored the solvency of Chile’s retirement system and brought personal ownership and wealth to Chilean workers. After 30 years, these personal accounts have averaged annual returns of 9.2% above inflation.

Now, not that George Bush was so hot, he wasn't, God knows, but do you remember what happened when he noted the obvious, that Social Security was on the ropes, and proposed to privatize a little, just a little, of the system? Do you remember how he was demonized for that? Do you remember how that tiny bit of privatization was denounced as a "risky scheme?"

Tell it to the Chileans. Their retirement system appears to be working. Ours is in the red, so I understand, this snappin' year!

Just to drive the point home: leftist crap doesn't work. Never has, never will.

On the other hand, if a person's ever considered trying to emigrate to a country where economic freedom is not an epithet, Chile has to be considered.

Listen, All Ye Peoples...Free Trade Doesn't Actually Exist

First, let's define the term "free trade" in a nutshell for those not familiar with it: it is the policy of maintaining low or non-existent tariffs on imported goods. It is a shibboleth of mammoth proportions among certain segments of the American body politic, including, aggravatingly, a number of libertarians running under the colors of conservatism. Part of the theory involves a hoped-for utopia wherein if we lower our trade barriers, other countries lower theirs, and everybody enjoys the results of goods being produced where and by whom they can be made best and cheapest.

It doesn't work. It has never worked. Other countries always find ways to protect their markets. Pat Buchanan's column today is a short education in that fact.

How has China vaulted to the forefront in manufacturing, trade and technology? Export-driven economic nationalism. Beijing cut the value of its currency in half in 1994, doubling the price of imports, slashing the price of exports and making Chinese labor the best bargain in Asia. Foreign firms were invited to relocate their plants in China and told this was the price of access to the Chinese market. Beijing began looting these firms of technology, as she sent her sons to study in America. Industrial espionage and intellectual property theft became Chinese specialties.

And how has America fared in the new century?

One in every three manufacturing jobs we had in 2000, nearly 6 million, vanished. Some 50,000 U.S. factories shut down. We have run trade deficits totaling $5 trillion since NAFTA passed. The real wages of working Americans have been stagnant for a decade.

While China has resumed her 12 percent growth rate, the United States, with 25 million unemployed or underemployed, appears headed for a double-dip recession.

[snip]

For decades, America’s leaders have followed the Wall Street Journal ideology. We put a mythical world economy before our own economy. We put “global prosperity” before national interest. We forced our workers to compete, in their own country, against the products of foreign laborers earning a tenth of their pay. And we let in tens of millions of semi-skilled and unskilled immigrants, legal and illegal, to take the jobs of our countrymen.

And the Chinese? They put China first, second and third.

And who won the decade? And who is winning the future?

Inside the July 1 Washington Post is a small story about how the World Trade Organization finally ruled that European nations have been unfairly subsidizing Airbus — for 40 years.

While welcome, what good will it do now for scores of thousands of U.S. workers who built commercial jets for Lockheed and McDonnell Douglas, which Airbus took down, or Boeing, which was outsourcing jobs even before Airbus dethroned it as the world’s No. 1 aircraft manufacturer.

Read the whole thing. Really. You need to. I know you don't want to. Economics is booooooring, right?

But knowledge of such things is part of the price you pay to maintain your liberty and prosperity. You've avoided learning about it for decades, and look where the country is now...

Having trouble finding a job? This long-standing policy ought to be aggravating the livin' snot out of you.

"Real wages," by the way, means "adjusted for inflation." You keep hearing that aggravating line about the gap between the rich and the poor increasing? A big part of that has to do with stagnant real wages.

Channeling Greek Conservatives

I find myself thinking about what Greek conservatives (there has to be at least one, dadgummit) must have been thinking during the run-up to the current situation. I picture it more or less thusly:

Hey, listen, y'all, you gotta slow down on all this social welfare ----. It don't work. All yer gonna end up doin' is creatin' a class of people whose "work" will be to vote more money out of other people's pockets.

Y'all? Hey...

Y'all?

Y'all lis'nin'?

Look, y'all, we know y'all mean well, but, ------, this ---- ain't got no track record o' workin' the way y'all think it will. Ain't never worked, an' it ain't gonna work this time. History's against y'all. Ec'nomics is against y'all. ------, common sense is against y'all.

Um--y'all? We git the sense you ain't payin' no attention.

You're borrowing how much? Are you ------' serious?

Lissen, y'all, y'all jist ain't gittin' it. Ain't enuff money in the world to pay for all the ---- y'all is votin' y'selves.

We ain't lyin', the day's gonna come when it's all gonna crash down 'round yer ears an' yer gonna have riots in the streets over this ---- when y'all can't deliver. Gonna take yer --- years, ------' years, to recover. Look, we're tryin' to help here...

And then, just the other day...

Told ya. But y'all wouldn't listen.

Recommended: Architects of Ruin

I would love to give Architects of Ruin: How Big Government Liberals Wrecked the Global Economy and How They Will Do It Again if No One Stops Them a full review, but the more I contemplate it, the more it seems like the work of hours. The story it tells is simple enough. Alinsky-influenced radicals started out by using various forms of pressure--like, for example, getting hundreds of people to open up savings accounts with only a buck, and then coming back the next day to close those accounts, which more or less shut those banks down for real business--to induce banks to lower their lending standards so people less likely to be able to pay a mortgage could get one. Then they managed to get law passed that made it necessary for banks, before they could do things like mergers, open new branches, and so forth, to get the community to agree that they'd been properly socially conscious, which ultimately led to banks committing more funds to risky loans in order not to have their applications for such business moves stymied by activist groups. Then the Clinton administration came along and very aggressively implemented that law, going as far as to threaten perfectly good banks with all sorts of investigations and suits in order to pressure them to make such loans. Then people started packaging those bad loans into various kinds of securities and selling those. Fannie Mae and Freddie Mac were hip deep in this sort of thing. Then the Clinton administration kept bailing out Wall Street investment firms--I believe Goldman Sachs got bailed out three or four times during the Clinton administration, if I recall correctly--which encouraged more and more investment in those bad, but politically correct, socially conscious loans. Then a Republican congress failed to ride roughshod over Barney Frank and Maxine Waters, which they certainly should have done, but apparently they were afraid of being called RAAAAAAAAAcists, to get those laws repealed, and the whole mess festered until it all imploded and threatened to take down the world's financial system with it.

Like I say, the story itself is pretty simple. But I have rarely run across--how shall I put this?--so fact-dense a book. If you pull quotes from the book, you are almost inevitably going to find that you need to quote something else explaining some term or some bit of history. It's hard to review a book like that in any detail, so I'm going to just point out one thing and give you one quote.

Ever since President Obama--and yes, this book will give you some interesting information on just what being a shakedown artist community organizer meant to him--started aggressively pushing the statist takeover of the health care system that he calls "reform," I can't tell you the number of people who--blogospherically speaking, nobody says this sort of thing to my face, at least not yet--give an exasperated shrug of their shoulders, place their hands on their hips, and sigh, and say, "I just don't see what you could possibly have against us helping poor people with their medical care! I mean, wouldn't that be tragic if we did that!" They act as if the simple fact that I do understand what would be tragic about that means I am some kind of amoral monster.

Well, the people that started the problems that caused that financial meltdown were prone to the same sort of thinking. Many of them started out saying, "I just don't see what you could possibly have against us helping poor people get mortgages! I mean, wouldn't that be tragic if we did that!"

Well, it did turn out to be tragic--ironically most hurting, as liberal social and financial policies usually do, the very people that were supposed to be helped. And the health care fiasco, which, I assure you, is not dead, but only sleeping, will do the same thing. So will "green energy." If you have not previously understood how this sort of thing works, Architects of Ruin will go a long way to helping you understand. It's only 184 pages; you can almost certainly check it out of your local library.

Go get it. Your time won't be wasted.

The quote? It's this, which I wish everyone, conservative or liberal, would take to heart, for too few understand it:

It's important here to draw a critical distinction: there is an enormous difference between being probusiness and pro-free market. The former position, which the Clinton administration embraced, is concerned primarily with the health of large businesses, in this case the big financial houses. Being pro-free market means being concerned with the health of the capitalist system as a whole and its underlying principles of profit and loss, risk and reward.

Too few putative conservatives understand this, too. Too many of them assume that what's good for business--and they often mean corporate giants--is good for America. What they often fail to appreciate is that there is more than one way to get, or to stay, big. A business may get or stay big by efficiently serving the needs or desires of many people. They may also--sometimes--get or--more often--stay big by working to rig the system by actually trying to make their field more regulated (so as to freeze out smaller competitors) or rigging the tax system, or, as in the case of some of these big financial houses, accepting a horrid alliance with government that leads to foolish risks being taken on the assumption that government will bail them out when the risks prove fatal.

That's not capitalism anymore.

From Architects of Ruin: How Big Government Liberals Wrecked the Global Economy--and How They Will Do It Again if No One Stops Them

I checked Architects of Ruin: How Big Government Liberals Wrecked the Global Economy--and How They Will Do It Again If No One Stops Them out from the library a few days ago. I'd love to reproduce the whole book here, but, copyright violations aside, I just haven't got the time. Those unfamiliar with a more conservative analysis of the mortgage-related financial troubles we've experienced over the last two years would do well to start with this column by Thomas Sowell. That will give you a little more background so that you can better appreciate this material from the introduction to Architects of Ruin.

All of this has led Americans to wonder: What happened? How the heck did we get here? Whose fault is it? Who do we blame? What mistakes were made? How can we get out of this mess?

There has been much debate about this question, but the ultimate source of the problem, it is generally agreed--the triggering event that caused the chain of other dominoes to fall--was the collapse of the subprime mortgage market in the United States. Banks and mortgage companies had made trillions of dollars in loans to individuals with terrible credit. They signed loans with illegal immigrants, offered so-called NINJA (No Income, No Job, No Assets) mortgages, and allowed people with bad credit to leverage their money. When the loans began to fail in large numbers, a new term entered our national vocabulary: toxic assets. And so the crisis began.

Still, an underlying mystery remained: What explains this perplexing behavior? Were they nuts? Did they simply take leave of their senses?

The conventional narrative was written in the first days of the collapse. And as usual, the loudest, most obstreperous voices seemed to prevail. "The private sector got us into this mess," Congressman Barney Frank indignantly declared as events began to unfold; "the government has to get us out of it."

According to this view, deregulation of the banking industry had encouraged the rise of "predatory lenders" who had pushed home loans on people who couldn't afford them. Those loans were then sold to unscrupulous Wall Street financiers, who repackaged them in the form of mortgage-backed securities. The securities were sold in turn to mutual funds, pension funds, and various foreign investors. but their value was grossly overstated and ultimately rested on the faulty assumption that housing prices would keep rising indefinitely. Once again, the supposed result of irresponsible deregulation of financial markets.

This explanation, coming from Frank, had the obvious benefit of pinning the collapse on his political enemies, the Republicans, while completely exonerating any Democrat (such as himself) who had responsibility for overseeing Fannie Mae and Freddie Mac, the government-backed lending institutions that traditionally acted as a backstop to the housing market. It is not an accident that Frank has been in the forefront of attempts to minimize the crisis or (when it could no longer be denied) deflect the blame to his opponents. When some conservatives pointed out that Fannie and Freddie had abandoned their sober mission of stabilizing the middle-class housing market in favor of a misguided crusade to expand minority home ownership by forcing banks to lower their lending standards, Frank and his allies brazenly shouted them down.

[snip]

...the rush to heavy government intervention, new programs, and massive spending was now treated as inevitable. It was the 1930s all over again, and Obama was the new FDR. Free-market economics had been tried and found wanting. Obama referred to its theories dismissively as "failed ideas" and refused to entertain any talk of tax cuts or (God forbid) "doing nothing" in response. To the contrary, the crisis proved that it was time to return to stronger government controls. Anyone standing in the way was seen as part of the political fringe, a die-hard ideologue on par with a Holocaust denier.

This is the self-serving fairy tale propounded by Barack Obama and his allies in Congress and the press. The actual truth about what happened was a much more interesting and complicated--and incriminating--story, too complex to be conveyed in a media sound bite.

[snip]

It was a massive social engineering project, a grand generational enterprise, thirty years in the making, carried out by an ad hoc alliance of radical activists, labor unions, liberal politicians, federal bureaucrats, and Wall Street financial titans who sought to make getting a mortgage and owning a home a civil right.

[snip]

...the heart of the story is the role that radical activists and liberal politicians in Washington played in trying to harness the U.S. financial system to advance their socialist agenda. Properly understood, it is a cautionary tale about the perils of trying to use the power of the state to do good, to help people by giving them a leg up, to "level the playing field." Ironically, such efforts have usually ended up doing the most harm to the very people they were intended to help. The result in this case was no different.

[snip]

...two additional facts should be very disturbing to American taxpayers.

First, the same people who caused the debacle have now been tasked with cleaning it up. The Obama administration is full of Clinton retreads, and they show no signs of having learned anything from the damage they have wrought.

[snip]

Second, the same cast of characters is busy leveraging state power to manipulate capitalism for their next great social cause: the so-called green economy. Just as occurred in the subprime mortgage crisis, federal authorities and environmental activists are working in tandem, browbeating energy companies and the automotive industry, using the power of the state to compell the creation of carbon-trading schemes and the forced development of green technologies that are simply not profitable. This approach essentially co-opts the regulatory power of the government to create false incentives to invest in green technologies.

The Silicon Valley investor Eric Janszen (who according to the New York Times accurately predicted the dot-com bubble) says that the hype and activism behind green technology will create enough "fictitious value" that the coming green tech bubble will reach an astonishing $20 trillion...before it bursts. In the meantime, environmental activists and their political allies stand to profit handsomely: former Vice President Al Gore has already netted $100 million in profits from green economy schemes.

Plus, of course, the green agenda offers plenty of scope for good old-fashioned political self-dealing. See, for example, this story from the Washington Times of July 15, 2009: "Rep. Ed Perlmutter of Colorado inserted a provision into the recently passed House climate change bill that would drum up business for 'green' banks, such as the one he has invested in and his family and a political donor helped found in San Francisco...Mr. Perlmutter, a two-term Democrat, has two investments in the 3-year old New Resource Bank, which calls itself the nation's first green bank."

Needless to say, there will be much more to come. This is just the tip of the iceberg.

We have not nearly seen the end of liberal activists trying to manipulate the capitalist system for their own profit and social goals. Unless they are stopped, the rest of us are going to pay the price.

Time and again, since I was but a wee sprout, I have observed that a remarkable amount of the time, politicians get elected by promising to "fix" problems that they have caused. They use the massive power of government to fix some perceived injustice, never dreaming--they haven't the training or background reading to understand the subject, all too frequently--that they are going to cause more problems than they solve, and then, utterly unable to perceive that they have screwed up, blame everyone else for the resulting chaos and try yet again to "fix" the problem.

The story is told of a baseball manager who, unsatisfied with the play of his left fielder, benches him and plays the position himself in the critical last inning. After muffing an easy pop fly, the manager heads back into the dugout and announces to the left fielder, "Son, you got left field so messed up, can't nobody play it."

Right now, more than seventy years of government interference in the natural activity of the marketplace has so fouled up the field that can't nobody play it--and yet if you offer the obvious solution: let the air out of the balloon, get the government off the field--you will be shouted down as the obvious lunatic.

Great Jefferson Quote

We must not let our rulers load us with perpetual debt. We must make our election between economy and liberty or profusion and servitude. If we run into such debt, as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our calling and our creeds...[we will] have no time to think, no means of calling our miss-managers to account but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers... And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for[ another]... till the bulk of society is reduced to be mere automatons of misery... And the fore-horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression.

What I fear most of all is that we will see spiraling inflation as a result of trying to print enough worthless money to pay off all the incredible debt we are piling up--and yes, the Bush administration and Republican congress spent way, way too much, but the Obama administration and Democratic congress are succeeding in making even the Bushies look frugal--and the resulting economic and social pressures, added onto the stack of problems trending toward balkanization, will ultimately succeed in breaking the country apart.

No, obviously, I don't expect that to happen next week. But I am concerned that it might happen within my lifetime.

Think it can't happen? I suspect that you have no idea how bad these things can get. At one point before Napoleon took power in France, the situation was so bad that the laundry women were calling for the death penalty for people who sold soap at too high a price. Of course, the escalating prices were driven by an enormous increase in velocity, the speed at which money changes hands, which was driven by France's horrible monetary policies--policies from which the Obama administration and the Democratic Party seem to have learned nothing.

Interested in the concept of velocity? You probably haven't heard of that one before. Most people haven't. Try reading this little book.

The Minimum Wage in Small Words

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If you didn't already know, the minimum wage is scheduled to go up before the end of this month. That being the case, I thought it not inappropriate to resurrect this old post from a previous blogging incarnation. I have edited it a little bit to take unnecessary snark out of it, though I have no doubt there will be some who still find certain elements of it offensive. Also, I have not checked the links to see if they still work. If they have gone dead over time, I apologize, but I really haven't the time to hunt the material down again. And of course, some of the information in the links, like family income figures, may be out of date. It matters not. The material is still illustrative.

---

It drives me 'round the bend when I hear--from people who honestly ought to know better, in fact, I am convinced, do know better, which makes it all the worse--that they want to raise the minimum wage to help the poor. To help those people struggling so hard to raise families on the minimum wage. My reaction is very basic, almost visceral: bullski. Raising the minimum wage does not help the poor. It is only a way of rewarding the political loyalty of the unions.

Many times, it seems to me that people who pontificate about how we must raise the minimum wage have scarcely bothered to look into the actual facts of the matter. I don't think they care to. It is so much easier to sound enlightened and charitable when you can make up your mind absent the facts! It is so much easier to convince yourself that you want to help the poor when you don't examine the results of what you propose. As Rush has said so often, there are too many people who want their policies to be judged on the good intentions behind them rather than on their results. Such is the case when it comes to the minimum wage. Let me explain:

1) First, it is an utter canard that any significant quantity of people are trying to raise families on the minimum wage. I'd suggest that this should be obvious to anyone who's actually worked with minimum-wage workers for any length of time (I spent about fourteen years hiring and working with them), as you can see with your own two eyeballs, over and over again, that the overwhelming majority of your co-workers are young, usually in school, or working that job to supplement other household income. In other words, it is very misleading--a totally false picture, really--to suggest that very many families are dependent on the wages of a minimum-wage worker. It is a myth, something created by poverty-pimps to advance their political agenda.

I'll condense some material that explains this in more detail. You can find the full article, together with the attendant notes and tables, here. Any emphasis is mine.

Data from the Department of Labor show that most minimum wage-earners are young, part-time workers and that relatively few live below the poverty line. A minimum wage hike, then, is more a raise for suburban teenagers than for the working poor.

...Using another measure of earnings that includes tips, 1.3 million Americans earn the minimum wage or less per hour, or 1.1 percent of the total working population.

...Most workers who earn the minimum wage or less fall into two categories: young workers, usually in school, and older workers who have left school. The majority of minimum wage-earners fall into the first category:

53 percent of those earning $5.15 or less per hour are between the ages of 16 and 24...Minimum wage workers under 25 are typically not their family’s sole breadwinner. Rather, they live in middle-class households that do not rely on their earnings. For the most part, they have not finished their schooling and are working part-time jobs. These workers represent the largest group that would directly benefit from a higher minimum wage.

Here are a few important characteristics of the teenagers and young adults who earn the minimum wage or less:

* Fully 67 percent work part-time jobs.
* Their average family income is $64,000 per year.
* Only 17 percent live at or below the poverty line, while 65 percent enjoy family incomes over twice the poverty line.
* They have less education than the population as a whole. Fully 36 percent have not completed high school, and 21 percent have only a high school degree. Another 37 percent have taken college courses but do not yet have a bachelor’s degree; many of these are college students working part-time while in school...

Even the vast majority of older adults who earn the minimum wage live above the poverty line. They have an average family income of $33,600 a year, well above the poverty line of $19,806 per year for a family of four....

Here are a few important characteristics of the 47 percent of minimum wage-earners who are over the age of 24:

* More than half—56 percent—work part-time jobs.
* They have an average family income of $33,606 per year.
* Just 23 percent live in poverty, while 45 percent have incomes over twice the poverty line...

Many advocates of higher minimum wages argue that the minimum wage needs to rise to help low-income single parents. However, minimum wage workers do not fit this stereotype more than the population as a whole. Just 6.1 percent of minimum wage workers over the age of 24 are single parents working full-time, compared to 6.3 percent of all hourly workers...while some minimum wage-earners do live below the poverty line, these workers are far from representative. Only one in five minimum wage-earners lives in a family that earns less than the poverty line. Three-fifths work part-time, and a majority are under 25 years old.

Minimum wage-earners’ average family income is almost $50,000 per year. Very few are single parents working full-time to support their families—no more than in the population as a whole. It is not surprising, then, that studies show that higher minimum wages do not reduce poverty rates.

In other, simpler words, then: raising the minimum wage is not something being advanced to help people out of poverty.

Those advancing this idea know the facts full well. They are simply demagoguing the issue for the sake of political power, or, sometimes, as I have mentioned from time to time, trying to punish the rich. Sad to say, there are people who are more interested in misguided vengeance than they are in protecting genuine unalienable rights or in actual results.

2) One does not wrench with the Law of Supply and Demand lightly. Good grief, I cannot believe that I'm actually having to explain this. I wouldn't have thought that one could escape even a government school without understanding this. And God knows, if it's a private school that was responsible, a refund is certainly in order. But I digress. To reiterate: one does not wrench with the Law of Supply and Demand lightly. Doing so tends to result either in shortages or in unemployment--sometimes both. In the case of the minimum wage, what actually happens is that the less capable, the marginally employable, those who have the hardest time finding work, tend either not to find work or to be thrown out of work when the minimum wage goes up. This, obviously, is devastating to those people, making it harder than ever for them to climb out of poverty. In the following material, emphasis is again mine.

...raising the minimum wage is not necessary for the official working poor to increase their income. Between 1998 and 2002 median wage growth for minimum wage employees was more than five times that for those earning above the minimum wage. Nearly two-thirds of all minimum wage employees who continue employment are earning more than the minimum wage within a year. More than 97% of all employees in the United States move beyond the minimum wage by age 30. Those who do not progress to a wage above the minimum either lack the skills or motivations for them to be attractive hires at a higher rate of pay. The key to increasing one's income is not raising the minimum wage, but remaining employed. This is one reason why the minimum wage can actually be devastating to the working poor. The minimum wage tends to hurt the lowest skilled workers by making them less employable...An increase in the minimum wage will not benefit all low income workers. It will help only some of them at the expense of others. Why is this so? Well, economic law tells us that if the price of any good increases, people will want to buy less. This is true for gasoline. It is true for apples. It is true for iPods. It is also true for labor services.

Even the "living wage" zealots at ACORN recognize this. In 1995 ACORN sued the state of California to get itself declared exempt from California labor law, so it would not have to pay the minimum wage to its own employees. In its brief submitted to the Court of Appeal, ACORN argued, "The more that ACORN must pay each individual outreach worker—either because of minimum wage or overtime requirements—the fewer outreach workers it will be able to hire."..Employers cannot simply pay any old wage that makes workers happy. Businesses are constrained by the value that the workers add to the firm. If a worker's contribution to the firm is such that his output brings in revenue of $5 for every hour of his output, the business cannot afford to pay him any more than that and still break even. If he is forced to pay this employee $7 an hour, he is losing $2 an hour every hour that worker is employed. A minimum wage increase provides an incentive to hand him the pink slip.

That worker will soon be on his way out the door, most likely cursing his employer instead of the government mandated minimum wage. The direct result of a minimum wage above the market wage is mass unemployment for relatively less skilled workers. The number of workers who want to work increases, but the quantity of laborers that employers can afford to hire falls. The result is more people wanting to work at the minimum wage than can get hired. In other words, we get unemployment.

Again, I've seen this with mine own li'l peepers, my very own eyeballs. In the restaurant business, the manager is given a budget, numbers he is expected to hit. He has only X percent of his restaurant's income that he can spend on labor and still turn a profit. When the minimum wage goes up, two things tend to happen: there is an across-the-board price increase, and the manager becomes much more selective about whom he will employ. His labor budget does not go up appreciably (if at all). He has X number of dollars to spend, now divided by--for example--7 dollars an hour instead of 5. What will happen? Is it not obvious? Anyone who's worked in these businesses and paid attention knows what will happen. Fewer people will be employed, and those will be the absolute best the manager can find. The marginally employable are suddenly out the door! So much for "helping" the poor!

Data on this subject is not hard to come by. There is much more available than I have provided here. To sum up: there are actually very few people trying to support families on the minimum wage. For those people, the whole key to increasing their incomes is to stay employed. Raising the minimum wage makes it harder for those people to stay employed. Therefore, simply stated, raising the minimum wage is inimical to their interests. Again, those who pushed for an increase in the minimum wage in the House and Senate know this. Well, I suppose that they might not know this, but that's hardly flattering to them. Again, they were simply demagoguing the issue, playing your heartstrings like a fiddle in order to stay in office. They do not give a rat's patoot about the poor.

From "Dining on a Dime"

I am trying to pay off my non-mortgage debt (very foolishly incurred, I will readily admit) as quickly as I can, and was perusing a book called Dining on a Dime. Most of it wasn't all that big a deal; you can find much the same advice in other well-known books on that theme, like The Compleat Tightwad Gazette. But this statement really arrested my attention:

We managed to pay off more than $20, 000 in debt over a period of five years on an average income of $22, 000. This book tells you how we got out of debt by saving on our grocery bills.

Wow, I thought, That's impressive. Her measures turned out, in some respects, to be draconian to a point that I would not attempt, for health reasons, to duplicate (in my opinion, much of her advice amounted to "replace protein almost entirely with starch"), but still--that's impressive. Then there was this little anecdote:

I was asked this question by a reader: "Where do I start to get out of debt?" After telling me of her huge credit card debt and how they eat out almost every night, the lady took a deep breath and said, "How do I save on laundry detergent and cleaning supplies?" Sometimes we can't see the forest for the trees. Even though saving money on cleaning supplies does help and should be done, that usually isn't where the biggest problem with the debt lies. This woman never once thought to ask me how to stop eating out so much. Most people don't want to face the real causes of their debt because their biggest problems are the things they like the most. Going out to eat is one of the top five causes of debt.

All I could say was, "Amen." Going out to eat, or picking up pizza, or convenience foods, is hugely expensive. It wasn't until I really started thinking about it that I began to understand just how much of our monthly income was going to replace planning and cooking and organization with take-out and/or convenience foods.

It's a bundle. And what's worse, most of that stuff is bad for you. Bad enough to blow money on overpriced food, but for it to turn around and tear up your health adds insult to injury.

But changing habits is difficult. For one thing, it requires admitting that you've been doing things wrong for a while. So, we're working on it.

Capitalists, Capitalism

The thing to remember about capitalism is that it's not really a system or planned economy, managed by or under the direction of government. Instead, capitalism is simply what happens when the people have property rights--especially documented property rights--and liberty.

You don't have to hunt far for recognition of man's right to own property; it's right there in the Ten Commandments:

You shall not steal.

And then, just a tiny bit later:

You shall not covet your neighbor’s house. You shall not covet your neighbor’s wife, nor his male servant, nor his female servant, nor his ox, nor his donkey, nor anything that belongs to your neighbor.

These commands presuppose the right to own property, as though it were so obvious a thing that only a great fool might fail to recognize it. It is not possible to steal what no one owns. The command not to steal necessarily recognizes that someone owns something and that God
does not want that ownership violated. More, He doesn't even want you to think about violating it! There are many other verses that recognize this; Jesus spoke more than once about thieves and robbers, the existence of which, again, presupposes the right to own property.

Man has an inalienable right from God to own property.

The rights to own property and to liberty are recognized--not given, the Constitution protects rights, it doesn't grant or give them--in the Fifth Amendment to the Constitution:

No person shall be...deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use without just compensation.

It doesn't say anywhere in the Constitution that the United States is a capitalist country. It doesn't have to. It is the government's protection of your rights to property and liberty that makes it a capitalist country.

Socialism is a government-directed economic system; in order to direct outcomes, a government necessarily places limits on rights to property and liberty. It may readily be seen, then, that as a country becomes more socialistic and less capitalistic, it necessarily becomes less free. Capitalism is the economics of freedom, the freedom of men and women to work and to determine what to do with the fruits of their labor themselves, the freedom not to have their assets plundered, the freedom to crawl up out of poverty without having to have the good fortune of being born into a privileged class or to lick the hands of those above them. Properly instituted, it is the most egalitarian of economic systems, and the only one--the only one!--that demonstrably produces a real increase in the standard of living for multitudes of people.

Mark it well: those who oppose capitalism either do not understand it, or have designs on your liberty. In neither case should their counsel be listened to.

Find more in The Politically Incorrect Guide to Capitalism, or, if you're feeling more ambitious, The Wealth of Nations.

Book Review: The Mystery of Capital

It was probably a couple of years ago--word, how time flies!--that a particularly well-known radio talk-show host recommended Hernando de Soto's The Mystery of Capital on his show. I don't recall where, but I heard of the book from at least one other source in the same general time frame, and eventually, I got 'round to borrowing it from the library. I have since purchased a copy for my personal library and I am confident that I will refer to it with some frequency in the coming years.

The book is subtitled "Why Capitalism Triumphs in the West and Fails Everywhere Else"--which may seem a rather dismal assessment at first glance, but when you think about it, where, except in the West, and those countries in the East, such as Japan, that have made a deliberate effort to mimic certain aspects of the West, has capitalism been a roaring success? De Soto notes that capitalism's failure to thrive outside the West is often put down to flaws in non-Western peoples. As a matter of fact, it was De Soto's discussion of this in the first chapter that served as the first of several "light-bulb" moments. Emphasis, where present, is mine:

When these remedies fail, Westerners all too often respond not by questioning the adequacy of the remedies but by blamingThird World peoples for their lack of entrepreneurial spirit or market orientation. If they have failed to prosper despite all the excellent advice, it is because something is the matter with them: They missed the Protestant Reformation, or they are crippled by the disabling legacy of colonial Europe, or their IQ's are too low. But the suggestion that it is culture that explains the success of such diverse places as Japan, Switzerland, and California, and culture again that explains the relative poverty of such diverse places as China, Estonia, and Baja California, is worse than inhumane; it is unconvincing. The disparity of wealth between the West and the rest of the world is far too great to be explained by culture alone. Most people want the fruits of capital--so much so that many, from the children of Sanchez to Kruschev's son, are flocking to Western nations.

...But if people in countries making the transition to capitalism are not pitiful beggars, are not helplessly trapped in obsolete ways, and are not the uncritical prisoners of dysfunctional cultures, what is it that prevents capitalism from delivering to them the same wealth it has delivered to the West? Why does capitalism thrive only in the West, as if enclosed in a bell jar?

Nor is capitalism's failure in non-Western countries due to lack of assets and resources. De Soto notes, still in the first chapter:

...I will also show...that most of the poor already possess the assets they need to make a success of capitalism. Even in the poorest countries, the poor save. The value of savings among the poor is, in fact, immense--forty times all the foreign aid received throughout the world since 1945. In Egypt, for instance, the wealth that the poor have accumulated is worth fifty-five times as much as the sum of all direct foreign investment ever recorded there, including the Suez Canal and the Aswan Dam. In Haiti, the poorest nation in Latin America, the total assets of the poor are more than one hundred fifty times greater than all the foreign investment received since Haiti's independence from France in 1804. If the United States were to hike its foreign-aid budget to the level recommended by the United Nations--0.7 percent of national income--it would take the richest country on earth more than 150 years to transfer to the world's poor resources equal to those they already possess.

It is important to note that De Soto is not pulling these figures out of thin air; he and his team spent several years researching them, and traveling much of the world to verify them. Indeed, due to the poor property documentation discussed extensively in the book, extensive travel and personal, on-the-ground investigation were essential to gaining the knowledge they sought.

Read De Soto's last paragraph again. It was fascinating to me. All that money--yet the people in those countries have not a fraction of the material comforts and provision we have in this country. Why? De Soto answers:

...but they hold these resources in defective forms: houses built on land whose ownership rights are not adequately recorded, unincorporated businesses with undefined liability, industries located where financiers and investors cannot see them. Because the rights to these possessions are not adequately documented, these assets cannot readily be turned into capital, cannot be traded outside of narrow local circles where people know and trust each other, cannot be used as collateral for a loan, and cannot be used as a share against an investment.

In the West, by contrast, every parcel of land, every building, every piece of equipment, or store of inventories is represented in a property document that is the visible sign of a vast hidden process that connects all these assets to the rest of the economy. Thanks to this representational process, assets can lead an invisible, parallel life alongside their material existence. They can be used as collateral for credit. The single most important source of funds for new businesses in the United States is a mortgage on the entrepreneur's house. These assets can also provide a link to the owner's credit history, an accountable address for the collection of debts and taxes, the basis for the creation of reliable and universal public utilities, and a foundation for the creation of securities (like mortgage-backed bonds) that can then be rediscounted and sold in secondary markets. By this process the West injects life into assets and makes them generate capital.

Third World and former communist nations do not have this representational process.

In chapter two, De Soto continues:

Imagine a country where nobody can identify who owns what, addresses cannot be easily verified, people cannot be made to pay their debts, resources cannot conveniently be turned into money, ownership cannot be divided into shares, descriptions of assets are not standardized and cannot be easily compared, and the rules that govern property vary from neighborhood to neighborhood or even from street to street. You have just put yourself into the life of a developing country or former communist nation; more precisely, you have imagined life for 80 percent of its population, which is marked off as sharply from its Westernized elite as black and white South Africans were once separated by apartheid.

I had never considered the problem in quite this way before. Maybe you haven't, either. As De Soto explains, the "representational process" that so greatly enhances Western concepts of property grew up around us gradually. We tend not to notice its importance to us and how the lack of it in other countries inhibits their success because it is part of our environment. It simply tends not to occur to us. But as soon as De Soto started outlining the problem, I thought, Of course. It only makes sense. These people have money--at least some--but no capital! How on earth could we expect capitalism to work for them?

Of particular interest is chapter five, The Missing Lessons of U.S. History. De Soto "camps out" in the United States for a while, describing how at various points the United States resembled Third World and former communist countries in the way it dealt with formal property concepts.

Also very interesting are chapters four and six, which deal with how to change the situation in Third World and former communist countries so that capitalism--which is, really, pretty much the only game in town, the only economic system capable of generating wealth for a great many people--can succeed there. De Soto is not drawing upon abstractions at this point: he is a significant advisor to the Peruvian government and his ideas are already bearing much fruit there.

While I can't totally dismiss the role that culture plays in economics--I can't help but think that culture has to underly respect for the "representational process"--there is no denying that De Soto has hit on something. Capitalism will not thrive around the world until the "representational process", until "formal property", is available to rich and poor alike everywhere, and I do not think truly effective foreign policy can be made without taking De Soto's concepts into account.

I recommend this book highly; it will greatly enhance your understanding of the problems the world's poor face, and how we can effectively help.

Also, I couldn't help but note how foundational formal property concepts are to successful capitalism, and how we damage those concepts--as in the infamous Kelo decision--at great risk to our continued prosperity and ability to help others.