Faculty Opinions | BB&T Center for the Study of Capitalism at Wake Forest University

Faculty Opinions

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Interview: James R. Otteson, Page 10

December 9th, 2013

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Patrick Toner: Chesterton and Occupy Wall Street

November 8th, 2011

toner2011Patrick Toner, Assistant Professor of Philosophy

If the Occupy Wall Street protests have a “basic message,” it may be this: “Wall Street is oozing corruption and criminality and its unrestrained political power—in the form of crony capitalism and ownership of political institutions—is destroying financial security for everyone else.”[1] Interestingly, the problem of “crony capitalism” has also been mentioned recently by some prominent Tea Party-related politicians.  One might have thought that the Tea Party and the OWS crowd couldn’t get much further apart, but at least in their disgust for crony capitalism, they seem to agree.  Indeed, they literally overlap, since some Tea Party-inclined folks are participating in the OWS protests.

The diversity among OWS protesters is sometimes mentioned as a virtue of the protests: “[The participants] may disagree about the solution, or have different desires, but they agree that the common cause is oligarchical capitalism. Coming together creates a strong sense of camaraderie and solidarity…”[2] But as the essayist and novelist GK Chesterton wrote, “[This] is the arresting and dominant fact about modern social discussion; that the quarrel is not merely about the difficulties, but about the aim.  We agree about the evil; it is about the good that we should tear each other’s eyes out… The only way to discuss the social evil is to get at once to the social ideal.  We can all see the national madness; but what is national sanity?”[3]

Say that two people agree that crony capitalism is bad.  One thinks the way to fix it is to institute “real” capitalism, and the other thinks the way to fix it is to abolish capitalism altogether.  Have these two really “come together” in any meaningful way?  I think not.  They agree on the social evil, but they have intractable disagreements over the social ideal.  Perhaps it would be helpful to them to consider another proposed ideal.

Chesterton’s “Distributism” calls for productive property to be widely distributed, rather than held by few.  This is at odds, he thinks, with both capitalism and socialism, which tend towards consolidation and bigness.  It doesn’t matter, fundamentally, if productive property becomes centralized by falling into the hands of the state, or by falling into the hands of ever fewer and fewer capitalists.  The result, for workers, is the same.  Distributism pushes against that tendency to consolidation.  In short, the more capitalists, the better.

The Distributist will endorse a good many of the criticisms that OWS protesters raise against our current system.  But she will find many of the suggested “improvements” far worse than the disease.  That’s because she has a different social ideal than either the “conservative” or the “progressive” participants in OWS.  For Chesterton thinks we must never lose sight of the fundamental fact about us humans: we are creatures.  This has deep implications (not always noticed even by those who share Chesterton’s Christianity), among them this: “[E]very man should have something that he can shape in his own image, as he is shaped in the image of heaven. But because he is not God, but only a graven image of God, his self-expression must deal with limits; properly with limits that are strict and even small.”[4] This ideal of smallness starkly contrasts with our current cult of bigness.  But bigness, thinks Chesterton, is inhuman.  And it’s hard to see how an inhuman system can be a sane one.[5]


[1] Glenn Greenwald, Salon, September 29, 2011, cited from Wikipedia: http://en.wikipedia.org/wiki/Occupy_Wall_Street, accessed October 19, 2011.

[2] Brian Landever, http://occupywallst.org/forum/clarifying-the-purpose-of-occupy-wall-street/, accessed October 19, 2011.  I do not mean to suggest that this blog post speaks for all or most of the protesters.

[3] What’s Wrong With the World (Repr. San Francisco: Ignatius Press, 1994), 16-17.

[4] What’s Wrong With the World, 42.

[5] Anyone wanting a more serious introduction to Distributism than I can give in this short piece would do well to start with Pope Leo XIII’s 1891 encyclical letter Rerum Novarum, and then turn to Chesterton’s books The Outline of Sanity and What’s Wrong With the World, as well as Hilaire Belloc’s The Servile State.  (All are available from various publishers.)  EF Schumacher’s Small is Beautiful (London: Blond and Briggs, 1973) is in many respects a Distributist manifesto.  A more recent work on Distributism is John C. Medaille’s Toward a Truly Free Market (Wilmington, DE: ISI, 2010).

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David Coates: Reflections on the Significance of Labor Day

September 2nd, 2011

coates_bwDavid Coates, Worrell Professor of Anglo-American Studies

Department of Political Science

Labor Day is the day we celebrate the strength and importance of American labor. Sadly there was not much to celebrate about the state of American labor on this year’s Labor Day.

There was not much to celebrate nationally, and not much to celebrate here in North Carolina.

Nationally, median income is down 4.9% in the last decade, the first real fall since the 1930s. Across the nation as a whole, unemployment is high (it was 9.1% in August), and under-employment higher still (16.1%). The figures for North Carolina’s major counties and cities are and were even worse: as I write this, unemployment in Charlotte-Mecklenburg is 11.1% with Bank of America layoffs yet to come; the figure for Forsyth County (Winston-Salem) is 10.1%; Even in Wake County (Raleigh-Durham) it’s 8.3%.  There are counties in North Carolina where the unemployment rate exceeds 15 %. This is not a great time for American labor, not even here in the South.

But it appears to be a great time for attacking American labor. It is a great time for blaming the International Association of Machinists and Aerospace Workers for stopping Boeing from bringing jobs to the Carolinas. It is a great time for flushing public sector unionism out of Wisconsin and Ohio. And why not;  for in the well-established litany of the American Right, trade unions stand condemned for causing unemployment (by inflating wages), for creating inequality (by depressing the wages of the non-unionized), and for blocking investment and productivity growth (through their resistance to change).

But do trade unions really do all these awful things? Is it right that the one institution committed to improving American wages and working conditions – the American trade union – should stand condemned for deepening the recession against which workers and unions now collectively struggle? No, it is not right. American labor did not cause this recession, and is not prolonging it. The cause of unemployment is not trade union power. It is a recession caused by Wall Street excess. Low wages among the non-unionized are not caused by trade unionism elsewhere. Try looking instead at the negative impact of “right to work” legislation on wages here in the South. Investment is not currently blocked by trade union pressure on corporate profits. Trade unions are too weak for that. Corporate profits are too high. The key blockage on job creation now is lack of demand – the product of low American wages, not of high ones. In the modern economy, American corporations outsource without penalty to cheap labor supplies in Asia and South America. The corporations take the profits and American workers take the hit.

We have known two great periods of prosperity in post-war America – one in which trade unions were strong, one in which they were weak. In the first, from 1948-73, strong unions kept wages high, demand up, and sweat-shops routes to profitability blocked. In that first growth period, blue collar incomes rose and income inequality fell. America led the world. In the second growth period, from 1983-2006, unions were weak. Wages stagnated. Inequality grew. Personal debt soared, and China led the world. We all know how that second growth period ended. We’re still living in its rubble. We now need a third period of prosperity.

Those who attack trade unions only offer us more of the second, when in truth we need to recreate a modern version of the first. We need strong manufacturing jobs, high American wages, and full employment in America again. Racing to the bottom – chasing Chinese wages down – will not restore prosperity. Tax breaks for the rich will make them richer but it will not get the rest of us back to wealth. Trickle-down economics needs to be replaced by trickle-up. As we reflect back on a Labor Day just now behind us, it is perhaps time to say again that we need a stronger labor voice in Washington DC, a voice that can balance (even perhaps shut out for a while) those who would seek American prosperity by the roundabout route of lowering still further already low American wages.

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Dan Hammond: Knowledge and Economic Policy[*]

September 2nd, 2011

hammondDan Hammond, Hultquist Family Professor

Department of Economics

Chicago School economists have come in for criticism since the financial crisis and so-called Great Recession began in late 2007. Commentators have blamed recent problems on a laissez-faire faith in the efficacy of markets and simple rules for business-cycle policy—ideas associated with economics at the University of Chicago, particularly with Milton Friedman. Events over the past four years, we are told, demonstrate the need for a restoration of Keynesian ideas and activist policies to manage erratic markets, i.e., a move away from Chicago School economics. However, there is an important aspect of Chicago School economics that is commonly overlooked. This is the conviction that economists’ understanding of the business cycle is meager in light of the knowledge necessary for activist countercyclical policy to be effective. From this conviction comes humility about economic and social engineering. One of Milton Friedman’s themes throughout his career was that economists and policymakers should not attempt to do things that are beyond their capability. Intellectual hubris and overreaching can and often do make problems worse rather than better.

Much of Friedman’s research on money and business cycles was done under the auspices of the National Bureau of Economic Research (NBER).  Friedman began this research  in 1948 when he and Anna J. Schwartz were invited to join an NBER investigation of the nature and causes of business cycles. This work was begun by Wesley C. Mitchell  a half century before.  Friedman and Schwartz’s assignment was to investigate the role of money in business cycles.  The prevailing view at the NBER was that business cycles were not well understood. But elsewhere as Keynesian macroeconomics swept through the economics profession, it created confidence that the mysteries of business cycles had been unlocked. There was confidence that government officials, advised by economists, could use fiscal and monetary policy to effectively manage the economy, eliminating inflationary booms and slumps. Friedman and his colleagues did not share this Keynesian confidence. Friedman’s colleague Arthur F. Burns warned of false confidence in presumed knowledge in the 1946 annual report of the NBER:

Keynes’ adventure in business cycle theory is by no means exceptional. My reason for singling it out is merely that the General Theory has become for many, contrary to Keynes’ own wishes, a sourcebook of established knowledge. Fanciful ideas about business cycles are widely entertained  both by men of affairs and by academic economists. That is inevitable as long as the problem is attacked on a speculative level, or if statistics serve only as a casual check on speculation. To develop a reliable picture of the business cycles of actual life it is necessary to study with fine discrimination the historical records of numerous economic activities . . . . Work on this plan is costly and time-consuming; it means turning back, revising, rethinking, redoing; it often leads to disappointments and taxes patience. But there is no reliable shortcut to tested knowledge.

A quarter century later, after extensive study of money and business cycles with Anna Schwartz, Milton Friedman still considered knowledge of business cycles “provisional.” Their project had produced knowledge, but not of the type and detail that would allow macroeconomic fine-tuning. In fact, the implications of their research were just the opposite, for they found that the effects of changes in monetary policy occurred with a time lag that was long and variable. This implied that for policymakers at the Federal Reserve to effectively “lean against the wind” of business cycles they would have to act today in anticipation of poorly foreseen future problems.

What are the implications for us? Friedman and Schwartz found that though variable, the average monetary policy lag was twelve months. Thus the most likely appropriate time for the Fed to have acted to forestall the recession that began in December 2007 was in December 2006. But records from the Fed’s Open Market Committee meeting that month show that their concern was not with recession, but with inflation:

Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters. … the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth.

In economics as elsewhere, “a little knowledge can be dangerous.” But it is also true that “a little knowledge goes a long way” if that little knowledge is of how little anyone, including the experts, really knows.


[*] This commentary is adapted from a paper delivered at a conference held at the BB&T Center for the Study of Capitalism last February. A longer version will be published in the fall 2011 issue of the Cato Journal.

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David Coates: The Changing Face of Capitalism

December 21st, 2009

coates_bwDavid Coates, Worrell Professor of Anglo-American Studies

Department of Political Science

Editorial note: This opinion is based on an interview with Windows on Wake Forest, October 2008

You recently became an American citizen. Why did you decide to do that at this time?

I have come to love this country very much, and am proud of my new citizenship. The citizenship ceremony was very moving. I recommend it to everyone! This is a very special country. I feel very privileged to be a part of it.

Now that you’re a citizen, has that made you even more invested in our political process?

Yes, I think so. The longer I’ve been here, and the more I’ve studied, the more I’ve come to feel that I can and should contribute to the political debate. University academics have a responsibility to play the role, when appropriate, of public intellectuals. I feel that responsibility, and am glad to act on it. We face great challenges in our public life — and great opportunities. I’m just glad to be a part of the process, putting my limited skills at the service of my fellow citizens.

You’ve extensively studied different economic and political systems, and I know you’re planning to teach a first-year seminar on capitalism in the spring. One of the objections to the recent $700 billion bailout plan is that America is “going socialist.” Your reaction?

No, we’re not going socialist — not in any meaningful sense of that word. Not at all! The image we all carry of socialism is a pretty dire one: an Eastern-European style centrally planned economy, with state ownership of major resources and no room for private enterprise. A gray world of equal and low pay, standardized clothing and no individual autonomy. An all powerful, all-seeing State — a sort of Orwellian nightmare. No, we’re definitely not going in that direction.

So in what direction are we going?

What we are seeing is a government intervention in the banking system that’s designed explicitly to strengthen the rest of the private sector. That intervention is already large. It may grow larger yet. But it will ultimately be temporary, and it has happened before. Something similar occurred in Sweden in the 1990s and here in the U.S. in the 1930s, on both occasions helping to trigger long-term private sector growth. It is a dramatic change from a previous policy of financial deregulation, but it is not unprecedented, and there is nothing especially liberal or progressive about it.

After all, we’d do well to remember that the federal government is already heavily involved in supporting large parts of the economy. Nobody labels it as socialism when Congress votes to send vast subsidies to the agricultural sector or to direct significant amounts of tax payer dollars to the engineering industry — to buy anything from guns and tanks to spaceships. And nor should they.

But doesn’t the bailout represent a fundamental change in government policy?

Yes, it does. It marks the end of an era, but not the end of capitalism. As David Brooks said in The New York Times recently, the real casualty here is the Gingrich Revolution. Given what has happened these last four weeks, it’s unlikely that any time soon a future President will build into his State of the Union Address proposals to partially privatize Social Security, as President Bush did on at least two occasions in the last eight years. For the minute, it rather looks as though Milton Friedman is out of fashion and that John Maynard Keynes is on the way back in. We don’t face socialism; but we do face a slightly more managed capitalism. But the rest of the industrial world flourishes under such a system. Arguably we will too, if the management is up to the task.

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Page West: The Road to Serfdom

August 19th, 2009

faculty.westPage West, Professor of Strategy and Entrepreneurship

Schools of Business

I was surprised to learn recently that Ayn Rand’s Atlas Shrugged is listed on Amazon.com as the #2 best seller for classics in literature and fiction in the U. S. After all, Rand published the book 52 years ago. Recent turmoil in financial markets, which has stoked once again a debate about capitalism versus socialism, has clearly piqued interest in a story where that debate is central.

In an attempt to make sense of what is going on around us, perhaps we should turn to classics which have stood the test of time. I would like to suggest a “classic” economist to spend some time with. I have come to know Friedrich Hayek through my interest in entrepreneurship, about which his collected works have much to offer. But Hayek’s ideas about evolutionary economics reflected other more pressing issues he was worried about. Having lived in Germany in the years between the world wars, he had witnessed the rise in centralized government authority that turned into fascism. During the latter part of the Great Depression and into World War II he had moved to England. But in the greater authority and control exerted by the British and United States governments – first in response to economic depression and then in response to the war threat – he recognized similarities to what had happened in Germany two decades earlier. He worried about the insidious growth of government power. The Road to Serfdom was published in 1944 as a warning. It first received lukewarm response in the United Kingdom, but when it was published in the U. S. by the University of Chicago Press it met with tremendous success and became a best-seller. Hayek shared the Nobel Prize for Economics in 1974, and in 1991 received the U. S. Presidential Medal of Freedom. He died in 1992.

The Road to Serfdom explores the contradictions evident between the desire for individual lifestyles and participatory democracy on the one hand, and growing collectivism on the other. His thesis is that the relation between the ends we seek and the means to accomplish those ends is not well understood. He describes the fallacies of central planning for the “common good” by reference to what he had observed in Europe. But his half-century old analysis begs us to ask similar questions about events transpiring today, about the role of government interventions in markets, about government ownership of major corporations, and more. No reader could fail to see the parallels between Hayek’s experience and our world today.

In his introduction to the 50th anniversary edition of The Road to Serfdom in 1994, Milton Friedman wrote: “This book has become a true classic: essential reading for everyone who is seriously interested in politics in the broadest and least partisan sense, a book whose central message is timeless….subtle and closely reasoned yet lucid and clear, philosophical and abstract yet also concrete and realistic, analytical and rational yet animated by high ideals and a vivid sense of mission….The battle for freedom must be won over and over again.”

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Robert Whaples: An unconventional look at energy costs

August 19th, 2009

whaples_bw Robert Whaples, Professor

Department of Economics

High prices for gasoline send out two important signals. First, they tell consumers, “this stuff is scarce, you’d better combine trips, travel less and drive your smaller car instead of the big one.” Second, they tell producers of oil and potential producers, “this stuff is valuable, go find more, pump more or come up with other things that take its place.” Low prices do the opposite.

Accordingly, alternative energy sources only make sense in two cases — if they are cheaper than conventional sources (which isn’t generally true) and if conventional sources have high hidden (or “external”) costs. Few seem to be complacent about alternative energy sources these days because we realize that the prices of conventional fuels could rise again (and likely will once the recession is over) and we realize that we must deal with the hidden costs of oil, coal and other fossil fuels.

The importance of reducing gasoline demand is largely personal. Every gallon less that you consume means that you save about $2. Consumers already bear most of the costs of gasoline, so if they think the costs are too high, they should drive less or buy more fuel-efficient cars. There are numerous proposals to reduce gasoline demand, especially the recent mandated increase in the Corporate Average Fuel Economy (CAFE) standards. Economists are divided on the wisdom of these mandates because they have big downsides, especially decreased auto safety.

Drilling for more oil in the U.S. is unlikely to have a huge impact on the worldwide market. It’ll push the price down by only a couple percent. The main benefit is that we’ll get to use the oil that’s currently off limits. Costs to the environment are likely to be about 50 cents per gallon of gasoline. Not a high amount, but setting a tax equal to these hidden costs is probably a good idea.

Given the current technologies and prices of various energy sources, energy independence for the U.S. (and most other countries) is a very bad idea. Countries are already working together effectively — not governments, but private individuals in research consortiums and multinational corporations, which are pouring vast amounts of resources into tackling the demand for energy.

Most economists feel that our big subsidies to biofuels (especially ethanol) are very unwise. They predicted that these subsidies would sharply increase food prices — which turned out to be well-founded — but political considerations drowned out the concerns. Economists are also very skeptical of “green-collar” jobs. They aren’t likely to change the unemployment rate much and the subsidies required to fund them have costs that generally vastly exceed the pay of the jobs.

Should there be both “carrots and sticks” to solve the energy problem? The carrots are already there — as energy prices have risen over time, there’s more of an incentive to produce both conventional and alternative fuels. Market forces have been handling the situation fairly efficiently, but we need to subsidize when there are hidden (external) benefits and tax when there are hidden (external) costs. A tax tied to the hidden costs of each energy source will be the most effective “stick.”

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