Thursday, February 20, 2014

Those bungling capitalists!

By Carl Stoll

A review of “Chávez Decaffeinates Venezuela. Coffee shortages predictably follow his price controls", by Mary Anastasia O'Grady, Wall Street Journal, May 3, 2010

Author’s note: It is not my intention in this review to defend President Hugo Chávez’ nationalization of the coffee plantations. On the contrary, I agree with Ms. O'Grady that price controls are useful measures only in emergency situations, not as instruments of steady economic policy.

Firstly, Ms O’Grady inexplicably confuses central planning with price controls. These two sorts of state intervention in the economy are both deplorable, but should be kept analytically separate because their economic effects are different, as pointed out by Ludwig von Mises in his works A Critique of Interventionism and Middle of the Road Policy Leads to Socialism.

Ms O’Grady cites a prominent economist, the late Milton Friedman, to the effect that governments are always incompetent bunglers. Milton Friedman was undoubtedly a very talented economist and much of what he wrote is very sensible indeed. His arguments against a gold standard, his critique of federal regulatory bodies as artificially imposed cartels, and numerous other positions he espoused are well worth reading and have held up well against the ravages of time and fashion. .

Nonetheless Mr. Friedman had an unfortunate proclivity for dogmatism when it came to the issue of government participation in the economy. This proclivity drove him to propagate what can only be called blatant and horrendous lies. Mr. Friedman’s sleazy record on this score is exposed in excruciating detail by Elton Rayack in his book Not So Free to Choose: The Political Economy of Milton Friedman and Ronald Reagan, published by Praeger in 1987. Rayack cites claims from Friedman’s works that are patently ridiculous and are obviously purely ideological secretions lacking any empirical basis whatever. For example Friedman claimed that Japan’s 19th-century industrialization was driven by private entrepreneurs, whereas the most cursory glance at Japanese economic history reveals that the state played the decisive role in every single stage of Japanese economic history since at least 1850! And that is but one example of many.

Consequently I am not terribly impressed by one more Friedman quote badmouthing government.

I admit that governments often make blunders. However the government is not the only party guilty of mismanagement. In the article "America the Resilient. Defying Terrorism and Mitigating Natural Disasters” by Stephen E. Flynn, that appeared in the March/April 2008 edition of Foreign Affairs, I read the following:

“In 2005, after a review of hundreds of studies and reports, the American Society of Civil Engineers issued a scathing report card on 15 categories of infrastructure: the national power grid … received [a] D … the best grade, C+, went to bridges …”

The US power grid is owned and operated by power companies, the great majority of which are privately owned. According to National Public Radio, "The U.S. electric grid is a complex network of independently owned and operated power plants and transmission lines. Aging infrastructure … has forced experts to critically examine the status and health of the nation's electrical systems.”

On the other hand US bridges are almost without exception government property.

How do you explain that, according to the American Society of Civil Engineers, in 2005 the infrastructure belonging to and maintained by the government was in better shape (score: C+) than the infrastructure belonging to and maintained by private enterprise (score: D)?

Don't bother to reply. I know the answer already. My many years of researching the issue of private vs. public ownership of the means of production have persuaded me that the slogan “the government can't do anything right” has a certain basis in reality, but it is by no means a universal rule.

Furthermore I have concluded that private enterprise is guilty of just as much incompetence, waste and sundry other misdeeds as the government.

Blaming the government for everything is merely a right-wing hobby, very much cultivated in the US, where it has become a kind of folk religion.

The US is perhaps the only industrial country that lacks an integrated national power grid. Those bungling capitalists have been extremely negligent about connecting the East with the West, and Texas has its own separate grid! (At least when I researched the matter in 2003, links among those three segments were both scarce and feeble.)

If the power grid were run by the government, as I think it should be, the US would undoubtedly have been provided with an integrated power grid many, many years ago. Like Mexico, for example, where electric power was a state monopoly for many years.

I believe that judgments on economic phenomena should be based on meticulous study of the facts and not on right-wing propaganda à la Milton Friedman.

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