Where’s Wyatt Earp When You Need Him?

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Last October, Newport Beach’s new and likely next congressman, Dana Rohrabacher, authored HR 422 calling on Congress to laud capitalism as the world’s superior economic model.

I’m a capitalist too, so long as there’s a lawman around to keep it honest.

If you click “capitalism” on Wikipedia, you’ll find there’s “no consensus on the definition” of capitalism. There’s China’s dubious mercantile version. Europeans have their socialist-capitalist blends. The US has a regulated system of capitalism.

The Tea Party and Libertarians favor a 19th Century, free market, Tombstone, Arizona-style capitalism where the price of failure is a burial plot in Chapter 11 Boot Hill. I suspect that’s the version Rohrabacher has in mind, but he might want to reconsider before jumping into his DeLorean and warping us all back to an unregulated 19th century future.

Libertarian capitalists want to believe things work the way Adam Smith described in 1765 in “The Wealth of Nations.” Smith wrote about the invisible hand of supply and demand steering self interest and social interest towards the same (and optimal) result.

Forget, for a moment, that Smith admitted there were self-destructive tendencies in his own model that begged for government oversight. The bigger flaw was that he never foresaw economies of scale.

Smith was describing England, and, in 1765, almost all big businesses in England were bloated, inefficient monopolies. Smith deplored these. Everything else was small. Decades later, Napoleon still derided England as a nation of small shopkeepers.

Well, small works for free market purists, but businesses started getting really big after 1865.

Size generates some benefits (economies of scale), but it also opens the door to abuses. Big companies can drive small ones out of business and otherwise operate in unSmith-like ways to exploit consumers, workers, or the environment. Family farms provided a safety valve in pioneer America, but, as more folks moved to cities, a boom and bust cycle began to plague old-style capitalism.

The abuses were real. Free markets weren’t solving all the problems, so state and local governments began to regulate. This led to a hodgepodge of local rules, and the federal government eventually stepped in to level the playing field.

The recession in 2008-9 reminded us again that big companies don’t self-regulate. The invisible hand doesn’t steer big business the way it steers shopkeepers. The real estate and financial bubbles added to the debate by showing that some companies are now so big they can sink the rest of the economy when they die in a shootout at the capitalist OK Coral.

In theory we could make Adam Smith’s free market model work by breaking up big business, but that would mean giving up the benefits of economies of scale.

So, sorry Rep. Rohrabacher, we need some government regulation to keep the capitalist system fair. If it helps, just remind yourself that Wyatt Earp was a US Federal Regulator – oops, I mean Marshal.


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