October 2013 – Robert could barely make it out the door before he had to sit down to let it all sink in. His supervisor’s words rang in his ears: “Robert, profits are down and we’re going to have to downsize. I’m sorry but we must let you go.”
In that moment, Robert thought he had lost everything – career, medical insurance, financial security, purpose and no small amount of self-worth. What if the kids get sick? What was he going to tell Beth? And the mortgage – he had never missed a payment on anything. Panic was setting in.
“It’s the economy’s fault,” he muttered bitterly to himself as he stumbled toward his car. “There has to be a better system – one that protects hard-working people from becoming pawns in someone else’s drive for profit.”
How many Americans have felt the same way? But is the free market to blame? Is capitalism really the culprit?
When life goes wrong, a little clear thinking can help restore a right perspective. Three common criticisms of capitalism are addressed below. The sidebar (opposite page) offers a list of idea starters for how Christians can help meet the needs of families like Robert’s.
1. Capitalism is unstable.
Critics blame capitalism for the boom/bust cycles such as the Roaring ’20s followed by the Great Depression. However, Dan Celia, financial expert and host of AFR’s Financial Issues, believes reality is quite different.
“In a true capitalist economy there is always pain in some segment of a growing economy,” he explained. “It should be an ongoing, constant cycle so you have a mini boom in certain sectors and a mini bust in that same sector. Some company is rising to the top and another is falling to the bottom on a regular basis. All companies don’t rise and fall at the same time, all bubbles don’t bust at the same time in every segment. It is a constant evolution of the economy and different segments of the market. The ones that made good choices, the ones that are being good stewards of their finances, grow. The others bust. That should be constant.”
Celia contends that part of the reason capitalism is stable is a fear of failure. No one wants to be responsible for bankrupting a company or failing on an investment. Business owners and investors take precautions and try to be good stewards. The fear of failure is a powerful tool in the economy. But the rules change drastically when governments become too involved, he warned.
“Improper intrusion, a breaking of laissez-faire economic policy, can cause great instability in the economy,” Celia said. “The greatest regulatory authority is the fear of failure. But when the government takes that away, the economy doesn’t work properly.”
Celia cites government intervention and lack of adequate regulatory oversite as the major culprit in the 2008 housing market crash that led to a long and hard-hitting recession.
Two UCLA economists echoed Celia’s belief that wrongful government intervention causes economic problems. Harold L. Cole and Lee E. Ohanian published a study stating President Franklin D. Roosevelt’s economic policies prolonged the Great Depression by seven years.
“The fact that the Depression dragged on for years convinced generations of economists and policymakers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes,” Cole said. “Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”
2. Capitalism is unfair.
This criticism includes allegations that capitalism is unfair to the poor; it makes the rich richer and the poor poorer; it makes it nearly impossible for the poor to rise from poverty.
The argument presumes that it is the goal of an economy to eliminate poverty. While that may be a desired outcome, the goal of an economy is to provide a stable environment conducive to wealth production, according to Milton Friedman, a well-known defender of capitalism. When asked how he could justify capitalism when there are so many poor people suffering, he asked what country doesn’t have some disparity between rich and poor. Friedman contends that there is no economic system that will create utopia on earth.
What makes capitalism vibrant is that it offers the greatest opportunity for those in poverty to rise above their circumstances and experience financial freedom. According to the book The Millionaire Next Door, only 20% of millionaires inherited their money. Eighty percent gained their wealth on their own. Of all the millionaires in America, 50% are small-business owners. Half of America’s seven-figure earners built a business and are reaping the reward of their hard work.
3. Capitalism is uncompassionateate.
Free market opponents often paint capitalists with a greed brush, accusing them of neglecting the poor and failing to pay their fair share. But is that true?
Freidman contended that capitalism does the opposite. “The problem of social organization is how to set up an arrangement under which greed will do the least harm. Capitalism is that kind of system.”
Celia says history shows that Freidman is right. “History proclaims the greatest wealth producing societies have come out of capitalism and the average person has benefited greatly. Critics say it leads to an unwillingness to provide for the poor and down-trodden, but there is no objective data on that.”
In fact, the World Giving Index reveals that among the top ten most charitable countries, all have embraced free market ideals to some degree. America is ranked fifth. According to the index, 64% of Americans donate to charity. Countries that embrace socialism or other state-run economic principles trend toward the bottom of the list. (See chart below.)
Flawed, but favored
Capitalism is not a perfect economic system. It can seem momentarily unstable, harshly unfair and utterly uncompassionate. But when looking at the scope of history, it cannot be argued that human minds have produced a better economic system.
“Capitalism is the rising tide that lifts all boats,” Celia said. “What led to the Roaring ’20s or the Industrial Revolution? You can’t make a case that great production of wealth didn’t lift ordinary people to a higher standard of living.”
And that is all a society can ask from an economic system: provide a stable environment and protect individual freedoms so ordinary citizens can achieve success and produce wealth. Perhaps it is time for those who believe in capitalism to start asking the question of the critics: “What’s your alternative?”
When hard times hit, how can your church help? Here are some suggestions:
▶ Host a job fair that brings together local employers with those who need work.
▶ Post local job openings on your church website.
▶ Host a free car maintenance day.
▶ Offer free child care for parents looking for a job.
▶ Start a food pantry.
▶ Develop biblical guidelines for offering financial help to the needy.
From Dan Celia
▶ Faith. Family. Finance. Financial Stewardship 101
▶ Fed Up: The Uncertainty of America’s Future
▶ The Fear of Money: Have we Separated Finances from Faith?
All available at afastore.afa.net or 877-927-4917.