Capitalism, True and False

Last night my wife said I should write a book called The Truth About Capitalism to answer the blizzard of accusations and complaints about Wall Street, free markets and private enterprise that has come after the financial crisis.

Writing a book is a lot of work, even for one who has written 25 of them, so I was glad to reply, “It’s already been written!”  

I was referring to Steve Forbes’ penetrating new book, How Capitalism Will Save Us. It’s co-authored by journalist Elizabeth Ames, who did most of the research for the book and tracked down all its incredible quotes about the supposed evils of laissez-faire capitalism.  
That’s what I like about this book: Forbes and Ames take on all the major criticisms of capitalism and set the record straight. Thus, Forbes’ new book is an ideal defense manual in the fight for economic freedom. The authors capably defend Wal-Mart, the superrich, high-paid CEOs, hedge funds, short sellers, and other much-criticized high-profile players in the capitalist system.   

They debunk a host of myths, such as that free trade and globalization destroy American jobs, federal spending stimulates the economy, the Gold Standard caused the Great Depression, or the cause of the 2008 financial crisis was deregulation. Regarding the latter, the authors are quick to point out that the cause of the financial crisis was not “a lack of regulation but bad regulation” — government mismanagement of Freddie Mac and Fannie Mae, the Federal Reserve’s easy-money policies, distortions from arcane SEC rules, and the obtuse business regulations of Sarbanes-Oxley.

The authors demonstrate the folly of minimum wage laws, cap-and-trade, state occupational licenses, national healthcare, and Medicare and Medicaid, which they rightly call “the Fannie and Freddie of the healthcare economy.”

The authors take on Paul Krugman, John Kenneth Galbraith, Barbara Ehrenreich and other cantankerous critics of capitalism. They even correct erroneous statements by Warren Buffett that the rich like himself pay a lower rate than his secretary. Forbes & Ames point out that Buffett actually paid double taxes — first the high corporate income tax on Berkshire Hathaway stock, and then the tax on capital gains when he sold his stock. The combined tax rate on Buffett’s income and his public company is 45%, considerably more than his average employee’s 33% rate.  

The authors also introduce readers to the best free-market analysts and economists, including Milton Friedman, Henry Hazlitt, Thomas Sowell, Walter Williams, Murray Rothbard, Art Laffer, Friedrich Hayek, Robert Higgs, and John Mackey (I’m even cited on page 308). They draw upon expert research by top libertarian think tanks, such as Reason, Heritage, and the Cato Institute.

Every time you hear a complaint about free markets or Wall Street, reach for Forbes’s book and you can win every argument every time.  

But Forbes’s book isn’t just a critique of the critics — it’s also a book about real solutions to our national problems, and the authors suggest many good ones: a flat tax, Health Savings accounts, a sound-money gold standard, denationalizing Freddie and Fannie, and even trading in transplant organs.  

As for tax reform, Forbes returns to his favorite idea: adopting the flat tax. He exposes the weaknesses of a national sales tax (The so-called “Fair” tax, says Forbes, will create another huge bureaucracy, depress new home sales, and hurt poor people the most.) He also opposes other suggested taxes: the VAT (a hidden tax that keeps rising over time), sin taxes (cause black markets), and the estate/inheritance tax (a tax on capital and future investment), opting, instead, in favor of a simple, fair flat income tax for individuals and corporations.  

While this book primarily focuses on an American audience, foreigners will find this book useful. (A top Russian business leader, I understand, just ordered 18 copies for his European contacts.) To make their arguments, Forbes and Ames draw upon lots of examples abroad, including in Asia, Europe, Latin America and Canada.  

Each chapter is devoted to a major charge (“The Rap”) against capitalism, their response (“The Reality”), and their solution to the problem. Each chapter is specific, such as:
The Rap: “Capitalism is founded on greed and the survival of the fittest.”

The Reality: “Capitalism is the world’s most humane economic system, promoting the democratic values of a free and open society: hard work, cooperation, generosity, charity, and devotion to the rule of law.”

Forbes and Ames point out that the United States, the world’s most capitalist nation, has the highest per-capita charity giving.  

The authors also clear up the fiction that corporate America and Wall Street are all about greed. Reality: “The self-interest driving democratic capitalism is different from greed, which ignores the needs of others and is the opposite of what succeeds in a free market.”

Appropriately, the longest chapter (36 pages) is devoted to the health care debate.  

The Rap: “The only way to fix health care is through a government-designed system with mandatory health insurance. Otherwise, health care will become totally unaffordable.” Furthermore: “All other industrial nations have national health care, and it works. Why not America?”

The Reality: “Today’s healthcare economy is not only over-regulated but essentially governed by price controls…. That’s what’s happened with healthcare delivery in countries like Canada, Britain, and the nations of Europe.”  

The Solution: “Bring back the consumer and restore a normal market where individuals, not corporations [or government], make the buying decisions.”

Forbes recommends health savings accounts (HSAs), pointing to those functioning well at Forbes and Whole Foods Market, as examples of empowering consumers. Forbes also comes up with a great idea to cap the ever-expanding Medicare and Medicaid programs: Have participants get their own HSAs covered by private insurance, with liberal deductibles so as to discourage abuse of the system.

Forbes and Ames end their easy-to-read book with 14 key concepts. I like key 7 the best: “Government’s role in the economy is not to ‘do nothing,’ it’s to help free markets work.” That sums up this indispensable work.

After finishing this book, I have a good feeling about the future of America. You will too. Steve Forbes and Elizabeth Ames have the answers for making America great again.