The Politically Incorrect Guide to Capitalism: A Summary

Naomi Craig

Mount Vernon Nazarene University

The Politically Incorrect Guide to Capitalism: A Summary The Politically Incorrect Guide to Capitalism is a 2007 publication from Regenery Publishing, Inc., and written by Dr. Robert P. Murphy. The central idea of this work aims at dispelling myths and notions that capitalism is based on greed, and inherently evil. This aim of this report is to summarize the work of Dr. Murphy by providing a brief history of the author and recapping the major points of his book.
Author’s Professional History Dr. Robert P. Murphy received his Bachelor of Arts in Economics from Hillsdale College in 1998, and his Ph.D. in 2003 from New York University (Institute for Energy Research, 2012).
He was a college professor for nearly three years before pursuing his writing and research endeavors. He is a now senior fellow in business and economic studies at the Pacific Research Institute, an economist with the Institute for Energy Research, a research fellow with the Independent Institute, and an associated scholar with the Ludwig Von Mises Institute. In addition to the topic of this summary, he has written another book titled “The Politically Incorrect Guide to The Great Depression and The New Deal,” and regularly writes articles for financial publications including Forbes and Barron’s (Institute for Energy Research).
Summary of Literature Dr. Murphy presents many commonly held misnomers of capitalism in his book and proves to dispel them by using little known, misunderstood, or unreported facts. Murphy does this for each topic by using practical examples or interpreting complex research on a level that even those who lack a doctoral degree can understand.
Capitalism versus Government Price Controls
One popularly held misconception that Murphy addresses is the issue of selling price and price controls in a free market. The author argues that any amount of profit made by a company is fair, and that when government controls prices it creates shortages. Dr. Murphy also raises the case the price controls typically end up hurting the very people they were enacted to protect. One of the most hated entities in the United States is the oil industry. Most Americans perceive the profits of these organizations as perverse and greed driven. Murphy contests that their profits are deserved because of the huge investments, and subsequent losses, these firms make in the exploration of oil, not to mention the costs associated drilling, extracting, and refining the product. He argues that years of abundance counterbalance years of extreme losses, and without the ability to profit at some point the company would choose to no longer produce. If these companies cannot profit, and choose not to produce, supply will drop drastically and cause prices to increase sharply (Murphy, 2007). The author gives an example of a time when the government did place a ceiling on the price of gasoline in the 1970’s. The government regulations caused a shortage of gasoline, since producers were not willing to supply more at the reduce rate (Murphy, 2007). Gasoline was rationed, and even after waiting in long lines, motorist would often times find the station had ran out of fuel by the time they reached the pump (Isidore, 2004). Murphy proffers that the market price should have been allowed to dictate demand, and once the controls were ultimately lifted people were free to buy as much gas as they wanted, when they wanted, and the market began to normalize (Murphy). Dr. Murphy also broaches the topic of rent control, and how it actually does more harm than good for the very people is was intended to protect. The first point against rent controls that Mr. Murphy makes is that new investors will not devote millions of dollars to building modern housing if it must be rented below market value. This leaves those who rely on rent control for affordable housing with fewer choices of where to live, and generally limits them to pre-existing housing. Landlords who do agree to rent under these terms tend to offer lower quality housing, and typically delay making repairs or improvement due to their already low profit margin (Murphy, 2007). Murphy also discussed the topic of the federal minimum wage as a form of a government price floor, dictating the minimum amount a worker can expect to collect from most employers. He even argues that requiring employers to pay a minimum wage increases unemployment. The author states that when the minimum wage is increased employers reduce their workforce until labors costs were the about the same as before the raise went in effect. Employers cannot afford to absorb the higher labor costs, and prefer not to pass them along to consumers; so, the result is less people doing more work, and an overall reduction in available jobs for the unemployed (Murphy, 2007). The minimum wage has received a lot of attention on the national level recently. Those currently working for minimum wage are rallying for an increase from the current federal rate of $7.25 hourly to $15.00 hourly. One city in Washington State, Seatac, has recently passed an ordinance doing just that, making it the city with the highest minimum wage in the United States. Already employers are talking about workforce reductions and closures. One Seatac restaurant owner will close two of his locations and eliminate 200 jobs, while another investment firm is postponing their plans to build a hotel on land they currently own. The American Car Rental Association is predicting a 5 to 10 percent reduction in its workforce. While opponents argue that a higher minimum wage makes workers more productive, employers counter that if people are more productive, fewer of them should be needed (Springer, 2013).
Capitalism and Conservation Another popular issue that the writer explores is the effect of capitalism on the environment. Conservationists argue that capitalism is bad for the environment because of the large amounts of energy used to power our consumption driven society. Those in favor of conserving our resources for future generations believe that any energy consumed today is being taken at the expense of future generations, and will cause shortages in the future once these resources are depleted (Murphy, 2007). Murphy contends that even if oil consumption were cut by a million barrels a day and saved for future generations, that our children and grandchildren would also be intimidated into consuming less under the guise that their future generations would suffer from their greedy consumption. The book also lists five points in United States history from 1885 to 1949 when the government was certain the national supply of oil was nearly depleted, but in fact known oil reserves have nearly tripled since 1944. Murphy contends that oil companies are in business for the long term and will not sell all of their product in the present, leaving nothing for the future (Murphy, 2007). Another myth of capitalism addressed by Dr. Murphy is that the manufacturing process and the vast consumption of fossil fuels is destroying the environment by causing acid rain, holes in the ozone, and global warming. The author asserts that capitalist countries have the strongest environmental regulations, and the majority of serious environmental disasters happen in countries with command economies (Murphy, 2007). To back up Murphy’s claim that capitalist economies are also concerned with reducing consumption of raw materials, one study by the Cato Institute points out that as new technology is created and developed, old technology becomes obsolete and fewer raw materials are needed to produce items. The example used was an Apple iPhone. The author of this article listed 16 items that her one iPhone replaced. From her home phone and her alarm clock, to her date book and GPS, this one product is capable of functioning as more than a dozen items do separately. Certainly consumption of raw materials to produce 16 items is more than offset by the amount of materials needed to produce one iPhone. According to conservationist, less consumption of any material is always good for the environment. A product such as an iPhone is the result of technological progress that was developed because capitalist entrepreneurs want to create goods that consumers will demand by name (Tupy, 2012).
Government and Capitalist Management Differences This book also does a thorough job explaining the difference between how government entities and capitalist based organizations are managed. Murphy maintains that waste and poor customer service are standard practice in government because their motivation is not profit driven and consumers cannot choose another entity with which to do business. The example used here was of the subway systems in large cities. This form of mass transit is usually overcrowded, dirty, and unsafe; but, what motivation does government have to change it? Since the subway system really faces no competition from other forms of mass transit, there is no reason in investing the extra money in improving conditions. Conversely, private enterprise is interested in making customer experiences pleasant, with the hope that these customers will return again and again. Here Murphy uses the example of a movie theatre or an airline, both stop selling tickets once they are at capacity to ensure the comfort of their guests; whereas, the subway sells an unlimited amount of fares with no concern for capacity or the comfort of its passengers (Murphy, 2007). Two other examples of government waste and mismanagement discussed in this book were Amtrak and the United States Postal Service (USPS). Amtrak is a quasi-governmental agency, meaning that while it acts as a private entity would (shareholders, board of directors, etc.) it is closely controlled by the federal government. The board of directors for Amtrak is nominated by the President, and must receive confirmation from the United States Senate. The United States government is also the only owner of the preferred stock issued by the corporation. The aim of Amtrak’s creation was to maintain rail service to urban areas and to do so profitably. Yet, since its inception in 1971, Amtrak has never shown a profit, and continually requires infusions of federal dollars to cover their losses. There is actually one line, the Sunset Limited, that suffers such large annual losses that it would cost less to give each passenger an airline ticket to fly to their destination instead running the locomotive (Murphy, 2007) The author states it is his belief that Amtrak continues to receive funding, despite never being profitable, because it is a popular mode of transportation for many Washington D.C. officials and their staff. Also, Dr. Murphy makes the point that if the government is always there to cover your losses, there is no need to minimize them (Murphy). The USPS differs from Amtrak in that it is an agency of the United States government. The USPS is the third largest employer in the U.S., and it is well known for its inefficiencies, increasing prices, and poor customer service. Multiple cases of misconduct by postal employees are documented in the text, including mail that had been destroyed or hidden by postal employees, as to avoid documenting its delayed delivery (Murphy, 2007). Advocates of the USPS contend that the post-office is self-sufficient, but in reality the Department of Treasury has been loaning the entity funds to pay back previous loans made by The Treasury Department. This is the equivalent a mortgage lender loaning a client the money to make their required mortgage payment (Lee, 2013). The USPS lost $16 billion dollars in 2011, and over $41 billion from 2006 to 2011. A large portion of their losses come from pension and healthcare liabilities of their current and retired employees. The USPS has a legal monopoly on the delivery of first class mail, and yet cannot control costs well enough to remain self-sustaining, even though the cost of their products and services rise annually (Lee).
Outsourcing and Imports help the American Economy The final widely held fallacies of capitalism dispelled by Dr. Murphy are that outsourcing and inexpensive imports destroy American jobs. The text states that the downturn in American manufacturing jobs occurred because the recession beginning in 2000 decreased American demand for goods overall, and not because Americans have shifted their preference entirely to less expensive imported goods (Murphy, 2007). The author provides 2004 statistics regarding the number of jobs outsourced compared to the number of jobs insourced. Even the bleakest figures estimate that 406,000 jobs were outsourced, but does not account for the jobs insourced by foreign companies who have subsidiaries in the United States. The State of California alone had 561,000 insourced jobs in 2004. Murphy contends that the automation of the manufacturing process through technological advances has been the largest cause of manufacturing job losses in the twentieth century (Murphy, 2007). Another caveat of this issue is that many average Americans have their retirement savings in stocks and bonds, and these investments are generally in multinational organizations. When these companies do well by outsourcing their operations their American shareholders reap the benefits, and all consumers are benefitted by reduced prices for goods and services. So, while a few thousand people unfortunately lose their jobs, thousands, and possibly millions, benefit from the company’s lower costs and increased profits.
Conclusion
The author does a thorough job presenting his position as a supporter of capitalism by exposing the flaws in the logic of those who oppose it. The Politically Incorrect Guide to Capitalism is highly acclaimed by many conservative economists, and was chosen as a main selection of the Conservative Book Club. Often times it is irreverent and straightforward, but it is for these reasons it has been assigned as required reading in college level economics courses across the globe (Ludwig von Mises Institute, 2013).

References

Institute for Energy Research. (2012). Robert P. Murphy. Retrieved from instituteforenergyresearch.org: http://www.instituteforenergyresearch.org/scholars/robert-p-murphy
Isidore, C. (2004, October 13). A return to gas lines and rationing? Retrieved from cnnmoney.com: http://money.cnn.com/2004/10/12/news/economy/gas_lines/index.htm
Lee, T. (2013, January 15). Inspector general: postal service will 'cease to exist' without bailout. Retrieved from breitbart.com: http://www.breitbart.com/Big-Government/2013/01/15/Inspector-General-Postal-Service-Needs-Bailout-or-it-will-Cease-to-Exist
Ludwig von Mises Institute. (2013). The politically incorrect guide to capitalism. Retrieved from mises.org: https://mises.org/store/Politically-Incorrect-Guide-to-Capitalism-The-P360.aspx
Murphy, R. (2007). The politically correct guide to capitalism. Washington, D.C.: Regnery Publishing, Inc.
Springer, D. (2013, December 30). Businesses brace for 'serious cuts' as city enacts highest-in-nation $15 minimum wage. Retrieved from foxnews.com: http://www.foxnews.com/politics/2013/12/30/highest-in-nation-15-minimum-wage-stirs-concern-from-local-businesses/
Tupy, M. (2012, June 29). The Miracle that Is the iPhone (or How capitalism can be good for the environment. Retrieved from cato.org: http://www.cato.org/blog/miracle-iphone-or-how-capitalism-can-be-good-environment