The Future of Capitalism

Ira Stoll surveys the economic scene.

[Editor’s note: Amidst a global financial meltdown and an increasingly activist federal government in Washington, it’s become fashionable to assert that the days of free-market capitalism are numbered. Despite the historical failure of governments based on his theories, Karl Marx is suddenly in vogue as the voice of economic reason. On his new website,, Ira Stoll surveys the economic scene and finds that the conventional wisdom is wrong: reports of the death of capitalism are very much exaggerated, while the causes of the current economic downturn are often misunderstood. The author of Samuel Adams: A Life, Stoll was vice president and managing editor of The New York Sun, which he helped to found. He lives in New York City. Ira Stoll joined Front Page to discuss the roots of the economic crisis, Friedrich Hayek’s legacy, the illusions of ObamaCare, and much more.]


FPM: How did you get the idea for the site and what do you hope it will accomplish?

Stoll: The closing months of the New York Sun were some of the most dramatic months of the financial crisis, and, at the time, the paper’s editorial stance on the Bush administration’s actions was quite an unusual one. Senators McCain and Obama, Secretary Paulson, Speaker Pelosi, President Bush, the Wall Street Journal, the New York Post, Mayor Bloomberg, Senator Clinton, and Rep. Barney Frank all supported TARP. The New York Sun opposed it with editorials like this one. While other papers were cheering on the administration’s seizure of Fannie Mae, which Secretary Paulson has since conceded was an “ambush,” we were opposing it with editorials like this one and this one.

When the Sun closed, I wanted to stay with this story, which seems to me to be one of the hottest of our day and one in which I have a point of view that isn’t widely expressed elsewhere in the press. seems like the best way to do it. I hope it will challenge some of the dominant narratives about the financial downturn, help people better understand some of the issues involved, expose some of the self interest and hypocrisy and moral obtuseness among some of the others speaking out on these issues, and help defend the system of private property rights and rule of law and freedom that has helped allow America to prosper.

FPM: One of the immediately interesting things about your site is the title, Future of Capitalism, which goes against the brooding consensus on some quarters of the Left and the Right that capitalism has no future. For some on the Left, the financial downturn and the ongoing recession is evidence of capitalism’s demise. For some on the Right, the government takeover of banks, automobile companies, and possibly even one-sixth of the economy through an expanded role in health care, is a sign that capitalism is dead and socialism has arrived. What is your prognosis for capitalism?

Stoll: I think it has a future, because it is better than any of the known alternatives at generating innovation, growth, and prosperity. But there are all kinds of varieties of capitalism out there – crony capitalism, Chinese Communist-style state capitalism. The critics have taken to calling real capitalism “unrestrained market capitalism” or something like that. I think that a capitalism in which most of the decisions on allocating capital are made by individuals, rather than the government, does have a future. At least, I am trying to do my part to make sure it does.

FPM: You recently highlighted a useful piece of wisdom from the economist Friedrich Hayek. He observed that “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Based on its handing of the economy to date, do you think the Obama administration appreciates Hayek’s insight?

Stoll: Well, it’s ironic, because one of Obama’s top economic aides, Lawrence Summers, was quoted in the Boston Globe in 2004 reaffirming his 1998 statement,

“What’s the single most important thing to learn from an economics course today…What I tried to leave my students with is the view that the invisible hand is more powerful than the hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That’s the consensus among economists. That’s the Hayek legacy.”

Hayek did write in favor of both a safety net and social insurance. And the Obama people will argue that by not nationalizing the banks, and by supporting a health care overhaul that neither makes all doctors immediately federal employees nor replaces all health insurers with a federal “single payer,” they are respecting markets and avoiding the arrogance of central planning. But in an interview collected for Hayek biographer Bruce Caldwell told me he thought Hayek would have opposed ObamaCare. Hayek had a son who was a doctor in Britain’s National Health Service and hated the bureaucracy.

It does seem to me that Hayek’s insights have been insufficiently heeded, not only by the Obama administration, but by the Bush administration, which, in its treatment of Fannie Mae and AIG shareholders, was as heavy-handed and misguided in my view as anything Obama has done. In holding over Timothy Geithner and Ben Bernanke, the Obama economic policy has really been in many ways a continuation of Bush rather than a radical departure from it.

FPM: One of the biggest recent economic stories is the continuing saga of health care reform. How do you think the Obama administration has handled the process of passing the legislation and what do you make of the health care legislation that we’ve seen so far?

Stoll: As I noted in the review of the book Health Care Turning Point on the site, it’s amazing that they’ve gotten as far as they have. The federal government can barely afford the Social Security and Medicare entitlements it is already committed to. Yet Obama got both the House and the Senate to pass bills of 2000+ pages significantly expanding government’s obligations to fund health care.

I think the resistance they are running into is partly skepticism from the public, which quite sensibly doesn’t believe you can give 40 million more people health insurance without it costing the government more money. In fact, Obama would have us believe that we can cover 40 million more people and at the same time have it be deficit neutral or even bend the cost curve down. The ability of majorities in both houses of Congress to accept that proposition is a testament to something, maybe the power of wishful thinking.

But again, a point not often made, but one I have tried to make at, is that the Bush administration didn’t exactly cover itself with glory on the health care front, either. Total federal, state, and local government health spending in America grew to $1,036 billion in 2007 from $597 billion in 2000, an increase in the government’s share of overall spending to 45% from 43%. Those expenditures will grow further as more of the population ages into Medicare.

FPM: A running theme on your site seems to be the low opinion in which the left-wing American elite, including the Obama administration, holds the American public. For instance, everyone from the president to administration friendly journalists are fond of saying that health care legislation has stalled because the public is insufficiently informed to appreciate its merits. Are they wrong?

Stoll: Obama has given at least 52 health care speeches since taking office. If the public is insufficiently informed, maybe the president isn’t as brilliant a communicator as he is given credit for. I actually think the public has a quite accurate sense of what the general direction of the president’s proposed changes will mean, though if they are uncertain of the details, it may have less to do with their alleged denseness and more to do with the fact that the Democrats have chosen to write 2000-page bills, the details keep changing amid the scramble for individual votes, and the texts of the bills sometimes aren’t released until the last minute.

FPM: In the past you’ve noted that many of your colleagues in the press have, at best, mixed feelings about capitalism. How does that impact economic coverage in this country?

Stoll: Adversely. On the other hand, all sorts of incentives in journalism tilt the playing field toward negative coverage in all fields of endeavor, not just economics or business. You can sell more papers and get higher ratings and win more prizes by exposing corrupt politicians or horrible criminals than by profiling honest, law-abiding citizens. So it’s not just the businessmen who fall victim – Bill Clinton got some rough press coverage there for a while, too.

FPM: A subject that you’ve often explored on the site is that role that religion plays in people’s understanding of capitalism. We saw a demonstration of that most recently during the Bernie Madoff scandal, which triggered a bout of anxiety from Jews concerned about how the story might play into classic anti-Semitic stereotypes. What are your thoughts on that aspect of the Madoff case and, more broadly, how religion colors people’s perception of capitalism?

Stoll: I didn’t really see the Madoff case that way because so many of his victims were also Jewish. In my review on the site of Jerry Muller’s book Capitalism and the Jews, I wrote about what Professor Muller calls “The Long Shadow of Usury.” I think a lot of popular hostility toward financial capitalism is driven by age-old, mainly Christian, hostility to usury and its association with Jews, a theme that was taken up by both the Communists and the Nazis.

FPM: You’ve recently editorialized against the so-called soda tax, which New York’s Gov. Patterson, among others, have suggested passing on sugary soft drinks as a way to fight obesity. Why do you object to the tax – particularly since, as you note, you don’t even drink soda?

Stoll: New Yorkers already bear one of the highest state and local tax burdens in the country. The politicians ought to be trying to find ways to cut our taxes, not dreaming up new taxes to impose.

FPM: At the risk of ending on a bleak note, let me ask you about local politics. You seem somewhat pessimistic about the political and economic future of New York State. What would it take to put the state on the right track?

Stoll: Well, the best thing would be new leadership in Albany that understands that New York is competing for human and financial capital, both globally and within the laboratory of the states, and that acts accordingly. The big costs in the state budget are education and health care, and workers in both fields are represented by powerful public employee unions. But even with the right leadership in Albany, New York will have a hard time succeeding if Washington is targeting the financial industry, which is a big job engine in New York.

FPM: Ira Stoll, thanks very much for joining us.