WASHINGTON. Senator Elizabeth Warren is emphatic in her opinion of capitalism: She loves it. She said as much in an interview with CNBC editor John Harwood:
I am a capitalist. Come on. I believe in markets. What I don’t believe in is theft, what I don’t believe in is cheating. That’s where the difference is. I love what markets can do, I love what functioning economies can do. They are what make us rich, they are what create opportunity. But only fair markets, markets with rules. Markets without rules is about the rich take it all, it’s about the powerful get all of it. And that’s what’s gone wrong in America.
People lump Warren and fellow presidential contender, Senator Bernie Sanders in the “progressive” basket. Neither objects to the label. But Sanders calls himself a “democratic socialist.” He makes no bones about his view that capitalism is the problem, not the solution to America’s economic woes.
On the other hand, Warren says that the problem is not capitalism, but capitalism without rules. She wants better rules.
What is capitalism?
Most people understand our economy the way a fish understands water; it’s just there. Ask them to define capitalism and they’ll give you a peevish stare and mutter something about “profits” and “markets.” If they don’t like it, they’ll say “profits” with a sneer.
Economists define capitalism in different ways. Some reduce it to a limited (constitutional) government, contractual freedom and private property rights. Markets are where those property rights are traded. Limited government means the government can’t interfere with trades as it pleases. Rather, it must follow rules.
Capitalism is an economic system where private parties own the means of production. They make their own investment decisions and bear the risks. They make profits or losses depending on how wisely and well they choose their investments, and how well they guess what people will buy.
Can a progressive be a capitalist?
Nobel economics laureate Joseph Stiglitz says “yes.” And in many of her economic policy pronouncements, Elizabeth Warren channels Stiglitz.
For example, both Warren and Stiglitz rail against weak antitrust protection and corporate rent-seeking. They worry about markets subverted by “cheating.” Both argue that markets exist to serve society by creating wealth and opportunity, but that markets – hence capitalism – are failing. They want government to change the rules to fix failing markets so they again can perform their proper function.
Certainly, these arguments resonate with many conservatives. Warren’s critique of crony capitalism is a common conservative refrain. Free-market economists condemn ties between big government and big business as bitterly as any progressive. Crony capitalism is to capitalism what castor beans are to fava beans. Both are beans. But you can savor the latter with chianti and an old friend for dinner, while the former will kill you. A bean isn’t just a bean. And not everything called “capitalism” will make society rich.
Warren’s support of competitive markets and her distaste for market concentration are standard ECON 101. But Warren, whose legal background includes extensive work in personal bankruptcy, has more than a freshman understanding of economics.
Elizabeth Warren sees market failure and corruption everywhere she looks. In January, she told the following to an Iowa audience.
“Every issue that we face — gun safety, environmental disaster, student loan debt, Social Security — they all intersect at this problem of corruption, they all intersect at a Washington that is working for the wealthy and well connected, and not for you.”
In addition, Warren blames international trade distortions on market failure. Markets move jobs from the U.S. to countries with lower wages and weaker regulations, hurting American workers. She is more open to tariffs than typical free-marketeers. She is also much closer to President Trump and Bernie Sanders than to Bill Clinton and Milton Friedman.
Warren on tariffs
Responding to a question from the Washington Post’s Jennifer Rubin, Warren made the following observation.
“This doesn’t mean we should indiscriminately raise tariffs without a coherent strategy. But it also doesn’t mean we should be afraid to use all of our tools, including tariffs, to advance America’s goals through trade.”
Tariffs are most popular with populists and with the crony capitalists Warren abhors. Orthodox market capitalism abhors — and monopolists love — restraints of trade. Warren may disagree with Trump’s use of tariffs, but not in principle. Only in the details.
Tariffs, they say, are like nerve gas that you use against your next door neighbor. You hope that the wind will blow it away from you. Warren’s embrace of them forces us to ask how free-market her capitalism really is.
Labor market distortions
But Warren sees market failure in labor markets as well. She recounted the following anecdoate to the same Iowa audience.
“When I was a kid, a minimum wage job in America would support a family of three. It would pay a mortgage, keep the utilities on, and put food on the table … Today, a minimum wage job in America will not keep a momma and a baby out of poverty.”
The problem, says Warren, is that wages haven’t kept pace with productivity. Wages stopped tracking productivity during the Reagan administration, she claims. Instead, the economic gains of growing productivity went to the wealthy, pushing the wealth gap ever wider.
Is this capitalism?
Elizabeth Warren’s solutions to capitalism’s ills are straightforward. They include:
- Raise the minimum wage.
- Use tariffs to maintain an even playing field in trade.
- Revise the tax code to close income and wealth gaps.
- Beef up antitrust enforcement.
- Regulate financial markets to eliminate predatory lending, improve student loans, and level the financial playing field.
- Pass an Accountable Capitalism Act with new restrictions on corporate boards and adding worker representatives to them.
- Ban lobbying by former presidents, cabinet officials and lawmakers.
- Improve housing markets by funding affordable housing in minority communities.
There are more, but these give some insight into Warren’s brand of capitalism.
Elizabeth Warren and the right
Warren’s concerns about problems in our economy mirror those of many on the right. Conservatives, capitalists, and free-market economists alike worry about crony capitalism. Corruption is endemic in Washington, and our regulatory system favors insiders and big business.
But Warren’s fixes often sound like fighting regulation with regulation. Government is corrupt because it is vast and powerful, offering incentives and opportunities for corruption. However, the solution is not to make it more vast and more powerful.
An essential feature of healthy capitalism is limited government. Capitalists are like anyone else: Give them the incentive and opportunity to use government to help themselves and hurt their opponents, and they’ll do it.
Surprisingly, there would be large areas of potential cooperation between a President Warren and conservatives. But they would disagree on one fundamental issue. Government is too big for capitalism to be healthy, not too small. Making it larger won’t reduce corruption; it will increase it.
From a conservative perspective, Elizabeth Warren certainly wouldn’t be the worst Democrat we could have in the White House. She’s no Bernie Sanders and no Alexandria Ocasio-Cortez. The latter might as well have bought her economics degree from the back of a comic book.
Elizabeth Warren has a clear understanding of some of the problems facing our country and our economy. But if Warren loves capitalism, she views it as a progressive, not as a free-market conservative. Certainly, she sees markets as wards of the government. For Warren, government is in the dominant role. That is ultimately bad for capitalism.
— Headline image: Senator Elizabeth Warren. Via screenshot from Elizabeth Warren’s Facebook page, 04/21/2019.