A defense of the morality of capitalism

Presidential candidates and the media keep telling people “it’s immoral” that a few rich people have so much more money than everyone else.

They talk as if it doesn’t matter what the rich did to get the money. Instead, the fact that they are rich is itself immoral.

Yaron Brook of the Ayn Rand Institute says this is lunacy. “They want to condemn the people that actually have moved civilization forward,” Brook complains. “People who improved the standard of living for everybody on the planet.”

Everybody? How is that possible? Isn’t there a certain amount of money in the world, so that when rich people grab a lot there’s less for everyone else?

No. Because wealth can be created.

But for thousands of years, that barely happened.

“We basically made about $2 a day for 100,000 years — in other words, we could eat what we farmed,” recounts Brook. “Then (250 years ago) something amazing happened.”

That “amazing” thing was capitalism.

For the first time, ordinary people were allowed to profit from private property. Specialization of labor created efficiency that let people produce more with less. Then they traded to get more. That created wealth.

“Two-hundred and fifty years ago, we suddenly discovered the value of individual freedom,” says Brook in my new video. “The value of leaving individuals free to think, to innovate, to produce without asking for permission, without getting the state to sign off on it — and we call that the Industrial Revolution.”

But ever since, politicians have complained about the profits. In the movie based on Ayn Rand’s novel “Atlas Shrugged,” state officials demand that steel magnate Hank Rearden justify his wealth.

“I do not owe you an answer, but I could tell you in a hundred ways,” replies Rearden. “Thousands of jobs, billions in revenue, fueling our economy despite your efforts.”

Rearden was very right. Capitalism created new wealth.

“We got much, much, much richer, it’s hard to imagine,” explains Brook. “We got electricity, running water, things we all take for granted today but we didn’t have 150 years ago. And yes, some people complain about inequality, but everybody got richer. Even the poor got richer.”

Much richer. That’s the key point.

Capitalism’s critics imply that rich industrialists “took” money from others — as if the world’s wealth is one pie. If Amazon founder Jeff Bezos takes a big piece, then the rest of us have less.

But that’s not how life works. Bezos got rich by baking thousands of new pies. He created new wealth.

Capitalism creates wealth because under capitalism, unlike socialism, transactions are voluntary.

We see this every time we buy something.

At the coffee shop, I give a clerk a dollar and she hands me coffee. Then there’s a weird double “thank you!” moment: We both say “thank you.” Why?

Because both of us felt we were better off.

Under capitalism, we both must like the deal, or the transaction doesn’t happen. She wanted my dollar more than the coffee; I wanted the coffee more than the dollar. It’s win-win.

The only way to get rich under capitalism (unless you cheat) is to serve your customers well.

We live with that kind of winning every day in capitalist countries, and it’s made almost everyone better off.

Since the Industrial Revolution, recounts Brook, “We have more than doubled our life expectancy. We have dramatically increased the quality of our life, and we are wealthier than anybody could have imagined.”

Today’s “democratic” socialists say government must aid the poor and sick because capitalists will only help themselves. But Brook points out, “the weak and poor under capitalism have done better than in any other system!”

Very true.

Capitalism, he concludes, “is a fantastic system that is fundamentally moral because it allows individuals to pursue their own happiness. Your pursuit of your own well-being — a virtue in and of itself — also helps the world be a better world.”

John Stossel is author of “No They Can’t! Why Government Fails — But Individuals Succeed.”

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California budget epitomizes the ‘throw money at it’ approach

In a Politico interview this week, Gov. Gavin Newsom echoed themes that the state’s Democrats have been touting for years. They say California is leading the nation in bold new policy directions, such as toward universal healthcare. “That’s the real story coming out of California,” said Newsom. “A lot of the think tanks that are informing these presidential candidates, are informing their policies. But California is doing. We’re implementing.”

One need only go back to the previous week to see exactly what the governor is “doing” and “implementing.” That’s when Newsom and lawmakers agreed to a new budget, which spends a record $215 billion. Given the size of Democratic legislative supermajorities and the power of the party’s progressive wing, the budget was viewed as fairly restrained because it didn’t significantly raise taxes or include any monumental new programs, such as single-payer healthcare.

But disappointment from the Left does not obscure reality. The budget more than twice the size of the first budget Jerry Brown passed after he took over as governor eight years ago. It includes some fiscally responsible elements – boosts in the rainy day fund to help weather an eventual downturn and extra payments to pay down soaring pension debts – but no new ideas.

Actually, the budget epitomizes one of the oldest approaches known to government. That is spending as much money as possible on every conceivable program – except perhaps on fundamental ones such as roads, which receive a tiny percentage of the budget. There’s nothing creative or innovative within its fine print and nothing worth emulating elsewhere.

Progressives control the state’s politics. Reducing poverty and inequality are the highest priorities among proponents of that political philosophy. Sadly, California has the highest poverty rate in the nation, at a dispiriting 20 percent using the Census Bureau’s cost-of-living-adjusted standard. The state’s income inequality is “on display in the Bay Area, where the riches of Silicon Valley … sit uneasily next to growing encampments,” as Politico put it.

What does the budget offer to help fix that problem?

There’s a modest plan to allow housing development on state-owned surplus parcels to help boost housing supply and more state funding for low-income housing. There’s a plan to let young, low-income people, regardless of immigration status, sign up for Medi-Cal. There’s more money for early education, preschool, college tuition, mental-health programs, police training. There’s a mandate for people to have health insurance or face a fine.

California has been implementing such spending policies for years, but its poverty rates, debt levels, poor schools and crumbling infrastructure never get noticeably better. That’s because California rarely tries competitive, innovative or reform-minded strategies. Its top officials are stuck in a time warp where higher taxes, more regulations and bigger state bureaucracies are the only imaginable approaches.

Newsom’s budget expands services for the poor and “may alleviate (poverty’s) symptoms,” noted CalMatters columnist Dan Walters but “ignore(s) root causes of California’s highest-in-the-nation poverty.” That’s spot on.

If California’s Democratic officials really want to offer model for the nation, they ought to try something that addresses those root causes. Instead we get yet another round of stale and costly spending programs that, if copied throughout the country, will only make the nation poorer and lead it more deeply into debt.

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No bubble: Chapman forecasts mild housing rebound for Orange County


Dr. James Doti the former president of Chapman University. (STEVEN GEORGES, CONTRIBUTING PHOTOGRAPHER)

Chapman University economist Jim Doti sees no housing bubble to burst in Orange County.

Yes, countywide homebuying since last summer has run at its slowest pace since 2012. But Chapman’s semiannual economic outlook suggests the county’s housing market will enjoy a mild recovery as 2019 progresses.

Doti’s logic may surprise many people.

For starters, he explains that local housing prices — easily double national benchmarks — are “economically rationale given the county’s higher median income, amenities and proximity to the Pacific coast.”

Plus, housing suddenly looks not so pricey thanks to a sharp reversal in mortgage rates, which have driven borrowing costs down to near-historic lows.

ICYMI: Does California need another crash to create affordable homes?

Doti’s math shows a household buying a median-priced Orange County home in 2018’s third quarter spent 40% of their income to be a qualified borrower. By the end of this year, if the forecast proves true, cheaper mortgages mean the typical local home will cost only 33.6% of income.

However, Doti is by no means projecting any housing boom.

The forecast sees sales of existing homes rising only 1.3% this year, a change of pace from falling 9.7% in 2018. That modest buying uptick will boost the median price by just 1.2% vs. last year’s 4.8% gain.

The recent sales slowdown nudged local developers to cool building plans, a trend that won’t change soon.

Chapman forecasts residential building permit dollars will fall 2.5% this year which is actually an improvement as construction spending fell 13.4% in 2018.

Fewer dollars spent means construction jobs will grow only by 1.2% this year vs. 4.5% in 2018. And those lower mortgage rates won’t help workers in financial services: Chapman expects staffing to be cut by 0.9% this year after dipping 0.4% in 2018.

One reason the Orange County housing market will escape the recent rough patch is that bosses countywide will still be hiring, albeit at a slower pace.

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Job growth is forecast at 1.3% for 2019 vs. 2.1% last year. Increases in personal income will cool, too: 4.5% in ’19 vs. 5.6% last year.

And the moderating expansion will continue to be a drag on another major Orange County purchase: vehicles. Chapman forecasts auto spending will grow just 0.3% vs. 1.1% in 2018.

It should be noted that Orange County is by no means alone with an economic chill.

Look at employment trends elsewhere. The school predicts 1.5% more California workers this year, down from 2% growth last year. Nationally, job growth is pegged at 1.5% this year vs. 1.7% in 2018.

Still, Doti notes significant risks in local housing tied to real estate’s three magic words: Jobs, jobs, jobs!

“There is no question O.C. housing prices will fall more dramatically when we have our next recession,” he says. “The drop in median income caused by the recession will have an exponentially negative impact on prices. But that correction will be temporary and will eventually be ‘corrected’ when incomes increase again.”

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