Why Capitalism Is Stupid: A Case Study

Note that I didn’t say bad, or evil, but stupid.

Before we go any further, let me state that I have never studied economics, and I’ve only taken one intro-level philosophy class. The topics I’m bringing up here are steeped in both, and I know I’m out of my element.

Capitalism has, as a core principle, a belief that competition drives innovation and growth, which helps a society to thrive; whether its helping society to thrive is intentional or just a consequence is debatable. And in practice capitalism is just as susceptible to corruption as communism — both fail as a result of the boundless greed of the powerful. But for the moment let’s not dwell on the big picture… let’s just look at one example of how capitalism can be… well, stupid.

I live in Minneapolis, a large city of 425,000. Along with St. Paul (pop. 310,000) it is the core of a metro area of 3.6 million. Like all large cities, Minneapolis is divided into a number of distinct communities. The community I live in is called Longfellow, and combined with neighboring Nokomis, the immediate area has a population of around 65,000 people.

Unlike many other parts of the city, Longfellow-Nokomis has always resisted the heavy encroachment of large chain businesses. Of course we have a Target, a scattering of McDonald’s and Subway locations, etc. But for the most part, the businesses here are small and local.

In fact, in an area comprising about 13 square miles, home to 15% of the entire city’s population, there is only one Caribou Coffee, and until recently, zero Starbucks (not counting the one inside the Target… which is a capitalism story for another blog post). Of course we have dozens of local independent coffee houses, but only one each of the two big chains.

And they’re right across the street from each other.

How does it benefit the citizens of the community to have a Caribou and a Starbucks within sight of each other, when the vast majority of residents of the area don’t live within walking distance of either one? Who does a decision like this really serve? How does this help society to thrive?

What we’re looking at here is not a failure of capitalism in principle, but an example of how it fails in practice, as power is consolidated in the hands of a few greedy, powerful corporations.

I’m sure this is the point where a (21st century) Republican dutifully says, “But how can a corporation be greedy? Greed is a human emotion, and corporations are businesses, not people.” Oh right, corporations are only people when it comes to exercising their right to free speech. (And political money equals speech.) I’m sure few, if any, of the individuals within these corporations are ruthlessly greedy. But they don’t need to be. The system is built on a principle whose logical consequence is that increasing profits outweighs any other considerations. That could be defined as greed.

One could argue that Caribou and Starbucks have grown to that tipping point in capitalism where they are no longer focused on competition through innovation, but on stifling competition through consolidation of power. Nothing better exemplifies to me capitalism’s absurd failure than a business opening its first location in a large, heavily populated area within feet of its rival.

Sadly, I’m sure these corporations did extensive research and determined that the best location in Longfellow-Nokomis for a major chain coffee house was right at this spot, even if there was already another one right there. And I bet both will do booming business, because… honestly? Most of us just don’t question it.

Now get in the car. I want some coffee.

There is no John Galt

Who is John Galt? The rhetorical question, posed frequently throughout the early sections of Ayn Rand’s epic tome Atlas Shrugged, continues to crop up here and there to this day, usually as a bumper sticker on the back of a BMW: the economic libertarian’s counterpart to the Deadhead dancing bears. It’s a codeword, the inverse of 420. If you know the answer to the question, you’re in the club of laissez-faire capitalists and would-be prime movers.

If you’ve never read Ayn Rand — and if you’re older than 20, you probably shouldn’t bother — you may still wonder just who John Galt is. Quick summary: he’s the bold visionary savior of capitalism, the person who would let the old world die so he and his disciples can shape a new one in the image of the dollar sign. If that still doesn’t answer the question for you, well, take some solace in the fact that the question probably isn’t really worth answering in the first place.

I’ve been thinking about John Galt more lately than I have in about 18 years, since the second and last time I read Atlas Shrugged cover-to-cover. I’ll admit, it can be a page turner for most of its (excessive) length, at least until the portion near then end where John Galt himself takes over the world’s airwaves and launches into a dry, rambling 80-page soliloquy laying bare Ayn Rand’s philosophy. But people don’t read Ayn Rand because her writing is so great. It’s not. They read Ayn Rand because her ideas are radical and liberating to ambitious minds that feel trapped in a society of conformist mediocrity.

In other words, her ideas are just what 15-year-old, Rush-and-D&D-obsessed nerds need to feel better about themselves in a world that rejects them for being different. At least, that’s what I thought her ideas were until I got really obsessed with them in college, moving beyond her novels to her collected non-fiction essays, along with those written by her “egoist” acolytes, including Alan Greenspan.

Yes, that Alan Greenspan.

I was pretty surprised to learn that the (at the time) Fed chairman was an Ayn Rand devotee, and it convinced me (at the time) that some day soon we’d see Ayn Rand’s philosophy rise up and vanquish the mediocrity of our soul-sucking society.

But then I grew up. I realized that her writing fell firmly in the realm of fantasy. And it wasn’t just that the “second-handers” of society that she described did not correspond in any recognizable way to anyone in the real world. It was that the leaders in her world — not just the godlike John Galt but the creators, the captains of industry, like Dagny Taggart and Hank Rearden — didn’t have any real-world counterparts either. People, in most cases, do not rise to power and wealth purely through their noble industriousness and hard work, just as people do not struggle with poverty because they’re lazy. The world Ayn Rand creates has a tantalizingly simple internal logic. Unfortunately, her world is a miserably inadequate model of the complex, messy external reality she believed her “objectivism” so clearly observed.

Still, all of this would be an academic exercise for me to ponder in my parents’ basement were it not for the likes of Alan Greenspan, and so many who have come after him: Ron and Rand (Rand!) Paul, Glenn Beck and Rush Limbaugh and Sean Hannity, the Tea Party and anyone whose ability to follow a thought through to logical conclusion is so broken that they somehow manage to espouse both Ayn Rand’s (aggressively atheist) philosophy and fundamentalist Christianity simultaneously. Check your premises, etc. etc.

What frightens me is that in the two decades or so since I outgrew Ayn Rand myself, and especially since the 2010 midterm elections, we’ve come to a point where we have people who embrace Ayn Rand’s philosophy, however contradictory their overall views may be, in positions of government power in the United States. People who apparently know (and, for that matter, care) so little about the way our government actually functions, yet who believe so fully — so faithfully — in the economic principles described in books like The Fountainhead and, especially, Atlas Shrugged, that they would run the metaphorical ship aground on these shaky premises, believing that allowing the United States to default on its debts, allowing the economy to crumble, would actually be a good thing, and would give them the opportunity to remake our government, our economy, our society, in a way more in line with Ayn Rand’s ideas.

But Ayn Rand wasn’t even a good science fiction writer, much less a good economist, and far less an astute, objective observer of the fragile complexities of human character and American society. If we allow our economy to collapse, if we make it collapse because we think we can start over from scratch with a (non-existent) team of all-star CEOs drawing up the blueprints, we will quickly learn the answer to the question. There is no John Galt.

Update (November 16, 2011): John Galt is getting some more attention lately, as apparently Lululemon loves him.

The definition of madness: $2500 for a ticket to a Yankees game

No, those aren’t scalper prices. From kottke.org:

Option 1: Two tickets to Tuesday night, June 30, Mariners at Yanks, cost for just the tickets, $5,000.

Option 2: Two round-trip airline tickets to Seattle, Friday, Aug. 14, return Sunday the 16th, rental car for three days, two-night double occupancy stay in four-star hotel, two top tickets to both the Saturday and Sunday Yanks-Mariners games, two best-restaurant-in-town dinners for two. Total cost, $2,800. Plus-frequent flyer miles.

The thing that scares me most is that even after last year’s Wall Street collapse, there are probably still plenty of New Yorkers (though probably not so many who actually live in the Bronx, where the Yankees call home) who can easily afford these tickets. Personally, I’d take the mini-vacation and use the extra $2,200 I saved to buy a 55-inch flat panel to watch the other 160 games. But I guess the Yankees have to pay those 8-figure player salaries somehow. I just figured the $10 hot dogs and $15 MGDs would do it. (I’m just guessing at those prices — they’re probably more.)

This makes me a bit nervous as I anticipate the 2010 Twins season at Target Field. Sure, there’s no way in hell the Twins will be able to justify those kinds of ticket prices, but I fear the days of my beloved $8 “cheap seats” are numbered.

A great explanation of why (most) Minnesotans don’t complain about our relatively high taxes

First, rid your mind of the idea that government = evil.

Government is neither good nor evil; it depends on what government does. The same goes for corporations. Both have done a fair amount of what might be called “evil” over the past couple of decades.

There’s a great article on The Daily Beast today that reinforces an idea that’s pretty common around here in Minnesota: good government is worth paying for. In other words, if you get something of value from your taxes (or you know that other people do, and you’re not a self-centered bastard), it doesn’t feel so painful to pay them.

Now, in some parts of the country it’s pretty hard to come by the kind of generally honest, public-serving government that we Minnesotans tend to take for granted. But President Obama (who seems more Minnesotan than Illinoisan when it comes to the integrity and vision of his politics) is on the cusp of delivering this vision to the nation.

Let’s hope it takes hold. Reaganomics has just about driven us into the ground but I think it may not be too late.