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How to Misunderstand Capitalism

US Capitol Building with cash
US Capitol Building with cash

Someone sent along a link to FIRE Watch—a blog critical of what it views as the dominance of the finance, insurance and real estate businesses over our society.

I'm very sympathetic with this view, by the way. But FIRE Watch makes a crucial mistake that undermines the strength of its argument.

Neoliberalim's central premise is wrong:

The reality it turns out is Rich Individuals do not allocate capital more efficiently or effectively than Poor(er) Individuals or the State.

Woops. Kind of a problem if the underlying ideology and public policy framework rests on redistributing wealth upward or trickle-down economics.

The error here is that the case for free markets does not turn on the idea that wealthy individuals are better capital allocators than anyone else. It's that dispersed, decentralized, and heterogeneous capital allocation is better than concentrated, centralized and homogenized capital allocation. Government regulation by its very nature centralizes and homogenizes, so it needs to be limited.

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