What Capitalism is

Over at American Conservative, they had a great piece deconstructing Rebound: Getting America Back to Great, a manifesto-of-sorts by Heritage Foundation scholar Kim R. Holmes. Much of the piece takes apart the book's rather hawkish view of foreign policy. But it was this part that caught my eye:

The U.S. government doles out roughly $1 trillion per year in tax expenditures, subsidizing various endeavors like owning homes, buying health care, and saving for retirement. As political scientist Suzanne Mettler has pointed out, these subsidies create a “submerged state” in which the recipients of government benefits do not recognize that they have benefited from the government. These programs, combined with Social Security and Medicare, constitute well over half of federal expenditures. They also all benefit middle-aged and elderly whites, the most important constituency of the very Republican Party alleged by some to be the best hope for cutting government spending. One would hope that a book pressing for the sorts of reforms that Holmes advocates would grapple with these realities, butRebound does not.

 Maybe one would hope that these realities would be addressed, but it's not really surprising that they are not. Most of us think, or would like to think, that our economic system supports itself, and stays together on its own. The programs mentioned are just a few of the thousand of little "tweaks" our economy gets from our government. But the tweaks are not all. The truth is that Capitalism simply does not work without a strong central state to support it, to enforce contracts, to set up corporations, and most importantly, to minimize the risk of those investing capital. When the economy fails, the state will inject "liquidity" to "jump start" it. The reason for this is not because the economy works like an engine, despite the metaphorical language used. No, the real reason is to insure investors that their risks are backed up by the government.

You see, pumping money back into the system (something that is necessary for Capitalism to survive) is not something that rich men do naturally. No, the temptation of wealth is to horde, not to attempt to have your money reproduce. The rich are rather risk averse creatures by nature. So, in order to make the sort of economy where rich men create industries and then pay other rich men to work those industries, you need a system that minimizes risk for the rich. Much of what the government does is done to achieve this goal. Many, if not most, companies opposed the recent government shutdown because it was unpredictable, and thus risky. Corporations at least instinctively understand that this system stands and falls by guarantees from the government. And that's what the "submerged state" is all about.