Capitalism and Democracy

Pete Buttigieg, a presidential candidate for the Democratic Party, appeared recently on CNN’s “New Day” with Poppy Harlow and John Avlon. He commented on socialism, capitalism, capitalism’s relationship with democracy, and criticized Stephen Moore, a Trump administration nominee for the Federal Reserve Board of Governors, for a comment he made on the same subject. I attempt to bring more context to both men’s statements. Please note that I am not digging into other statements on this subject that might give additional context. Although the interview was with CNN, Tom Boggioni, in RAWSTORY, provided the best transcript that I found. I edited Boggioni transcript a bit, eliminating editorial comments that bridged sentences, and one error in transcription. Harlow asked if Democratic office holders have vilified capitalism to a dangerous level given that most Democratic voters view socialism more favorable than capitalism. Buttigieg said,

“I think the reason we’re having this argument over socialism and capitalism is that capitalism has let a lot of people down. I guess what I’m out there to say is it doesn’t have to be so.” “I believe in democratic capitalism, the democratic part is extremely important. There was this assumption that capitalism and democracy were almost the same thing — if you were for capitalism, you were also for democracy. Right now, we see democracy and capitalism coming into tension.”

Overall, Buttigieg gave a good answer, much better than I expect from a presidential candidate, but there were a few problems with it. First off, he did exercise discretion, and discretion is generally good, by not criticizing fellow Democrats, but he evaded the question, not responding to directly to whether Democrats in office have excessively vilified business and capitalism giving rise to a preference for socialism among Democrat voters. He did say that capitalism “has let a lot of people down.” This is true, but so has socialism. Comparatively speaking, competitive capitalism has a much better record than socialism. As noted by Milton Friedman in an interview with Phil Donohue,

“In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history are where they have had capitalism and largely free trade. If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that. So that the record of history is absolutely crystal clear that there is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.”

Buttigieg is correct to limit his praise to democratic capitalism. The success of capitalism to create long-run prosperity seems to be limited to those countries that combined democratic and market institutions. The two can work to strengthen each other. Economists have emphasized this relationship in their empirical findings after Friedman made his statement. While I disagree with Buttigieg’s wording, “we see democracy and capitalism coming into tension,” he certainly captures the mood of many voters. To be clear, democracy and capitalism are not people; they don’t make decisions and they don’t experience tension. Focusing on economic agents is more productive than ascribing human characteristics to institutions. Politicians from both parties, combined with politically empowered businesspersons, have designed law to benefit each other to the detriment of large groups of voters. Buttigieg brought one of President Donald Trump’s advisors, Stephen Moore, into the fray.

“It was alarming to hear recently one of the president’s economic advisers [Fed nominee Stephen Moore] said between capitalism and democracy, he’d choose capitalism.”

It is easy to pick out part of a quote and criticize the originator for it. As best I can tell, the quote is from Michael Moore’s documentary, Capitalism: a Love Story. The full quote reads,

“Capitalism is a lot more important than democracy. I’m not even a big believer in democracy. I always say that democracy can be two wolves and a sheep deciding on what to have for dinner. Look, I’m in favor of people having the right to vote and things like that. But there are a lot of countries that have the right to vote that are still poor. Democracy doesn’t always lead to a good economy or even a good political system.”

Just as Buttigieg focuses almost exclusively on the weakness of capitalism in its interaction with democracy, Moore almost exclusively focuses on the weakness of democracy. Sure, there are a lot of countries with some democratic institutions that are poor, but all wealthy countries have successfully combined democratic and market institutions to become so. Unlike Bittigieg, in this particular quote Moore does not recognize the positive outcomes when they two types of institutions operate together.