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Patrick Grady
The Misguided Economics of Michael Moore's Capitalism: A Love Story
October 23, 2009

In his latest flick Capitalism: A Love Story, Michael Moore goes right for the jugular of capitalism after years of stabbing around the edges with such films as Roger and Me and Sicko. Not merely content to chronicle recent abuses, he now denounces capitalism itself. And not only as just a badly functioning economic system, but as pure, unmitigated evil. He regards capitalism as inherently unfair since it based on greed. The film portrays capitalism as the root of the recent financial crisis and the source of all our current miseries.

This may not sound like a very promising premise for a movie even to an economist. But after 4 weeks, it had already made $12 million (estimate as of October 21). It is thus meeting the capitalist market test of providing people what they want whatever that may be and at least covering the film's cost.

And it must be admitted that the movie is hilarious, particularly from my point of view as a dismal scientist, although from the silence around me at times I'm not sure I was always laughing at exactly the right places. The movie is definitely a mockumentary with Michael Moore egotistically cast once again in his signature starring role as the folksy clown-critic, champion of the downtrodden and intrepid foe of greedy corporate oppressors.

Moore is at his best when he is muckraking. His coverage of the source of financial crisis, and the problems of inadequate financial regulation are revealing, abeit one-sided. His interviews with Bill Black, a former regulator, and Elizabeth Warren, the TARP Overseer, also shed useful light on the crisis. Moore is right when he blames the financial market deregulations starting with President Reagan and going through Presidents Clinton and Bush as being at the root of the problem. But unfortunately he fails to provide any specific suggestions for how the catastrophic failures of the regulatory regime can be remedied.

Cartoon by Dave Granlund, The Christian Science Monitor, Reprinted with his permission.
Cartoon by Dave Granlund, Reprinted with his permission.


Check out Michael Moore's luxurious lakeside retreat. He certainly doesn't let his distaste for capitalism interfere with his enjoyment of its fruit.

Moore’s over-the-top antics may be good theater, but they make sure that he never has a serious chance of getting inside any of the glass towers of capitalism, be they GM headquarters in Detroit or Goldman Sachs offices on Wall Street. But this doesn’t really matter, because in spite of what he says, he doesn't really want any tedious footage of corporate leaders trying to explain the motivation for their actions. That would be boring. Much better to stand outside with a bullhorn and yell for them to come outside and submit to a citizen's arrest.

I got a big laugh out of his attempts to get a simple explanation of a Credit Default Swap. Even Ken Rogoff, one of our profession’s leading lights, was only able to supply a confusing muddle (or so Moore would have us believe as he did edit Rogoff’s remarks, perhaps for comic effect). It is surprising that Moore allows the viewers to go away at the end of the film still in a fog about why the Credit Default Swap was so toxic to the stability of the financial system.1 But at least they all got a good laugh, which may be the real point of the movie.

As an economist, I’m sad to have to admit that capitalism has not been shown in its best light by recent events. It thus should be no surprise that Michael Moore has no problem finding plenty of canned footage to illustrate his thesis of the key role of greed and inadequate regulation in producing the recent near financial collapse and subsequent bailout. His Photo-Shopped clip of President Bush's sombre September 24, 2008 speech on the financial crisis with people running around screaming Chicken-Little-style, White House pillars collapsing, and fires breaking out all around only evokes laughter because the situation was actually almost that grim. Gallows humour always appeals to our fatalist side.

And the large bonuses paid subsequently at the financial institutions that took the TARP money are easy targets that show the continuing persistence of greed and irresponsible behaviour. Michael Moore makes much of this and the fact that more than a year after the crisis the lax financial regulations that permitted the crisis to develop have still not been tightened. And he’s right that not a single new financial regulation has been passed by Congress yet.

However, a few of the other examples that he uses to reveal the seemy underside of capitalism are not really very telling blows to capitalism as a system. The abuses of the for-profit prison in Wilkes-Barre he featured had already been identified and resulted in criminal prosecutions. And Wal-Mart had in 2000 already cancelled its so called "dead peasant" policies that provided the basis for his portrayal of the family exploited by the company.

The most heart-rending scenes concern the foreclosure of an elderly farmer in Illinois who had been forced to mortgage his farm and a family in North Carolina being evicted from their home. It’s hard to see how it could be otherwise given the way home finance has to work. If a financial institution is not allowed to sell the property if payments aren't made, then no mortgages will ever be available for those who need to borrow money to buy a home. In fact, one of the reasons there are so many foreclosures is the Government encouraged financial institutions to make mortgage loans to low-income people who couldn’t really afford them through such mechanisms as the Community Reinvestment Act and Fannie Mae and Freddie Mac.

Michael Moore makes much of the inequality produced by capitalism. His assertion that the top 1 per cent have more financial wealth than the bottom 95 per cent is mostly true (in the 2001 Survey of Consumer Finances consulted by Moore, the top 1 percent owned 39.7 percent of the financial wealth, while the bottom 95 percent only owned 32.5 percent). While there is some question of whether financial wealth is the most appropriate indicator, it is also true that there has been a further deterioration in recent years up to 2007, the latest year currently available. Consequently no matter how you cut it, the richest 1 percent of Americans do own a vastly disproportionate share of the nation's wealth. Fair enough. But Michael Moore’s simple-minded interpretation of this complex statistical fact is that “And what we've got right now is we've got one guy coming to the table, taking nine slices of the pie and leaving one slice for everybody else.” And the farmer in the movie being foreclosed predicts “a rebellion of those who have nothing against those who have it all.” Wait a minute, that’s not what the statistics say. Why does Moore's imply a much greater inequality than actually exists to make the situation look worse than it is?

Perhaps surprisingly to those who don’t see Michael Moore in the Christian camp with Jerry Fallwell and Pat Robertson, his most fundamental objection to capitalism is moral. In his own words, this stems from his Catholic faith (which by the way doesn't extend to such an extreme as embracing support for the Church's opposition to abortion and same-sex marriage).2 To support his position, Michael Moore gets two priests to make cameo appearances. One of them, Father Dick Preston, who married him, affirms that "Capitalism is precisely what the holy books remind us is unjust."

In support of his deep faith, which evidently does not preclude sacrilege, Michael Moore also drafts none other than Jesus Christ himself into service. He voices over scenes of Our Lord preaching from the Franco Zefferelli film with panegyrics about capitalism. The idea, of course, being that viewers will see the obvious absurdity of the views expressed and be repelled, after they stop laughing of course.

It’s one thing to get a couple of socialist priests to denounce capitalism in front of the camera and even to exploit Jesus for a lesson in reverse psychology, but that doesn’t really reveal the official position of the Church. In fact, the current and the last popes have actually been pretty favourable to capitalism as long as it is properly regulated.3 Two popes should trump Michael Moore’s two priests. Michael Moore’s recourse to religion is entirely sentimental and not founded on any real knowledge of the Church’s social teaching.

Moreover, Moore’s critique of capitalism is more along the lines of Harpo rather than Karl Marx. Being based mainly on anecdotes and humour, it lacks theoretical rigour. It should come as no shock that Michael Moore is not a deep thinker on economic matters. After all, his only formal study of economics was in high school.

Capitalism is characterized by private ownership of the means of production and the allocation of resources by the free market. Socialism (or in its worst form Communism) has public ownership of the means of production and the allocation of resources by a central plan. While no real-world economies ever corresponded 100 per cent to these ideal types, most observers would agree that the American economy was mostly capitalist, and the Soviet Union was mostly socialistic or communistic. Between these extremes other variants developed like market socialism in Yugoslavia. And China has become increasingly market oriented while preserving much government ownership and the rule of the Communist Party. In addition, anyone who hasn’t been playing Rip Van Winkle for the last twenty years knows that the Communist system in Russia and Eastern Europe collapsed at the end of the 1980s. And now the traditional command economy with central planning only exists in a few totalitarian backwaters like North Korea and Cuba. Almost all the other countries have turned to free markets to guide the allocation of resources in their economy and can thus be viewed as capitalist to varying degrees.

Some confusion has been created about what has been called social democracy. This term has been applied to some economies like those in Europe where a social democratic party forms the government and a highly developed welfare state exists. But in actual fact these countries such as Sweden are not socialist in the traditional sense, but are really capitalist economies with a larger role for government.

All this is a prelude to asking what exactly is Michael Moore suggesting since he certainly doesn’t make it clear in his movie. One unfavourable interpretation, given that he seemed so fond of Cuba and its health system in Sicko, is that he is proposing an old-fashioned Cuban-style command economy. However, this flys in the face of his emphasis that the system must be democratic. And Michael Moore will never admit to being a socialist when asked the question directly by interviewers. Or is that a coming attraction?

So if Michael Moore is not a real socialist, he must, by the process of elimination, be a capitalist. And there can be no doubt that he has made a pile of money from his movies, which he finances, produces and directs himself (not to mention his narrating and acting which helps to keep down costs and boosts profits).

Then what is he proposing? He provides a few glimpses in the movie.

Apparently, given that much of his criticism of capitalism stems from his faith, he would like to transform the existing system from an evil “anti-Jesus” one based on greed to one based on fairness and justice. This implies changing hearts and minds. And smacks of Communist efforts to create the new socialist man (in those days sexism was rampant even among Communists). If pervasive propaganada from the cradle to the grave and even extreme measures under Stalin and Mao like reeducation camps and the Gulag were unable to alter basic human nature, are movies, even funny ones, likely to be any more successful?

Moore puts much stock in the Second Bill of Rights put forward by President Franklin Roosevelt shortly before his death. It added economic and social rights to the more traditional political rights. These included: a job, a decent home, education, medical care, and economic security. They weren’t to be enforced by the courts but were to reflect a political commitment. This is not unlike the United Nations Universal Declaration of Human Rights and the Charter of Fundamental Rights of the European Union. A bill of economic and social rights would not be inconsistent with capitalism as long as it was a statement of intention as proposed by Roosevelt and not judicially enforcable. So Michael Moore is not proposing anything here that would result in the end of capitalism as we know it.

Capitalism and market economies have supplanted socialism throughout most of the world because they take people as they are and provide the necessary incentives. As Adam Smith said, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.” This is why capitalism has been the most dynamic producer of wealth in human history.

It’s also no coincidence that Michael Moore likes to use upbeat film clips and nostaligic background music from the 1950s. To him these are the golden days when his father and uncle pulled down good wages and benefits working for GM (or related suppliers?) in Flint Michigan. In the movie, Moore actually said that he would have liked to preserve these times by protecting the American automobile industry against foreign competition. Moore regards globalization and foreign competition as an evil to be resisted. And he would like to restore GM and Flint to their heyday. Wow, talk about wishful thinking. Michael Moore is expecting a lot from the Car Czar.

Moore laments that GM and other manufacturing industries that used to provide jobs capable of sustaining a middle-class life style have laid off half of their workers and made the remaining workers work twice as hard. And they may have laid off half their workers but with automation those left didn’t necessarilly have to work twice as hard. If GM would have not downsized, they would have been out of business years ago. And those displaced found other jobs.

Ever the moralist, Moore also seems to have strong views on relative pay. He paints a very sad picture of the plight of airline pilots who because of the depressed state of the industry now, in at least one featured case, allegedly earn less than a Taco bell manager and are forced to rely on food stamps. While the earnings of individual pilots can vary widely, the facts according to the Bureau of Labor Statistics are that the median annual earnings of airline pilots, copilots, and flight engineers in 2006, were $141,090 (and it's highly unlikely they've declined to the extent suggested by Moore). This should indicate the risks of drawing general conclusions from anecdotal information. If the government were to seek to implement Moore’s pay preferences among various occupations, the end result would be surpluses and shortages and increased structural unemployment.

Moore does hold up a few examples of workplace democracy as worthy of emulation. These include an engineering firm called Isthmus Engineering and Manufacturing, and a bakery named the Alvarado Street Bakery. Both of these firms are owned by their employees. Moore holds them up as models of how the broader economy should be organized. And they do seem to be doing well from what Moore shows. But that two worker-owned firms are doing well does not prove that the overall economy would be improved if many more firms were to be worker owned. If, in general, worker-owned firms were more productive and innovative, they could be expected to gradually replace the traditional capitalist-owned firms. That they have not is evidence that they are not in general a superior form of industrial organization. In contrast, corporations have replaced proprietarships.

Moore also favours a universal, single payer health care system. While this is often called socialized medicine, there are many capitalist countries such as Canada and the United Kingdom that have such a system. And regardless of its merits, its advocacy can scarcely be considered equivalent to arguing to replace capitalism with socialism.

At the end of the movie, Moore says that "Capitalism is an evil, and you can't regulate evil. You have to replace it with something that is good for everyone. It should be eliminated." But those wanting to know what exactly capitalism should be replaced with will have to wait for the sequel. While in interviews he goes to great length to avoid labelling himself as a socialist, is he eventually going to call for the establishment of socialism? This would certainly be a logically consistent position as socialism is the only real alternative economic system. And it also explains the Internationale playing in the background at the end. But it would also be stupid as socialism has been tried and found wanting throughout the former Communist block. If Michael Moore decides to become a socialist, he should add an autobiographical chapter in the next edition of his bestseller Stupid White Men.

A final observation is that Moore is very optimistic about what can be accomplished under President Obama’s new Administration. But, since Obama’s agenda does not include the abolition of capitalism, Moore must be in for a big disappointment. How long will it be before Moore turns on the new President and isolates himself from the Democratic Party, which he claims to support? Stay tuned.


Notes

1.   A Credit Default Swap is a contract whereby a holder of a debt obligation agrees to pay another party a regular payment in return for a contingent payment providing compensation for any loss only in the case of a default. It works like a form of insurance for investors and was especially popular with those investing in high risk Collateralized Mortgage Obligations (CMOs). By selling such contracts, AIG earned a fraction of one per cent a year (40 to 60 basis points) on hundreds of billions of dollars in debt for several years before the crisis and eventually ended up having to reimburse buyers like Goldman Sachs 30 to 70 per cent of the value of the principal. Since AIG had made no provision for such a risk and couldn’t pay when the defaults occurred, the Federal Government stepped in and bailed it out to the tune of almost $150 billion. Now you know what a Credit Default Swap is, which is more than you would have learned from Moore’s firm.

2.  "Michael Moore to Wesley Clark: Run!" MichaelMoore.com, Retrieved October 18, 2009, and Canwest News Service, "Moore may tackle gay rights," Canada.com, Retrieved October 18, 2009.

3.   Pope John Paul II, Centesimus Annus, 1991, par. 42, and Joseph Cardinal Ratzinger (now Pope Benedict XVI), "Market economy and ethics," Acton Institute for the Study of Religion and Ethics, Occasional Papers.


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