Peter Schiff's Cult Of Capitalism

Nice scythe.

Peter Schiff, who is most famous for correctly predicting the housing collapse and subsequent financial fallout (among several incorrect predictions), has something of a cult following on the internet. Oftentimes his fans are younger people, particularly of the Ron Paul fan club variety, which is to be expected because Schiff was an adviser on Paul’s 2008 presidential campaign. Schiff himself has recently entered the political fray, running for the Republican nomination in this fall’s senate election in Connecticut.

As with Ron Paul, I admire Schiff’s candor. He does not kowtow to people by making pleasing and uncontroversial statements. One can generally count on Peter Schiff to say exactly what he thinks. However, this is where my admiration for him ends. I have been following his regular video blogs on YouTube for several months now, and I think I get the economic picture that Schiff would like to paint if it were up to him. It isn’t pretty.

Schiff, like most conservatives, thinks government is awful, and that if it would only get out of the way and deregulate, the markets would be able to function uninhibited and purely, and produce optimal economic outcomes. Everything you need to know about Schiff’s economic philosophy is summed up by the man himself in this video. The relevant portion is from 3:20 to 5:20. Schiff is discussing the Fair Minimum Wage Act of 2007, which mandated that U.S. minimum wage laws apply (piecemeal) to its overseas territories.

So Schiff thinks that it was wrong for the government to require that American Samoans be paid more than $3-something per hour because all the law did was prompt Star-Kist to lay off hundreds of workers, and Chicken of the Sea to shut down its tuna canning plant altogether.

Let’s just concede the obvious—that the people of American Samoa are worse off for this minimum wage law having been enacted, at least for now. Schiff and other conservatives would chalk up this episode to another instance of government intrusion in the free market that made most everyone worse off.

Or, one could view this ordeal as indicative of a very serious problem in the modern global economy: that there is an ongoing race to the bottom among countries to see who can have the most business-friendly climate. The United States is no longer considered the ideal place to produce clothes, toys, electronics, etc.; not because American workers have gotten incompetent, but because we have pesky labor laws on the books regulating things such as minimum wage and workplace safety conditions. In the age of mass production and expedient international transport, it is much more profitable for even U.S. companies to set up shop in Mexico or Indonesia to produce their widgets, even though Americans are the most insatiable consumers in the world.

The solution for Schiff and others, such as the like-minded porn-stached John Stossel of Fox Business, is to eliminate the minimum wage altogether.

It appears that Stossel is being serious when he asks, “If a minimum wage really does help workers, why be so cheap? Why only raise it to $14 [as one town has done] or $7.50—that’s the new national minimum [sic, it’s actually $7.25]. Why not a hundred dollars an hour?” He then notes that at that level, everyone would realize that people would be hurt, but that even at the lowly rate of $7.25, “the principle is the same.”

No it isn’t. That’s like asking why we don’t have a taxation rate of 90% across the board to increase government revenue. Because it wouldn’t. When it comes to taxation, the idea is to set a rate that will generate enough public revenue to cover operating costs, but not so much as to destroy supply and demand and all means and incentives to produce goods and services. Think of the Laffer Curve. Somewhere between 0% and 100% lies the ideal rate at which to tax people (and businesses). Is there such a thing as the “ideal minimum wage?” Many conservatives would say, “None.” While everyone can agree that if raised to a certain point, the minimum wage would inflict great harm rather than providing an overall benefit, I do not believe $7.25 is that point. Not even close. In fact, in inflation adjusted dollars, the minimum is right where it was in the early 1980s, and we’re still lagging behind the 1950s. So even though people like Peter Schiff and John Stossel talk about the disappearance of entry level jobs such as movie theater ushers and gas-pumpers, the fact is that back in the 1970s, those workers were making more money in real dollars.

For a guy who went to Princeton, Stossel often uses arguments so specious that one wonders how he could think them valid in the first place. Stossel is an unabashed apologist for outsourcing because, he says, that means lower prices for American consumers. Of course, he doesn’t address the issue of the millions of jobs, and billions of dollars in wages lost in America as a result of this. If your job has been outsourced, you may not have the kind of money you used to with which to buy these wonderful, now foreign-made products.

Then there was Stossel’s argument against sharing he once made in a 20/20 episode when he was with ABC. His argument—and I’m not making this up—was essentially:

The refrigerator in the staff room at my work is “shared” and the inside is gross and unclean.

Public restrooms are “shared” and they are also gross and unclean.

Sharing/socialism is bad.

Therefore, private ownership is the answer to everything.

Just as frightening as the undying faith that Schiff, Stossel, and other prominent conservatives have in corporations to collectively run the markets effectively and fairly, is that their message is resonating with people. Sure, the Federal Reserve kept interest rates irresponsibly low for way too long in the early 2000s, leading to a nationwide lending spree, but Schiff wants condemn the bartender who kept on serving the alcoholic. Yes, some fault lies with the barkeep, but ultimately it’s on the drunk to clean up his act. And sometimes, an intervention is needed.

But this isn’t how Schiff sees it. He is an enabler of financial terrorism. We ought not to tax the banks that were bailed out, Schiff and many Republicans say, because they will simply gouge their customers to compensate for the lost revenue. This is likely correct, but what does this say about our financial system? What they’re saying is that we can’t enact financial reform that could cut into banks’ profits because the costs will be passed on to the consumers.

Excuse me, but what the fuck? The idea that we shouldn’t attempt to reform financial services institutions, or energy companies, or HMOs because they’ll take it out on the customers is a very dubious and dangerous rationale. This is financial terrorism straight up: threatening a country or a people with economic harm in order to attain a desired (profitable) outcome—in this case, the maintenance of the status quo. Imagine if after 9/11 America had said, we’re not going to go into Afghanistan because that will only make al Qaeda angrier. What would we think of someone who made that argument? I mean, it’s one thing to make a case against war on the grounds that we shouldn’t do it for moral or practical reasons, but it’s quite another to make that decision based on whether you think your adversary will be pissed off or not.

The fact is, the financial services sector of this country needs serious reform. A year and half after the onset of the biggest economic crisis since the Great Depression, fundamentally, nothing has changed. The “too big to fail” problem has only gotten worse; and over-the-counter derivates, which are an integral part of our casino economy, are very badly in need regulation in the form of a central clearinghouse responsible for approving such transactions.

But incredibly, Americans don’t give a shit about the banks or banking reform. They’re worried about socialism. They’re worried that whatever wealth they have left will be distributed to poor blacks and Mexican immigrants. They’re for some reason worried about their taxes that have either gone down or stayed the same under the present administration. This country may be unreal, but it unfortunately doesn’t surprise me when a guy such as Peter Schiff develops a huge following for his market-knows-best-philosophy, even right on the heels of the real estate bubble burst where the market clearly did not know best. As with government, the fundamental problem with markets is that they rely on human decision-making. By definition, that makes them inherently flawed.

- Max