Nothing Fails Like Capitalism

In retrospect, maybe all that stuff about “we” was a warning sign.

I’ve been going through some old articles in preparation for my usual countdown of the top stories of the year, and I came across one with this comment. “In the left’s view, market crashes and recessions reveal the real essence of the capitalist system. In reality, they are just temporary glitches and setbacks in a larger story of persistent innovation and growth.” The same holds for the failure of individual companies, which critics of capitalism like to hold up as revealing the essence of the system.

And so they do, just not in the way the critics think.

I have a new piece up at Discourse explaining how nothing fails like capitalism, taking as my starting point the recent bankruptcy filing of WeWork, a “coworking” office space company that has been slowing dying since its initial public offering spectacularly collapsed in 2019.

The fact that venture capitalists try many ventures that don’t pan out is not a failure of capitalism. It’s one of its features. This is true even if some of the failures are predictable and even obvious, at least in hindsight.

Partly this is a good thing because a fool and his money are soon parted. Capitalists who become overconfident based on their past successes will make bad investments, and soon they will have less capital to misuse. But this freewheeling attitude toward new ventures is also necessary because sometimes a dubious enterprise manages to defy the doubts and pay off.

Was WeWork losing money? Well, so was Amazon for most of its early years, when people used to quip that the company was a vast wealth transfer from Wall Street to the American consumer, blowing through billions of dollars of investors’ money year after year just so we could get used to shopping online.

Did WeWork have a charismatic but mercurial CEO? Well, so did Apple, which briefly got rid of Steve Jobs but found it couldn’t do without his vision. (And so does Tesla, which may still turn out to be a problem.) People can’t always tell ahead of time what is a stupid business idea and what is a brilliant one, and who is the next great innovator versus who is a con artist. Over the long run, it’s good to have an economic system that spreads its bets around and values dynamism and experimentation over caution.

And the big advantage of capitalism is that it actually allows and enables failure.

There is a cognitive bias in how we evaluate capitalism. The bias is that we see all the failures in the capitalist economy because we are allowed to see them. It is precisely because capitalism allows ventures to fail that we see these flamboyant crack-ups as they crumble to nothing.

By contrast, under the alternatives to capitalism—various forms of state-managed economy—failed programs continue for years or decades and are constantly being propped up.

Read the whole thing.

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The Wars of the Tribes

One thing I have noticed, particularly as I ramp up for the year-end review, is that this is the sort of article about economics and markets that I used to write more often. But I haven’t done so as frequently in recent years because that’s just not where most of the action is in the current public debate. Instead, the culture war has risen up to overwhelm everything else.

This is not without its silver linings.