Do you think making the moral case for capitalism could be a very important thing to do? My impression is that the case for it seems to have been lost among the young, which could have important effects down the line
I am a bit split on the data from polling younger people. Quite a bit of that data shows that they prefer the word/label “socialism” to “capitalism”. If you ask them whether socialism is better than capitalism, they say yes. But if you give them more specific things, such as asking whether the government should own all productive property or whether we should have markets, they tend to reject socialism in favor of capitalism, though not by a huge amount. Also, you see the memes going around where people use “socialism” to refer not to socialism, but to government-funded public goods and welfare policies.
Still, if people are confused, then demagogues can take advantage of them or they might end up voting for the wrong things.
I think the case for capitalism must be made not merely because some form of it works better than the alternatives, but because the empirics on immigration show that open borders with global market economies is the best and most effective solution to world poverty. Immigration beats both intra- and international redistribution in terms of its distributional and welfare effects.
However, socialism and open borders don’t mix well, because once you turn a society into a giant workers’ co-op, adding new members always comes at the expense of the current members.
However, socialism and open borders don’t mix well, because once you turn a society into a giant workers’ co-op, adding new members always comes at the expense of the current members.
Why should that be the case? Wealth and income of this giant worker’s co-op are not fixed, and why shouldn’t they scale with the number of members?
Let’s say you have a 10 person workers’ co-op which shares income equally. Each person now gets paid 1/10th the firm’s profit. Thanks to diminishing marginal returns, if you add an 11th worker who is otherwise identical, they will contribute gross revenue/have a marginal product of labor that is less than the previous added worker’s. When you divide the income by 11, everyone will make less.
This is a well-known problem in the econ lit. Of course, in real life, workers are not homogenous, but the point remains that in general you get diminishing returns by adding workers.
As a toy illustration, suppose that there two countries, Richland and Poorland. Everyone in Richland makes $100,000/year. Everyone in Poorland makes $2,000/year. Suppose, however, that if half of the Poorlanders move to Richland, their income will up by a factor of 15, while domestic Richlanders’ income will increase by 10%. Thus, imagine that after mass immigration, Richland has 50,000 Poorland immigrants now making $30,000/year, plus it’s 100,000 native workers now each make $110,000 a year. From a humanitarian and egalitarian standpoint, this is wonderful. Further, this isn’t merely a toy example; these are the kind of income effects we actually see with immigration in capitalist economies.
But this same miraculous growth looks far less sexy when it occurs in a democratic socialist society with equalized incomes. Imagine that democratic socialist Richland is considering whether to allowing 100,000 Poorlanders to immigrate. Imagine they recognize that Poorlander immigrants will each directly contribute about $30,000 a year to Richland economy, and further, thanks to complementarity effects, will induce the domestic Richlanders to contribute $110,000 rather than $100,000. But here the Richlanders might yet want to keep the Poorlanders out. After all, when the equalize income ((100,000 X $30,000 + 100,000 X $110,000)/200,000), average incomes fall to $70,000. Once we require equality, the Richlanders see the immigrants as causing each of them to suffer a 30% loss of income. While for capitalist Richland, the immigrants were a boon, for socialist Richland, they are a bust. Unless we imagine our socialist Richlanders are extremely and unrealistically altruistic, they will want to keep the Poorlanders out.
Things get worse once we consider how real-world ethnic and nationalist prejudices will affect things. In fact, people are biased against foreigners, especially foreigners of a different race or religion. However, the beauty of capitalism is that it makes employers’ pay to indulge their prejudices; it literally comes out of their pockets. Thus, it’s not surprising, despite what some journalists and academics claim, that when economists try to measure to what degree wage differentials are the result of employer discrimination, they find that at most it’s quite tiny.[1]
[1] Goldin and Rouse 2000; Betrand, Goldin, and Katz 2010; Bolotnyy and Emanuel 2018.
Let’s say you have a 10 person workers’ co-op which shares income equally. Each person now gets paid 1/10th the firm’s profit. Thanks to diminishing marginal returns, if you add an 11th worker who is otherwise identical, they will contribute gross revenue/have a marginal product of labor that is less than the previous added worker’s. When you divide the income by 11, everyone will make less.
This is a well-known problem in the econ lit. Of course, in real life, workers are not homogenous, but the point remains that in general you get diminishing returns by adding workers.
This might be a dumb question, but wouldn’t this theory imply that smaller companies are on average more efficient than larger companies (holding worker quality constant)? And isn’t the very existence of pretty large companies some degree of evidence against this?
The point he is making is about worker cooperatives, rather than firms in general. A widely recognised problem with worker cooperatives is that there are disincentives to scale because adding more workers is a cost to the existing coop owners. So, the point doesn’t apply to privately owned companies because adding workers do not get a share of the business
As presented, the efficiency claims seem to be agnostic about firm structure, while the worker coop-specific parts are about credit/profit allocation. (As usual, I could of course be misreading)
Yeah, I think this is an important point to make: There are lots of instances where adding more workers allows specialization. When it comes to literally an entire economy, though, things can get weird/complicated—which is why I think there are much better ways to explain why welfare-heavy states and open borders don’t mix well than by appealing to diminishing marginal returns to labor.
Your Richland-Poorland example is indeed illustrative, thanks. However, it seems the problem caused by immigration does not only occur when incomes in Richland were equalized before the immigration, but rather they also occur when people care about the degree of income inequality in their own country. So if Richlanders are free-market fans, but they do not like domestic inequality, they will want to keep the Poorlanders out.
The moral case for capitalism is lost...capitalism is unsustainable and leads to massive suffering. If EAs actually care about longtermism as they claim to, they ought to start seriously planning large scale economic transition.
I think almost all critiques of capitalism rest on a failure to understand what capitalism actually is. Capitalism is private ownership of the means of production. Socialism is public or common ownership of the means of production. Capitalism is not greed. Socialism is not benevolence and love. They are systems of ownership. Once you see this, a lot of criticisms of capitalism melt away.
If you think capitalism and socialism affect the social ethos then that is true, but you have to actually have to look at whether people are nicer in socialist countries like Cuba, Venezuela, the USSR, Vietnam in the 1980s and so on. It doesn’t seem like they are.
When you’re talking about sustainability, you also have to look at the real environmental performance of these different systems of ownership. It is sort of true that capitalism drives climate change because it drives economic growth. But recognising that is inconsistent with your claim that it leads to massive suffering (which I assume is human suffering). But lots of socialist countries have a terrible environment record. and many capitalist countries and social democracies (which are capitalist with redistribution) have very good environmental records—eg the UK, Germany, Sweden, Switzerland, France all now have low and dropping emissions per head.
To say that the only way to solve climate change is to take the economy into state hands is on the face of it a huge claim that doesn’t seem very plausible. State oil companies don’t seem to care very much about sustainability, for example. State-controlled projects can be directed to any end whether good or bad for the environment. Indeed, having monopolistic control of fossil fuels seems likely to do more harm. The UK used to have a nationalised state-controlled coal board that kept coal mines open long after they were economically viable. Thatcher destroyed this via privatisation. in that case capitalism was clearly good for the environment and socialism bad.
I’m surprised this comment was downvoted so much. It doesn’t seem very nuanced, but here’s obviously a lot going wrong with modern capitalism. While free markets have historically been a key driver of the decline of global poverty (see e.g. this and this), I don’t think it’s wrong to say that longtermists should be thinking about large scale economic transition (though should most likely still involve free markets).
It packs powerful claims that really need to be unpacked (“unsustainable...massive suffering”), with a backhand against the community (“actually care...claim to”) with extraordinary, vague demands (“large economic transition”), all in a single sentence.
It’s hard to be generous, since it’s so vague. If you tried to riff some “steelman” off it, you could work in almost any argument critical of capitalism or even EA in general, which isn’t a good sign.
The forum guidelines suggest I downvote comments when I dislike the effect they have on a conversation. One of the examples the guidelines give is when a comment contains an error or bad reasoning. While I think the reasoning in Ruth’s comment is fine, I think the claim that capitalism is unsustainable and causes “massive suffering” is an error. Nor is the claim backed up by any links to supporting evidence that might change my mind. The most likely effect of ruth_schlenker’s comment is to distract from Halstead’s original comment and inflame the discussion, i.e. have a negative effect on the conversation.
Capitalism could be worse than some alternative due to factory farming, climate change or various other global catastrophic risks, although we really need to consider specific alternatives. So far, I think it’s pretty clear that what we’ve been doing has been unsustainable, but that doesn’t mean replacing capitalism is better than reforming or regulating it, and technology does often address problems.
I think it’s pretty clear that what we’ve been doing has been unsustainable
I don’t understand this claim/intuitively disagree with it as presented but don’t think I understand what you mean well enough to be sure I actually disagree.
Do you think making the moral case for capitalism could be a very important thing to do? My impression is that the case for it seems to have been lost among the young, which could have important effects down the line
I am a bit split on the data from polling younger people. Quite a bit of that data shows that they prefer the word/label “socialism” to “capitalism”. If you ask them whether socialism is better than capitalism, they say yes. But if you give them more specific things, such as asking whether the government should own all productive property or whether we should have markets, they tend to reject socialism in favor of capitalism, though not by a huge amount. Also, you see the memes going around where people use “socialism” to refer not to socialism, but to government-funded public goods and welfare policies.
Still, if people are confused, then demagogues can take advantage of them or they might end up voting for the wrong things.
I think the case for capitalism must be made not merely because some form of it works better than the alternatives, but because the empirics on immigration show that open borders with global market economies is the best and most effective solution to world poverty. Immigration beats both intra- and international redistribution in terms of its distributional and welfare effects.
However, socialism and open borders don’t mix well, because once you turn a society into a giant workers’ co-op, adding new members always comes at the expense of the current members.
Why should that be the case? Wealth and income of this giant worker’s co-op are not fixed, and why shouldn’t they scale with the number of members?
Let’s say you have a 10 person workers’ co-op which shares income equally. Each person now gets paid 1/10th the firm’s profit. Thanks to diminishing marginal returns, if you add an 11th worker who is otherwise identical, they will contribute gross revenue/have a marginal product of labor that is less than the previous added worker’s. When you divide the income by 11, everyone will make less.
This is a well-known problem in the econ lit. Of course, in real life, workers are not homogenous, but the point remains that in general you get diminishing returns by adding workers.
As a toy illustration, suppose that there two countries, Richland and Poorland. Everyone in Richland makes $100,000/year. Everyone in Poorland makes $2,000/year. Suppose, however, that if half of the Poorlanders move to Richland, their income will up by a factor of 15, while domestic Richlanders’ income will increase by 10%. Thus, imagine that after mass immigration, Richland has 50,000 Poorland immigrants now making $30,000/year, plus it’s 100,000 native workers now each make $110,000 a year. From a humanitarian and egalitarian standpoint, this is wonderful. Further, this isn’t merely a toy example; these are the kind of income effects we actually see with immigration in capitalist economies.
But this same miraculous growth looks far less sexy when it occurs in a democratic socialist society with equalized incomes. Imagine that democratic socialist Richland is considering whether to allowing 100,000 Poorlanders to immigrate. Imagine they recognize that Poorlander immigrants will each directly contribute about $30,000 a year to Richland economy, and further, thanks to complementarity effects, will induce the domestic Richlanders to contribute $110,000 rather than $100,000. But here the Richlanders might yet want to keep the Poorlanders out. After all, when the equalize income ((100,000 X $30,000 + 100,000 X $110,000)/200,000), average incomes fall to $70,000. Once we require equality, the Richlanders see the immigrants as causing each of them to suffer a 30% loss of income. While for capitalist Richland, the immigrants were a boon, for socialist Richland, they are a bust. Unless we imagine our socialist Richlanders are extremely and unrealistically altruistic, they will want to keep the Poorlanders out.
Things get worse once we consider how real-world ethnic and nationalist prejudices will affect things. In fact, people are biased against foreigners, especially foreigners of a different race or religion. However, the beauty of capitalism is that it makes employers’ pay to indulge their prejudices; it literally comes out of their pockets. Thus, it’s not surprising, despite what some journalists and academics claim, that when economists try to measure to what degree wage differentials are the result of employer discrimination, they find that at most it’s quite tiny.[1]
[1] Goldin and Rouse 2000; Betrand, Goldin, and Katz 2010; Bolotnyy and Emanuel 2018.
This might be a dumb question, but wouldn’t this theory imply that smaller companies are on average more efficient than larger companies (holding worker quality constant)? And isn’t the very existence of pretty large companies some degree of evidence against this?
The point he is making is about worker cooperatives, rather than firms in general. A widely recognised problem with worker cooperatives is that there are disincentives to scale because adding more workers is a cost to the existing coop owners. So, the point doesn’t apply to privately owned companies because adding workers do not get a share of the business
As presented, the efficiency claims seem to be agnostic about firm structure, while the worker coop-specific parts are about credit/profit allocation. (As usual, I could of course be misreading)
Yeah, I think this is an important point to make: There are lots of instances where adding more workers allows specialization. When it comes to literally an entire economy, though, things can get weird/complicated—which is why I think there are much better ways to explain why welfare-heavy states and open borders don’t mix well than by appealing to diminishing marginal returns to labor.
Your Richland-Poorland example is indeed illustrative, thanks. However, it seems the problem caused by immigration does not only occur when incomes in Richland were equalized before the immigration, but rather they also occur when people care about the degree of income inequality in their own country. So if Richlanders are free-market fans, but they do not like domestic inequality, they will want to keep the Poorlanders out.
The moral case for capitalism is lost...capitalism is unsustainable and leads to massive suffering. If EAs actually care about longtermism as they claim to, they ought to start seriously planning large scale economic transition.
I think almost all critiques of capitalism rest on a failure to understand what capitalism actually is. Capitalism is private ownership of the means of production. Socialism is public or common ownership of the means of production. Capitalism is not greed. Socialism is not benevolence and love. They are systems of ownership. Once you see this, a lot of criticisms of capitalism melt away.
This is one important contribution that Jason Brennan has made to philosophy—http://bleedingheartlibertarians.com/2014/06/socialism-%E2%89%A0-love-and-kindness-capitalism-%E2%89%A0-greed-and-fear/
If you think capitalism and socialism affect the social ethos then that is true, but you have to actually have to look at whether people are nicer in socialist countries like Cuba, Venezuela, the USSR, Vietnam in the 1980s and so on. It doesn’t seem like they are.
When you’re talking about sustainability, you also have to look at the real environmental performance of these different systems of ownership. It is sort of true that capitalism drives climate change because it drives economic growth. But recognising that is inconsistent with your claim that it leads to massive suffering (which I assume is human suffering). But lots of socialist countries have a terrible environment record. and many capitalist countries and social democracies (which are capitalist with redistribution) have very good environmental records—eg the UK, Germany, Sweden, Switzerland, France all now have low and dropping emissions per head.
To say that the only way to solve climate change is to take the economy into state hands is on the face of it a huge claim that doesn’t seem very plausible. State oil companies don’t seem to care very much about sustainability, for example. State-controlled projects can be directed to any end whether good or bad for the environment. Indeed, having monopolistic control of fossil fuels seems likely to do more harm. The UK used to have a nationalised state-controlled coal board that kept coal mines open long after they were economically viable. Thatcher destroyed this via privatisation. in that case capitalism was clearly good for the environment and socialism bad.
I’m surprised this comment was downvoted so much. It doesn’t seem very nuanced, but here’s obviously a lot going wrong with modern capitalism. While free markets have historically been a key driver of the decline of global poverty (see e.g. this and this), I don’t think it’s wrong to say that longtermists should be thinking about large scale economic transition (though should most likely still involve free markets).
I think a downvoters view is that:
It packs powerful claims that really need to be unpacked (“unsustainable...massive suffering”), with a backhand against the community (“actually care...claim to”) with extraordinary, vague demands (“large economic transition”), all in a single sentence.
It’s hard to be generous, since it’s so vague. If you tried to riff some “steelman” off it, you could work in almost any argument critical of capitalism or even EA in general, which isn’t a good sign.
The forum guidelines suggest I downvote comments when I dislike the effect they have on a conversation. One of the examples the guidelines give is when a comment contains an error or bad reasoning. While I think the reasoning in Ruth’s comment is fine, I think the claim that capitalism is unsustainable and causes “massive suffering” is an error. Nor is the claim backed up by any links to supporting evidence that might change my mind. The most likely effect of ruth_schlenker’s comment is to distract from Halstead’s original comment and inflame the discussion, i.e. have a negative effect on the conversation.
Capitalism could be worse than some alternative due to factory farming, climate change or various other global catastrophic risks, although we really need to consider specific alternatives. So far, I think it’s pretty clear that what we’ve been doing has been unsustainable, but that doesn’t mean replacing capitalism is better than reforming or regulating it, and technology does often address problems.
I don’t understand this claim/intuitively disagree with it as presented but don’t think I understand what you mean well enough to be sure I actually disagree.
I have in mind climate change and land use. If we kept consuming at current rates, wouldn’t we likely end up with catastrophic climate change?
If you include consumption trends, things look even worse, but we also have clean tech and government policy coming.