Capitalism

I'm still gagging on the punch line to Tyler Cowen's love letter to Ayn Rand:

The true take-away message is a reaffirmation of how the enormous productive powers of capitalism -- the greatest force for human good ever achieved -- rely on the driving human desire to be excellent.

Now it happens that I think that capitalism (or at any rate, a mixed economy with a significant dose of capitalism) is the best economic system for an industrial economy. It did manage to keep chugging on when various variations on socialism ran aground in the twentieth century.

How, though, can a not always idiotic guy like Cowen come up with such preposterous load of crap? I think I understand the logic. Capitalism has been the dominant economic system for the past two hundred years. Those two hundred years have seen a vast burst of technological progress and improvement of the standard of living for a large fraction of the people. Post hoc, ergo propter hoc is the usual name of this logical fallacy. If you attribute everything good that happened in the last two hundred years to capitalism, and everything else to something else, capitalism looks pretty good.

It's far more plausible though, that capitalism was more an effect than a cause of the profound changes that have taken place in the world during that period. Most important, in my view, was the technological burst that came out of the scientific insights of the previous two hundred years. That technological progress coincided with and facilitated tremendous advances in political freedom and equality. Public education created a workforce capable of exploiting the technological revolution.

Attribution all progress to capitalism is a lot easier when one ignores all the pesky details, expecially the extent to which large scale government action facilitated and drove that progress. The Asian transformation of the past fifty years has been one of the most dramatic, and capitalistic ideas have played a role, but of China, India, Japan, and Korea, which practices anything ressembling neoclassical capitalism? Let's go with none of the above. Neither did the economic transformations of the US and Britain take place without a lot of state intervention in their economies.

Modern economic progress has a lot of ingredients: technology, trade, education, finance, and, yes, capitalism, but don't trust the ideological fanatics who try ignore all the details. And don't trust anybody who can write a sentence like Tyler's.