The Weird World Of Economics

Don't Blame Capitalism

A FEW evenings ago, my wife and I were standing in the kitchen of our home in Rancho Mirage, Calif., feeding our voracious hounds, when a song came on the radio. It goes, “If only you believe in miracles, baby, so would I ... ”

Suddenly a flood of thoughts came into my head. I put on my swim trunks, and even though it was 42 degrees outside, I got into my superheated pool and swam, looking up at the stars, and this is what I thought:

My whole life is a miracle so far. I live in glorious houses — tar-paper shacks by hedge fund standards, but plenty for me. I have a great American-made car. Above all, I have the most wonderful wife and the handsomest son on the planet.

My parents had a great, super life. They went from obscurity and lower-middle-class status in the Great Depression to fame and fortune in the postwar period. Their good fate was attributable mostly to their genius and hard work, but also to two culprits usually criticized in the media: President Richard M. Nixon, who made my father famous and powerful, and variable annuities, which made him and my mom well-to-do.

Thanks to Nixon’s appointing Pop as chairman of the Council of Economic Advisers and to TIAA-CREF selling Mom and Pop those annuities, their latter decades were happy and comfy. (In the interest of full disclosure, I am the honorary spokesman for the National Retirement Planning Coalition, one of whose many sponsors is the National Association for Variable Annuities.)

All of the miracles of our lives are because of America and our ancestors’ lucky, brilliant decision to move here from the desperation of Eastern Europe. All of it is thanks to the brave men and women who fought and died and bled on World War II battlefields like Anzio and Tarawa to keep us free, and to the framers of the Constitution.

But it’s also thanks to capitalism. I realized this as I swam back and forth in my pool looking up at the stars and the contrails. Under capitalism, my grandparents, my parents and I could be paid the value of what we produced.

Their (our) income and position in life were (are) a function of what value we could add, not of the status of poor stateless Jews that we would have been in Europe.

Capitalism values people as individuals according to contract, as we lawyers and economists learn, not according to the status of our birth. This in itself is a miracle.

This miracle has been vibrant in the lives of hundreds of millions of Americans who have gone from nothing to something, thanks to the dynamics of capitalism. They have seen their pay rise and they have been able to convert their sweat and toil and creativity into capital by saving and investing in the stock market and becoming capitalists themselves — myself.

The system of capitalism is wide open. If you have an idea, you can turn it into capital.

But, as I swam and watched the private jets’ lights as they glided right above my head into Palm Springs International Airport, I had a chilling thought: in capitalism, the most fundamental building block is trust.

When yeoman farmers sent their savings to banks in London and Glasgow and Paris, they had to be able to count on it not being stolen. That was what allowed capital to be accumulated and deployed, and for the entire world economy to take off.

When I see what the top dogs at all too many corporations are now doing to that trust, I feel queasy. Outrageous — yes, obscene — pay. Greedy backdating of stock options, which in my opinion is straight-up theft. Managers buying assets from their trustors, the stockholders, at pennies on the dollar, then forestalling competing bids with lockups and insane breakup fees.

These misdeeds and many, many more are hammer blows at the granite foundation of trust we built in the 1940s and ’50s. How long democratic capitalism can survive these blows before it gives in and gives birth to revolution or to an out-and-out aristocracy, I am not sure.

Empires come and go. Economic systems come and go. There is no heavenly guarantee that capitalism will last forever as we know it.

It’s built on man’s notion that he can trust his neighbor with his money, and that if the neighbor misbehaves, the law will chase him and catch him, and that the ladder of law has no top and no bottom, that even the nobles get properly handled (Bob Dylan again) once they have been caught.

If that trust disappears — if the system is no longer a system for the ordinary citizen but only for the tough guys — how much longer can the miracle last?

EACH day’s newspaper, it seems, brings more tidings of unrestrained selfishness and self-dealing and rafts of powerful people saying it’s good for us to be robbed if only we truly understood the system.

The problem is, we’re getting to understand it all too well.

And there is no one in Washington — absolutely no one — to help.

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posted by UncommonBusiness @ 1:17 AM