Capitalism: A Confused Story
By David Henderson
Last week, I watched Michael Moore’s latest movie, Capitalism: A Love Story, with two of my students. I took notes and we stopped at various points to discuss it. Some highlights:
10:40: He has a segment about a firm in Florida called Condo Vultures, that goes in and buys properties that have fallen in value and then flips them for a higher price. Moore seems to think this is wrong and, interestingly, so does the guy with Condo Vultures, who talks about how ruthless and bloodthirsty he is. And why is the guy bad? Because he offers to buy houses. This isn’t Kelo where the government just steps in and steals people’s property. This is a voluntary transaction. So the seller gains, the buyer gains, and the ultimate buyer gains. What this one segment shows is that Moore doesn’t understand the basics about how wealth is created. Of course, neither does the guy with Condo Vultures.
By contrast, a friend of mine who understands the economics of what he’s doing buys cheap houses in Detroit, fixes them up minimally, and then resells them at a substantially higher price. How does he get a much higher price? By taking the risk of being the lender. He calculates that if the borrower pays on the mortgage for 16 months, he will break even. Everyone gains. Bonus: To the extent the new owners maintain the property, they create a positive externality for the neighborhood.
64:40: Economist Ken Rogoff stumbles in explaining derivatives. Pretty funny. Still, I’ve been in that situation. Did Rogoff recover and do it better? We don’t know.
65:20: “They made the equations purposely confusing.” Oh, that’s why derivatives are so hard to understand: not because the math is inherently difficult but because the people who do it make the math harder than it need be.
70:00: A company from outside the state of Michigan hires workers in Flint, Michigan to send out foreclosure notices. The tone of this segment suggests that this is bad. Why? Moore doesn’t want workers in Flint, Michigan to have jobs? Or Moore doesn’t want workers in Flint, Michigan to have jobs sending out foreclosure notices? I’m guessing you chose the second option. Then consider the 123:00 point right at the end where he tells us that the company no longer employs those workers in Michigan. So we should be happy for them, right? Well, no.
72:00: People who lost their house in a foreclosure are paid $1,000 by the foreclosing owner to get rid of their trash. They voluntarily accept. The tone: this is bad. So it would have been better to pay others? You get kicked out of your house. Which would you prefer: to leave your stuff there and let someone else sort through it or to get paid $1,000 to sort through it yourself?
75:00: To his credit, Moore shows Senators Conrad and Dodd getting special deals on their mortgages from Countrywide.
83:20: Great line, “Tim Geithner has been a failure at every job he’s had.”
88:20: Shows Representative Paul Ryan, R-Wisc., saying “Heaven help us” if we don’t pass TARP. Mr. Ryan’s low point. At the time, I wrote one of his staffers, whom I had dealt with a year earlier, pleading with him to persuade Ryan not to vote for the bailout. You can see how successful I was.
106:30: Miami police back off when people in a neighborhood threaten an employee of a lender who comes to foreclose. Moore seems to like this. Message: you shouldn’t have to pay your debts.
107:30: Republic Windows & Doors in Illinois closes down, owing its workers back wages. The workers take over the plant and end up getting President-elect Obama’s support for their violation of the owners’ property rights. Moore seems to like this. Message: you should have to pay your debts.