The View From Here . . .

The sudden passing of Tim Russert last Friday is a major blow to American journalism and American political life. Few politicians particularly enjoyed being interviewed by Mr. Russert, but that was the point. Among partisans of both parties, he was regarded as tough but fair, qualities that seem rare among Washington media figures in this very polarized age.

While on a brief vacation this week (the lad will be going to camp in late June so I want to spend a little time with him beforehand), I have been reading an interesting book on capitalism, A World of Wealth: How Capitalism turns Profit Into Progress, by Thomas G. Donlan (FT Press 2008). Mr. Donlan is editorial page editor of Barron's.

A World of Wealth is a 200-page primer on the virtues of capitalism as they apply to a variety of contemporary issues. Mr. Donlan also provides the reader with significant amounts of economic history demonstrating the tremendous economic strides associated with the rise of capitalism starting in the industrial revolution.

Mr. Donlan tackles numerous current problems from a capitalist perspective. For example, he believes that the current high prices for oil are more the solution than the problem with respect to the current energy crisis. In addition to encouraging consumers to use energy wisely, high prices stimulate demand and signal the need for energy technologies. Based on past examples, each time a shortage of production pushed oil prices up, the development of new patches of oil becomes possible. These principles should lead to the development of oil shale tar sands and other currently expensive sources of oil. He also believes that a free market approach is much more viable than governmental solutions involving subsidies and the quest for "energy independence", an unattainable goal.

On environmental issues, Mr. Donlan believes that the key is encouraging investment in new technologies rather than attempting to limit the use of existing resources. On issues of trade, he is strongly in favor of free exchange, including the use of outsourcing, and highly suspicious of efforts of government to protect citizens from foreign competition. Mr. Donlan is a strong believer in the comparative advantage theory of nineteenth century economist David Ricardo that every country should specialize in what it does best even if it does not have an absolute advantage in any particular product. Mr. Donlan favors keeping taxes low and equal. He is a believer that immigration is a net benefit for the United States and favors treating illegal immigrants "with the respect and legality they have earned."

Mr. Donlan is in effect writing a brief in favor of capitalism. Because of this approach, he does not spend much time responding to criticisms of classical economic theory and does not deal with examples where capitalism is not an unbridled success. A possible case in point is the deregulation of the airline industry. While low prices have unquestionably resulted, there has also been a legacy of poorer service, overcrowding and, in recent years, significant delays. A few explanations of why capitalism does not always produce optimum results might have been instructive. Nor does he deal in much depth with externalities, where a desirable outcome from the point of view of buyer and seller yields undesirable consequences to third parties.

Nevertheless, Mr. Donlan has constructed a well reasoned, nontechnical and easy to read exposition of the important role that capitalism has played, and will continue to play absent unwise governmental intervention, in the tremendous economic success that we have enjoyed. His book is well worth reading.