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The new wisdom of capitalism

By Ezra Klein

In his column today, David Brooks exhorted readers to "doubt the wizardry of the economic surgeons and appreciate the old wisdom of common sense: simple regulations, low debt, high savings, hard work, few distortions." Economist Karl Smith had a useful response:

Brooks describes the old wisdom. Yet, the part of it that is old is not wise and the part of it that is wise is not old.

Capitalism is sometimes described as the Art of Going into Debt. Usury laws once prevented the loaning of money for interest. This implied that all investment had to be financed with high personal savings. The breakdown of these laws and, with it the taking on of enormous debts, was instrumental in the formation of our entire economic system.

Similarly, no one doubts the hard work of the Amish. I think few would want their economy. Again, capital – and the ability to borrow it and trade it – not labor is the key to capitalism.

However, most importantly the doctrine of simple regulations and few distortions is in no way common sense. Every social organization from smallest family to the United Nations constantly wants to enact Byzantine regulations in an effort to control what they see as wayward progeny. The insight that these things do more harm than good is one of the overwhelming intellectual accomplishments of pointy-headed economics.

As a rule, I become extremely suspicious when politicians or pundits use the term "common sense."

By Ezra Klein  | November 16, 2010; 5:52 PM ET
Categories:  Economics  
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Comments

As a rule, I become extremely suspicious when politicians or pundits use the term "common sense."

... or if they start talking about the number of pages in a bill.

Posted by: genericOnlineID | November 16, 2010 6:05 PM | Report abuse

Indeed. "It's common sense" is just a shorter way to say, "I have no evidence for this intuition but I believe it anyway."

Posted by: Joel19 | November 16, 2010 6:34 PM | Report abuse

The neoliberal economist Hernando de Soto has long argued that property title, and the ability to borrow against it, is an essential foundation for economic growth in the developing world.

Shall we take it, then, that Brooks is not only full of silly platitudes, but also abandoning classical liberalism? The University of Chicago and Hoover Institution will not be pleased.

Posted by: pseudonymousinnc | November 16, 2010 6:42 PM | Report abuse

--*As a rule, I become extremely suspicious when politicians or pundits use the term "common sense."*--

You're a liar, Klein. A quick search of your won blog turns up numerous instances of you using the phrase "common sense", as well as positively citing others who use the phrase, all without any trace of your being "extemely suspcicious".

I tried posting the first eight links the search returned, but apparently that was too many for the WaPo commenting engine.

Posted by: msoja | November 16, 2010 6:44 PM | Report abuse

The problem with "common sense" is that it often ignores the fact that the counter intuitive answer can be correct.

Take the example of that Fed cartoon on quantitative easing that is making the rounds on the internet. At one point it makes the argument that deflation is good. After all, if we're all struggling to pay for things, wouldn't it help all of us to have everything go down in price? "Common Sense" says, "Yes! Cheaper things mean we can buy more stuff!" But anyone with the slightest understanding of deflationary traps knows that falling prices during a recession can be a very very bad thing.

Whenever I hear the phrase "common sense" my immediate reaction is that whatever I am about to hear will be too simplistic and likely wrong in its conclusions.

Posted by: Nylund154 | November 16, 2010 6:49 PM | Report abuse

Future President Palin bills herself as a "Common Sense Conservative"

I think that mainly refers to it's common sense you don't spend more than you receive! It works at my kitchen table, so it should work with the Federal Gov't, too!!

Of course, common sense does not apply well when applying household budgeting to the largest economy in the world... but shh, that's not how the real America feels

Posted by: will12 | November 16, 2010 7:11 PM | Report abuse

--*common sense does not apply well when applying household budgeting to the largest economy in the world*--

Exactly. The largest economy in the world gets a pass on the laws of economics. It's counterintuitive, so it's okay to steal from people, and spend it on the political whims of the day.

Posted by: msoja | November 16, 2010 7:28 PM | Report abuse

Capitalism didn't take into account the fact that, at some point, the money making machines of a privileged few will be so fine tuned that it can be sucking up great percentages of the wealth in circulation leaving too little for the majority to scramble over. That's the problem with the capitalist economics we practise and it has to be completely re-thought to accomodate these changes. I'm not an economist and I don't know how but I believe we should start with tweaking our capitalism because it controls this economics. http://ohaneze.blogspot.com/2010/05/wall-street-reportedly-circulates-class.html

Posted by: ifeanyiugwumba | November 16, 2010 7:29 PM | Report abuse

"Every social organization from smallest family to the United Nations constantly wants to enact Byzantine regulations in an effort to control what they see as wayward progeny. The insight that these things do more harm than good is one of the overwhelming intellectual accomplishments of pointy-headed economics."

Then how to explain HCR, which is full of these type judgements and regulations?

Posted by: 54465446 | November 16, 2010 7:38 PM | Report abuse

Searching for the phrase "the art of going into debt" turns up only Karl Smith's cited article, and the few people, like Klein, who have quoted him today, so I'm calling Karl Smith a liar, too.

And the rest of what he writes is near gibberish. Trying to draw a parallel between rules laid down among family members and edicts from the United Nations? It's nonsense. The fact the parents establish rules for their children in no way justifies having government likewise treat its citizens as anything less than adult.

Posted by: msoja | November 16, 2010 7:43 PM | Report abuse

--*I'm not an economist and I don't know how but I believe [...]*--

That's the spirit! Rah. Rah. Let's tweak the whole dang thing.

Seriously, though, "Capitalism" is more a word that describes the economic phenomenom that arose of its own accord when industrial efficiencies began to throw off surplus capital, than it is the name of a "system" that someone dreamed up, tried out, and which became overwhelmingly successful, and now can be fine tuned in some way (of which certain commenters, and bloggers, for instance, have no idea.)

Capitalism is what it is. At root, it is simply the realization that money is a commodity, like everything else, and that those who have more of it than they can use immediately can sell it or loan it to those who need it but don't have it. It is but a simple, yet important, extension of free market economics.

How you think anyone is going to tweak that basic concept to any purposeful effect shows the depth of your misunderstanding of the thing.

But, of course, that won't stop you from trying to get the government to do something, anyway.

Posted by: msoja | November 16, 2010 8:14 PM | Report abuse

The mslojan generator is malfunctioning.

Posted by: pseudonymousinnc | November 16, 2010 10:05 PM | Report abuse

That sentence is possibly the most platitude-filled one of David Brooks' career. That's quite an achievement.

Seriously why are you still engaging with this guy? Are we actually in a place as a society where a columnist can flatly reject the whole idea of empirical data yet still remain an "opinion leader" among technocratic DC types? Didn't we just get through 8 terrible years of a leader making decisions based purely on "common sense" and gut instinct?

Posted by: NS12345 | November 16, 2010 10:18 PM | Report abuse

"As a rule, I become extremely suspicious when politicians or pundits use the term "common sense.""

It's a legal problem too: http://psqtest.typepad.com/blogPostPDFs/200812305_psq_54-1_BeyondCommonSenseMakesGreatSense.pdf . Saying something is "common sense" is always a way to hand-wave away rational thought.

Posted by: Chris_ | November 16, 2010 11:36 PM | Report abuse

--*That sentence is possibly the most platitude-filled one of David Brooks' career.*--

Yes, Brooks is a moron, but that in no way magically makes Klein or Smith geniuses. Klein doesn't muster an informed criticism, and all Smith offers is gibberish.

And what? Common sense is on the chopping block now in the new progressive holy land? Who you gonna believe, the prattling, self-serving collectivist glad hander over yonder, or your two lying eyes? We're supposed to be impressed with a guy who asserts that it's not a waste of money to pay people to fix broken windows in abandoned buildings? Or who says "it's game over" if we don't deal with climate change as he jets off to eat shark fin soup in China one week, and morsels of caviar in Spain another? Not that there is anything wrong with such pursuits, only that they illustrate that even Klein doesn't give credence to his own utter, rank nonsense. Why should anyone else give him credence, whether it pertains to the way we supply ourselves with food, make energy, or whether Brooks is an idiot?

And where, through any of it, are Klein's bona fides re "common sense" established? Are we to believe that common sense is so last century that the average down and out Joe who couldn't afford health care last week, can suddently have all his needs attended to with the miracle of progressive economics? There really is free lunch, and plenty of it, for progressively right thinking folks? Really? Common sense says that that isn't so. So where, in the progressive pantheon of elite thinking and Harvard-sanctioned intellectualism, is common sense corrected? And I do mean specifically. Where? Where does the country derive something from nothing? Where does Ezra Klein with a poly sci degree writing propaganda for a declining media outlet trump notions so simple that even common people can hold them?

Posted by: msoja | November 17, 2010 12:13 AM | Report abuse

"Every social organization from smallest family to the United Nations constantly wants to enact Byzantine regulations in an effort to control what they see as wayward progeny."

That's not true at all. Byzantine (aka ineffective and unenforceable) regulations result when progeny become wayward due to lack of respect for their parents. Properly raised progeny master the art of self control and do not require Byzantine regulations to control waywardness.

Posted by: bgmma50 | November 17, 2010 12:25 AM | Report abuse

"The breakdown of these laws and, with it the taking on of enormous debts, was instrumental in the formation of our entire economic system."

And when government socializes the risk of the taking on of enormous debt instead of leaving that risk with the debtor and the creditor where it belong, we are no longer talking about Capitalism, but about something else entirely.

Posted by: bgmma50 | November 17, 2010 12:53 AM | Report abuse

"the prattling, self-serving collectivist glad hander"

Nothing but slogans and spittle.

Posted by: pseudonymousinnc | November 17, 2010 1:02 AM | Report abuse

Well, everyone knows that using the term "common sense" is just a lazy way to dispute pesky facts. It doesn't take a genius to figure that out. It's....comm- HEY WAIT A MINUTE!!

Posted by: klautsack | November 17, 2010 8:33 AM | Report abuse

Paraphrasing the Introduction to Adam Smith's "Wealth of Nations" (first two paragraphs): 1. All wealth is created by labor. 2; The wealth of a nation is dependent upon the ratio of nonproductive members of the nation to the productive members of the nation.

These are the basic assumptions which are then proved (at least discussed in terms of the knowledge of 1776) by Adam Smith.

Posted by: RubberDucky2 | November 17, 2010 11:26 AM | Report abuse

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