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Dear catholic.com visitors: This website from Catholic Answers, with all its many resources, is the world's largest source of explanations for Catholic beliefs and practices. A fully independent, lay-run, 501(c)(3) ministry that receives no funding from the institutional Church, we rely entirely on the generosity of everyday people like you to keep this website going with trustworthy , fresh, and relevant content. If everyone visiting this month gave just $1, catholic.com would be fully funded for an entire year. Do you find catholic.com helpful? Please make a gift today. SPECIAL PROMOTION FOR NEW MONTHLY DONATIONS! Thank you and God bless.

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Capitalism, Distributism, or Socialism?

In this episode, Trent appears as a guest on Reason and Theology to defend the merits of capitalism against the competing theories of distributism and socialism.


Welcome to the Counsel of Trent Podcast, a production of Catholic Answers.

Can’t stop, can’t stop, won’t stop. Same is true for our podcast. Welcome to the Counsel of Trent Podcast. I’m your host, Catholic Answers’ apologist and speaker, Trent Horn. It is Wednesday, February 3rd, as I’m recording this. So, normally, I record these episodes usually a week or two before they air, but I’m talking about a current event, so, I thought it’d be nice to be up to date with this. And also, I have been a busy beaver. I have been traveling so much. I haven’t had a lot of time to record episodes. Last week, I was in Fargo, North Dakota, giving a series of talks. I love the people up there. I absolutely hated the weather. And the people up there, they agree that when it gets below zero degrees, it’s just miserable, you can’t sugarcoat it.

This week though, it’s been a pleasant change in the weather. I am in Oceanside, California, recording a course for our Catholic Answers School of Apologetics. The course is going to be called Evidence for the Existence of God. So, it’s a full-length course covering the arguments for and against the existence of God. If you want to check that out, as well as my course, a new course, Arguing Against Abortion, those should be available in the next few months. My Pro-Life course will be up first, this one should be up in, I don’t know. It usually takes about them two or three months to edit the courses after I film them. So, I’m excited about that.

And then in a few months, lent is coming up soon, and then after lent as when Easter kicks off, I’m going to do another debate. Easter week, I’m going to do a debate on the resurrection with an atheist YouTuber named Matt Dillahunty. Now, a lot of people have been asking me to debate Matt Dillahunty for a really long time. I always get people on Twitter or Facebook saying, “Oh, would you debate Matt Dillahunty?” Or I’ll get emails from people saying, “We’d like to request a debate between you and Matt Dillahunty.” And I’d say, “Yeah, sure.” So, Matt is a pretty well-known atheist YouTuber. He’s in Texas actually. He does a show called The Atheist Experience. So, it’s kind of like the Catholic Answers live for atheism.

People call in and he takes live calls and he does debates. And so, I think he would be a good opponent to talk about different issues. And I just did a debate on the existence of God with Alex O’Connor, and I think Alex and Matt are kind of the new, new atheists. You think about the new atheists like Richard Dawkins, Sam Harris, the late Christopher Hitchens, that was really big in the early 2000s. But now that we’re getting a whole generation later from new atheism, I mean, we can still talk about Richard Dawkins because he made such a cultural splash back in 2005, but when you meet young people who identify as atheist today, it’s not because they read a book on atheism, it’s because they watched a YouTube video about atheism, and usually, it has particular YouTube personalities among them.

I think Alex O’Connor, Matt Dillahunty, there are others online that have lots and lots of followers. And so, it’s important for us to engage these individuals. So, Matt and I are going to do a debate on, is belief in the resurrection of Jesus reasonable? So, I’m excited for that. Stay tuned. That’ll be April 8th, I think seven o’clock Eastern. Mark your calendars for that. So, we have a lot going on, prepping for debates, I’m working on more videos for the YouTube channel, lots of stuff to be creating, writing. If you want to support that and support the podcast, be sure to go and check out trenthornpodcast.com. For as little as $5 a month, you get access to bonus content. I do a weekly catechism study series. We’re going to go through the entire catechism.

All the lessons have been filmed. And so, a half hour lesson, every Monday, drops at 8:00 A.M. on ourcommunity@trenthornpodcast.com. Check that out. If you are a patron at any level, get access to that. If you’re a silver level subscriber, you get a fancy mug. That’s always a nice thing. All right, onto the topic of today’s episode, I wanted to do a debrief of the round table I had last week with Jose Mina and Thomas Hackett on reason and theology. And I really enjoyed doing that. It was different than doing a debate. We got to have our opening statements, but the most exciting part of a debate really is the cross-examination period. And so, I thought it would be helpful to do a round table more than a debate. Some people wanted it to be more of a debate on capitalism or distributism, but I’m the one who suggested, “Let’s just put three options here and have more of a round table.”

When it comes to debates, it’s hard for me to say, “Let’s debate something like capitalism.” Or, “Let’s debate distributism. Because, if you listened to the round table last week, it’s nearly three hours long, there’s a lot of different issues that come up. And so, it’s too unwieldy to do a debate. A debate really works if you have a single focused resolution or question. So, if it’s very nebulous, what you’re debating, it doesn’t turn into a really good debate. It’s got to be precise to make it a good debate. Otherwise, you can do a round table. You can do more of a discussion about the various issues involved. And what I would say is that aside from classical socialism of the right to private property, which the church has condemned, there is a lot of latitude in economic models.

There’re some that I would agree with, some that I would disagree with. These are somewhat open questions so you can have a free form discussion about them. And so, we had that. We covered a lot of ground. And so, I opened it up to our patrons at trenthornpodcast.com. I decided to enlist their help for this debrief to ask them to submit questions on Catholic economics, especially questions related to topics we covered in the debrief. And I think it was great. I think we were able to cover a lot of different issues. It was funny, when I went online to see people’s responses to it, what people thought, there were a lot of different opinions. One common one is that I am still the world’s youngest boomer.

A lot of people online might think of me as like the reincarnation of Michael J. Fox’s character in Family Ties. Have you ever seen Family Ties? Family Ties is an old sitcom where… And it was actually perfect for the time and place that it arose, in the 1980s. Because Family Ties was about a family sitcom where the couple, the parents were aging hippies. And their young son, portrayed by Michael J. Fox, was this young Reaganite conservative. And so, I think maybe I’m that character reincarnated now with my defense of capitalism. Though, as I made clear in the debate, at one point when I talked about capitalism’s weaknesses, I don’t think this is something that God gave us, handed down from heaven, it’s a tool.

It’s a tool human beings came up with. It’s brought wealth and prosperity, but it’s also brought opportunities for exploitation. It’s improved the lives of some people, but some people are still waiting for their lives, their well-being to improve in this system. So, it’s not something that can fix every problem. The point I made in the debate was simply that, and people in the comments appreciated this, I said, “Look, I don’t think capitalism is perfect, I just think it’s better than socialism and distributism, mainly because socialism and distributism, real socialism and at least the distributism that Thomas was offering. Because there were other people that came online and the comments I was reading, aside from me being the world’s youngest boomer, there were a lot of distributors online, you can always find them online, sharing quotes from G.K Chesterton and things like that.

And then by the way, I love Chesterton, I like Belloc. I don’t agree with everything they say, especially the stuff Belloc says about the Jews. Oh, goodness. But obviously they have a lot of good insights on Catholicism. I just think that they’re fundamentally wrong about economics. Though I do think they also have some insights that are good for economics. The idea that a person should work towards self-sufficiency, I think that that’s a great idea. I mean, that’s what the early distributors like Chesterton and Belloc said, is that they didn’t want people to be totally dependent on their employers. And I agree that if people can work to self-sufficiency, that’s a great thing.

And today, that would basically mean staying out of debt, getting a job where you’re able to generate more jobs or investments, whatever it may be, where you can generate more income than your expenditures. And your surplus income can be used to pay down a home so that you can have that asset and also reduce your expenditure on housing. And then to put that surplus income towards retirement savings so the compound interest allows you to become self-sufficient at a retirement age. That would just be kind of the general strategy, though there’s variants related to that.

So, I agree with the idea of self-sufficiency and distributism about localism and promoting local businesses and community. I agree with a lot of that. But the fundamental economic systems in the round table, I just did not think either Jose or Thomas put forward one that was workable or feasible. It was basically just, “Well, we don’t like capitalism, so, we need to get rid of it.” It’s like, okay, but what are you going to put in its place? That’s the real story. In my book with Catherine Pakaluk, Can a Catholic Be a Socialist? I open one of the chapters with Aesop’s fable of belling the cat.

And so, the fable goes, there was a bunch of mice, and they were saying, “Hey…” I forget if I brought this up in the round table, but maybe I did. I don’t remember. Bringing it up to you here and now. The mice said, “We’re tired of getting eaten by the cat and living in fear of the cat, what if we put a bell around the cat’s neck and we’ll always hear him coming?” And everyone’s like, “That’s a great idea.” And then the older mouse gets up and he says, “I agree that’s a great idea, I just have one little question, who’s going to bell the cat?” And then everyone’s all quiet. And the lesson in one collection of Aesop’s fable says, “It’s easy to propose impossible solutions.” And that’s what I think classical socialism and distributism is.

What was hard in the debate is that Jose, his proposal sounded great. And I agree with him, we don’t want people living in poverty, we want people to have food security. We want to make sure people are not left destitute. I firmly agree with those things. But the solutions he’s offering for that is not socialism. Because I asked him in the debate, because at one point in his opening statement, he said that labor should not be commodified. It should not be something that is bought and sold on the market. And I think Thomas probably believes that as well. Distributism and socialism have a lot of things frankly in common with one another. So, I think Jose made a super valid point that distributism ends up becoming either capitalism, or it ends up becoming socialism.

And I believe that distributism with its reliance on government to “fix the economy,” it ends up turning into central planning, and it just turns into socialism. So, I think Jose was totally right about that. But I asked Jose, I said, “Look, in your socialist idealistic worldview,” because he agreed, there was no country that was socialist. No real models. I said, “Look, could I choose where I wanted to work?” He said, “Yeah.” I said, “Can a company choose who they want to hire?” He said, “Yes.” But, well, that’s a labor market. Because here’s the thing, if you’re a company, if you get to choose who you want to hire, you can be picky. You could offer higher wages and you’ll get a lot of people applying, so, you get to be picky about who you choose.

Much the same way, employees might want to select different companies, and then companies are going to be competing for labor, and you’ve got a labor market on your hands here. So, I just don’t see how that could be a case. Back to Thomas though, the other criticism I saw online was people said that Thomas did not represent true distributism, or neo-distributism. I think there were some people who said that his view, I think, is very similar to Chesterton and Belloc view, which is, you want agrarian back to the land, self-sufficiency, which has a whole host of problems because you’re not going to have equality there. Looking at United States of 330 million people, and where people live all over the U.S., farmland in and of itself is not distributed equally.

I mean, I’m here in California, which is the only place you can grow, except for Arizona and Florida, citrus, almonds. There’re certain crops that can only be grown well in certain areas. It’s not like everybody everywhere has equal access to farmland and climate. Though I think Thomas would say, “I’m not saying everybody becomes a farmer.” Though I would have liked him to specify a bit more what he meant by family ownership means of production. In this modern distributor’s view, what would the common means of production people would own? But listen to the episode if you haven’t had a chance.

I’ll get to the questions here, but I’m going to start with one question that was submitted because it’s timely impertinent. The question was, and by the way, if you want to submit questions for future episodes, go to trenthornpodcast.com, become a premium subscriber. Question is, “Any thoughts on the current GameStop news? Any ethical issues that arise there?” And this is actually perfect because we’re talking about capitalism. I made the case for capitalism. And one of the objections of capitalism that didn’t really come up in the round table was that it is unstable. You have markets that are unstable, stocks that fluctuate. You can have booms and busts, and that cost people jobs. You have the 1929 stock market crash.

And so, it’s unstable and we need a system that is more stable. Problem is though when you look in the history of the world, the other systems are way, way more unstable than capitalism. There is no country that has practiced distributism. And Thomas never proposed that. The model I gave was 17th century France, or medieval peasant life. That was really unstable. You were one blight away from famine. That is extremely unstable. Socialism has similar bouts of instability. So, when the government props up industries, whether it’s the Soviet Union. And a lot of times, they use the same way, its oil. The Soviet Union used oil revenue to prop up their satellite states in Eastern Europe.

Venezuela used oil revenue to prop up its socialist economy until the death of Hugo Chavez in, when was it? 2013. And then when oil crashed in 2013, 2014, they were up the creek basically. People will say, “Well, it wasn’t socialism, it’s because oil crashed. And that’s why the economy went completely south.” No, it’s not that. I mean, think about other countries like Saudi Arabia or Kuwait. I mean, they rely extensively on oil exports, but nobody in Saudi Arabia was losing weight on a consistent basis because of the oil crash in 2014. No, it’s because of what happened in Venezuela. So, this idea of stability, you look at what happened to GameStop, people think, “Oh no, we can’t have capitalism. Look at this how GameStop started with just barely anything, and now people are manipulating markets and driving the stock up to…” What was it? It was high at one point. I think it was like $350 a share.

And so, what they’re saying is, “This is a casino.” And I was reading some Catholic articles about this online, they were trying to quote from like Pope Benedict XVI, saying that we shouldn’t have speculation in markets, and other people saying, “These investors treat the stock market like a casino.” And I’ll say, yeah, when you engage in investing, there is a fine line between investing and gambling, depending on the kind of investments that you’re making. Some investments are almost always a safe bet. You invest in the bond market, it’s almost always a safe bet, but the return is low. Or like when I put money into a certified savings deposit account.

I mean, I have a guaranteed return interest on it, of what? Like 40 cents every six months. Of course, that’s a bad investment because I’m losing money because I’m not making more than inflation in the market. So, the point I’m trying to make is just that there is a fine line between investment and gambling. Some investments are certainly more speculative than others. But before I talk about the ethics of what happened with GameStop and about capitalism and markets, let me just fill everyone in on what happened to give everyone the big picture. Because you might’ve just heard about it in the news and it’s starting to subside from the news cycle a bit.

We’re hearing more about vaccine distribution and things like that, but it really dominated the news cycle for the last week. So, here’s the situation. GameStop, your favorite video game retail store. I remember going into GameStop. The first time I ever went to a GameStop was to pick up a strategy guide for Metal Gear Solid. That was way back in the day, and that was back when you went there, you went to GameStop because it was like, “Oh, the video games are finally dropping, and I’ve got to go and get my first copy of it.” And you’re so excited to do that. And GameStop was kind of like Blockbuster. The new DVD is out, you’ve got to go down to a physical store and get it.

And that might’ve been fine back in like 2002 when I was in high school, but then we now have a lot of, just like with movies are becoming more digital streaming, video games are becoming more accessible through digital streaming and digital delivery technologies, where you don’t have to buy a physical copy of something. So, GameStop’s business model was starting to slump just like Blockbusters was. So, to give you an idea with that, four years ago, GameStop’s shares, GameStop was selling about $40 a share on the stock market. So, that was about four years ago. You go back though 12 months ago, the stock price was at $4. So, it had experienced essentially in the past four years, a 90% decline.

Now, if you are especially a hedge fund, if you are a trading company that has a lot of revenue to engage in riskier trades, you can engage in something called shorting. And I’m sure the number one search term in the last week has probably been, “What is shorting a stock?” Because you just think about, how do you make money in the stock market? The traditional way, especially for an investor like you or me, somebody who is just starting out, is to invest long, to go long on stocks, which is, you buy low and sell high. You find a company that’s just barely starting out with a great idea, they’re selling at $5 a share. You buy 1,000 shares. You just got $5,000 worth in stock in this company.

And then it goes from $5, it goes up to $25. So, suddenly, your $5,000 investment in the company is now worth $25,000. And so, if you sell the stock at 25, you’ve made 20 grand. And so, you sometimes have to wait to see if it goes up. And so, that’s the hope. But you could buy it at $5, you could stay stagnant at five, or the company could go bankrupt. The company could end up hitting zero, and you’ve lost your $5,000. That’d be going long. Shorting is different, and it’s a riskier strategy that only more seasoned investors would take part in, because you need to have cash reserves on hand for shorting. And I’ll explain why.

So, going long is you buy low, sell high. Going short is you sell high and buy low. I know that’s really counterintuitive. Think about it, you buy low, it goes up in value, you sell high. That’s something we’re used to. I mean, when you buy a home, for example, you really hope that the home will go up in value, and then when you sell it, you make a profit. We can understand that. Shorting is a little bit different. Shorting would be that you sell high, but you’re selling a stock that you’ve borrowed. You go to a trader, you borrow a stock from this person. You pay them a commission fee to be able to do that. And then you sell it. And then after you’ve sold it, you agree to buy back that same stock at some kind of future date, let’s say in 30 days.

So, let’s say, go back to an example here, let’s say I’m going to short something instead of going long. So, let’s say I borrow 10 shares of Acme Incorporated at $100. So, that’s 1,000 bucks right there. So, I borrow those 10 shares, they are then immediately sold at $100 from people who are willing to buy them, because there’s people who want to get into the market at different times, they’ll buy it. Okay. And then I set an expiration date on my short, let’s say, 30 days. And I feel like Acne Incorporated is not doing well as a company. In 30 days, the stock drops from $100 a share to $50. So, I sold it at $100, and so I’ve got that $1,000, I’ve got $1,000 right here, and I agree to buy it back at 50.

So, I didn’t invest $1,000. Essentially, I get 1,000 bucks right now. But there’s a caveat to it. I bought 10 shares at $100, and now I got $1,000. But it’s not liquid $1,000. It’s not $1,000 I can just go spend wherever, it’s $1,000 tied up in this stock. And I’m hoping that in 30 days, the stock will drop from $100 to $50. And then I’ve promised, I’ve agreed illegally to buy the stock back at this future date. So, if it drops from 100 to 50, I have this $1,000, and I buy those exact same shares back. And so, now I have them, but guess what, since I sold them at $1,000, I bought them back, they’ve dropped from 100 to 50, I buy them back at 500.

So, now, in shorting this, since I knew the company would go down, I have made $500 minus the commission fees I have to pay to a broker in order to go out this transaction. Because I’ve got to pay this guy who’s going to let me borrow the stocks, sell them, and then do this. So, what’s the danger involved? Let’s say with Acme, I’m going long. So, I buy low, sell high. I buy it at $5 a share, and then the company tanks, and it goes to zero. If it’s 100 shares, I’m out 500 bucks. The most you can be out if you go long is your initial investment. You put 500 bucks, or 1,000 bucks, or a million dollars on a stock, the most you could lose if you’re going long is the money that you put in.

It could just go down to zero and wipe out the worth of the stock that you have. But if you go short, you’ve got a giant problem. There’s unlimited losses you could incur. So, go back to the example, let’s say I buy 10 shares of Acme at $1,000 thinking that the stock is going to go down to 50 bucks, 50% in value. What if it goes up from 100 to $200 in 30 days, and now I have to buy it back? And because I have to buy it back, I have that $1,000 that’s not enough to buy back the shares because now they’re worth $2,000. So, I’ve lost 1,000, I lose $1,000. What if it went up to $300 a share? Or $1,000 a share? You see the problem here if you go short. If you go long, there is a limit. Your initial investment can be wiped out.

But if you go short, since there’s not necessarily a ceiling on profit, I mean, there can’t be infinite profit, but the stock could keep going up and up, and then you are in a bind, you’ve got to buy it at those shares. So, that was the problem that happened here at GameStop, where you had investors who were making a rational decision by the way. Four years ago, GameStop was at $40 a share. 12 months ago, the stock dropped down to $4. It had experienced a 90% decline. So, you could reasonably assume GameStop is a failing company. And especially if you got in on the short four years ago and bought a bunch of stock and just assumed this company was on a slow downward trajectory, then you can make decent amount of money shorting it.

Where things started to turn around for the company though was back in September, back in the fall, things started to turn around. The stock went from its low of $4 to $8. And that coincided with Ryan Cohen, who is a CEO, I think, at a pet food company, an online pet food company, I think, he bought a major share in the company. And so, that triggered investors to show them, which by the way, we’re going to tie this back into the round table, because one of the things I disagreed with with Jose and Thomas a lot when it came to economics was on the issue of prices.

So, when it comes to the issue of what is a price? What is a wage? A wage is the price of labor. What is the price for a good or service? And Thomas seemed to be more in the mindset of a just price, that things have a fixed price based on their value of the labor that created them. And my position is that prices are a signaling device. Prices tell you the demand and supply for a thing. And so, prices for stocks do the same thing. They tell you, “Hey, there’s interest in this company that their value has increased. So, you have Cohen who is someone who bought a major share in the company, and people said, “Hey, he could really turn this around. He could maybe. He’s had experience before, GameStop could turn around as a business.

And it seemed to be the case because in January, the stock went… it was at $8 in September, it went up to $16 in January when Cohen was put on the board. And people thought, “Hey, he’s going to turn GameStop around. He’s going to transition away from physical stores, and he’s going to move more toward online and digital platforms and clean up GameStop’s bad reputation. Because if you read online, you can Google, “GameStop horror stories.” And when you Google that, people have all kinds of horror stories of going into GameStop, trying to deal with the customer service there, which was one of the reasons that the company had been declining in the past four or five years.

But Cohen was turning it around. And with the promise of it turning around, investors saw that GameStop could be a good investment, especially smaller retail investors. And that’s the real story here that you had these larger hedge funds, who were committed to the idea that GameStop was eventually going to go to zero, that it was a failing business model. And you had these retail investors, these smaller guys that don’t have millions or billions of dollars in assets or funds to be able to leverage these trades, who were working through companies like Robinhood, which facilitate their ability to trade. And so, the way Robinhood works is that it takes on the costs involved. Before Robinhood, if you wanted to be a retail trader, a smaller trader, you had to pay a commission fee like five or seven bucks to do trades, but Robinhood eliminated that and made money by working through security companies.

I think one of them is called Citadel Securities, and Robinhood is kind of a go-between and assume some of the risks and works with these other major securities to purchase… And I’m doing the real best I can here because I’m not obviously an accountant. I’m not a stock trader, I’m not an accountant. I’m doing my best just to understand this world we live in and try to discern what is and what isn’t ethical. So, if I’m wrong about something, become a premium subscriber. Well, if I’m wrong about something, you can just blast me on social media for free, or you can become a premium subscriber and leave a detailed comment under the episode to say what I get wrong, and then I can incorporate that in a correction.

So, Robinhood facilitates this and they buy the stock and offer it to their retail traders, I think for a slightly higher price. They make a few cents on each trade. And then that starts to add up because Robinhood tries to get lots and lots of lower level traders with minimal cash involved in this. So, the problem ended up happening was that there was kind of a few that developed between some of these big hedge funds and securities firms, I think one was called Citron, they always have, a lot of these companies feel like capitalism is evil. And I’m like, these companies don’t do themselves a good service when they name their company like some kind of nefarious name and it’s like Citron Incorporated.

Or, the worst is the mercenaries in Iraq. They had that scandal about the soldiers for hire in Iraq engaging in unethical behavior. And I think it was called Blackwater Mercenaries. I’m like, that’s like from a cartoon, that’s like from a cartoon. If you were a bad guy mercenary organization, you’d be called something like Blackwater. So, I think Citron went online and said these smaller Reddit retail traders were the suckers in the poker game. And so, these Reddit users started banding together and buying lots and lots of GameStop stock. And because of that interest, it drove the Robinhood price up, and it drove it up more than it is really worth. It created a bubble essentially.

And in any market, there are going to be bubbles. There’s going to be, people think that something is worth more than it really is. So, prices are a signaling device. So, price tells you the demand that exists for something. And they usually do get things right. When you pay a price for something, usually, it ascertains the correct demand you have for something, because almost all the time, the prices we go out, they’re pretty stable and constant. Everything you buy has a price related to it. But sometimes it’s not, there are bubbles. The very first bubble was in Holland. There was tulips. Tulips were going for something like 10, 20, or 100 times their value. It was the very first economic bubble. Look it up, the Tulip Bubble. People couldn’t get enough tulips.

And then there was the Beanie Baby Bubble. You remember the Beanie Baby Bubble? People were like, “I don’t need to retire, I’ve got Beanie Babies. They’re worth a fortune.” And then people now have… they’ve got their closets full of worthless Beanie Babies. So, on January 28th, Robinhood restricted trading on GameStop. And they said the reason they did this was because they were following regulations from the Securities and Exchange Commission. Now, some people were saying, “Look, Robinhood is doing this because the big hedge funds are losing billions of dollars on this short.” Because remember, if they were shorting it at $40, whether $4, they buy all these funds and are expecting it to short, and then if the stock jumps from 16 or $20 to $350 a share, you’ve got hedge funds that are losing billions of dollars as a result.

So, people are saying that Robinhood is working with the hedge funds. And it does get complicated. I’m not going to definitively say who’s in the right or who’s in the wrong, but I will say it makes sense to Robinhood that they are involved in assuming some of the risk here. It’s not like that these retail traders were just prevented from buying stock, they’re going through a company that is assuming some of the risk and they’re taking on the risk and putting in their own funds to make it possible for these low level traders to buy in volumes and quantities they normally would not be able to purchase. So, because Robinhood assumes risk and is helping people to do this, I would say that they have a right to take measures when they think that the risk is too high and so that they no longer want to engage in the transaction.

And they were saying that they were doing what the SEC was telling them to do. I read some Catholics online who have commented on this, and these are some Catholics who don’t like what Robinhood is doing, but they’re the same Catholics I see who will say that, “I hate laissez-faire capitalism. We can’t have unregulated capitalism.” But then they get mad when the Securities and Exchange Commission says, “Okay, you can sell shares when this happens, or this happens, but you can’t do this, and you can’t do that.” And so, they don’t like these regulations, but they also don’t like laissez-faire or hands-off capitalism. So, I’m not sure where the consistency here is.

But in any case right now, this is February 3rd, the stock seems to be leveling out at around $100 a share. I think it closed on February 3rd at $92.41. And so, the question is, can it keep up with this? Is it ever going to go back down to its share price of 20 or $40? Is it stabling out? Is this the real value of the GameStop company? Or is this internet interest, this meme trading, people creating memes and creating internet excitement, driving up the price above what it’s really worth? And time will tell. It’d be interesting over the next few weeks to see if it stabilizes at this price, or if it continues to decline.

I will say though, it won’t surprise me if the price does not return to the 40 or $30 level for a while, because the fact that all of this in the news is actually good for GameStop. I mean, think about it, when’s the last time you thought about GameStop? Probably hasn’t been in awhile, right? But for the past week, you’ve heard the words GameStop, GameStop, GameStop on every news channel for over a week-long period. Do you realize how much that kind of advertising would be worth? That’s like billions of dollars, or at least millions of dollars worth of advertising, could even be in the billions for the company. That’s going to be good because if you just hear GameStop, GameStop, GameStop in the news, unless you’re a video game player, you might be like, “Hey, I haven’t been in GameStop in a while. I should go and stop by.”

It’s advertising. And so, the company is now worth more simply because it has been in the news, and not because the company is a bad thing, they’re focusing on the traders. So, it doesn’t surprise me if the value of the company has now doubled because of the free publicity they’ve been able to receive from this. So, we’ll just have to see. But let’s go to the ethical issues involved. First, is this something that shows we shouldn’t have markets, we shouldn’t have speculative trading? No, because we need to have an efficient way to set prices. A price is just a signaling device that tells you the supply and demand for a particular good or service.

And throughout the history of economics, at least in the modern age, and I detail this in my book with Catherine Pakaluk, Can a Catholic Be a Socialist? When you look at places like the Soviet Union, or Maoist China, or even in Venezuela, when government attempts to set prices based on what they think something should be worth, or based on what they think is fair, it ends up throwing the market into chaos. You either have a glut of supply of things that nobody needs, or you have shortages. Because the price tells people, a high price tells consumers, “Hey, there’s limited supply for this thing. So, if you really want it, count the cost before you buy it.”

Otherwise, if you have something that is of a limited supply and at a low cost, and there’s a high demand for it, well, then you’re going to run out of that thing. And if it’s at a lower price, by the way. That’s why in the Soviet Union, why do they have so many shortages? Well, if you set the price for something really low, and there’s a high demand for it, that masks the signal the price sends not just to the consumer. Prices tell you and me like what we buy at a store, but a price also tells a company, “Hey, should you make this?” I mean, if something is worth a lot on the market, that encourages people to go and make that thing.

That is why what brought us COVID-19 vaccines, I was reading an article about this online, it wasn’t charity that did it, it was businesses, it was corporations. And I appreciate it in the round table actually, that Jose said capitalism to its credit is what brought us the COVID-19 vaccine, is able to manufacture and move these huge supply chains and invest billions of dollars in capital into medical technology, MRNA research trials in order to bring this drug to the market in record time. And if you have questions by the way about the ethics involved with COVID-19 vaccines, I have two episodes dedicated to that previously in the podcast, be sure to go and check them out.

So, we need to have a way to figure out how to set prices. And a central authority can’t do it. And that is something Ludwig von Mises, is an early Austrian economist, he wrote an essay, well, really books on the subject called The Pricing Problem. That in socialist countries, you can’t have a centralized authority setting the prices because they don’t have access to all the information. They can’t get the prices right. This is Frederick Hayek said something similar, which is the knowledge problem, that prices reflect decisions that are made by millions of different people on the ground in different circumstances, and no central authority has access to all of that information. And prices change on a daily basis.

So, stock markets are not a bad thing in and of themselves. They’re a way for investors to pool risk. Are there abuses? Yes. Are there things that are done unethically in the stock market? Absolutely. A great movie on this, on unethical stock trading, is Boiler Room. I think Ben Affleck is in it. I know Vin Diesel is in it. It’s a pretty good movie I watched a long time ago on kind of a corrupt and sleazy stock trading company. So, there are things you can do that are unethical when it comes to stocks, or things like insider trading. It’s when you’re using information that is not available to the public to determine the worth of a company. And in many countries, this is illegal.

So, you have unethical things that happen, but you have unethical things that happen in all kinds of markets or in all kinds of venues where people get together. You have unethical things that happen when people are discerning dating and marriage with one another. It doesn’t mean we should centrally plan everybody’s marriage and make sure that nobody engages in fornication by just arranging everybody’s marriages to one another. That’s another point that I brought up in the round table. Another objection that some people have made when they’re talking about GameStop from a Catholic perspective is the idea that shorting a stock is immoral. That when you go long on a stock, you’re rooting for the company to succeed. But if you are shorting the company, you want it to fail, people are going to lose their jobs.

And so, Catholics should not be shorting stocks, they should just be going long. And I would just say, no, that’s not a good moral principle to live by. First, there are some stocks we should not invest in. You should not be buying stock in Playboy, for example, you should not be rooting for that company to succeed. In fact, you should root for it to fail. So, number one, some companies are bad and maybe we should root for them to fail.

But ultimately shorting is just a reflection of current market realities that some companies do not serve the common good. And so, they don’t need to stay in business if they’re not serving the common good, then they’re inefficient and they’re not helping the market. I know that might be a sad thing to hear, but let me ask you this, would you rather have your food in a room refrigerator or in an ice box you have to keep filling up with ice. Now, as refrigerators get more popular, the guy who delivered the ice to people’s home or the milkman, he lost his job, but when he loses his job refrigerator repairmen and manufacturers, they get jobs.

The automobile put a lot of things with carriages out of business, carriages, saddle makers, they lost business. They went extinct, but other jobs took their place and things are better that we have roads with cars instead of roads with horses. And that cover everything with excrement and are actually really, really unhealthy. Actually, I’m in a hotel room right now, and there’s really three shows you end up watching in a hotel room. It’s usually Dateline, Chopped or Shark Tank. And you watch Shark Tank, there’s some great business ideas there, but some of them are awful. I was watching one the other night, it was about a guy who wanted to franchise his own ice cream delivery service, where you wear a fancy uniform and you drive this little bike around and he trademarked the name of it and it looked great.

And the sharks asked him, “How much money are you making from this?” And he said, he’s barely making enough money to feed himself. And he wanted to franchise this out to other people. And the shark said, “Who’s going to buy this franchise from you if you can barely make a living doing this.” Som the guy had heart, but his company was not serving a need. If people want ice cream, they just go down to the store and buy a pint of ice cream. They don’t necessarily want to go to a park and wait around for the spiffy guy in the vintage, 1950s ice cream suit and bicycle to come by. I mean, he’s got heart, but he’s not serving people’s needs. And so the company is inefficient as a result.

And so the company is just not serving people’s needs well, it’s stock price, if it’s a publicly owned and traded company, it stock price will reflect that. And so that helps improve market efficiency and allow companies to enter the market who do meet people’s needs, who do provide jobs that can pay people, just wages. And that’s just how the market is able to work. But I do want to expand on the idea though, of shorting and actually hoping some companies go out of business. There’s a documentary, I think it came out back in 2013, ’14 came out a few years ago called Betting on Zero. And it was about Bill Ackman. He is a hedge fund manager. He works with, I think it’s called Pershing Square Capital. And he put down a billion dollars short on Herbalife. So, Herbalife is, was at least, and it still kind of is, but I would say it was a pyramid scheme.

It was a multilevel marketing company. Not all multi-level marketing is a scheme or unethical. Sometimes, there can be legitimate things and multi-level marketing where you train people to sell a product they can make money off of that. But the way Herbalife was going is that it was impossible for most people who were kind of poor, lower income, trying to get rich. They would get involved in Herbalife. They would buy these supplements and they simply couldn’t resell them. The only way they could make money was if they drag other people into the pyramid scheme and get them to sell the product and take a commission from them and their fees. And then those people get other people. And that’s how a pyramid scheme works.

And Ackman was seeing that this was a especially like lower income and Hispanic communities are really suffering from this kind of predatory tactic from a company like Herbalife. So, Ackman said it’s not a sustainable business model because the pyramid scheme, eventually everybody involved can only make money by getting other people to sell stuff. But if no one never buys the product, the company can’t succeed. So, he thought it would go out of business and he bet that it would.

So, we shorted it a billion dollars and he might’ve gotten away with it too. Except another hedge fund manager, Carl Icahn bought a big share in the company and improved its value. The company stocks still went down, but I think where Ackman made his mistake though, was that he was on a crusade. He didn’t like this company. And with good reason, it was taking advantage of people. So, he was thinking with his heart rather than with his head, even if the company was bad and predatory, it’s not the case where the value would necessarily go to zero, because in 2017 Herbalife restructured the company and the Federal Trade Commission ended their investigation and said they were not an illegal pyramid scheme. So, that caused the price to be able to go up. So, since lawsuits against Herbalife were dismissed and Icahn was still an investor, the stock never hit zero and it ended up going back up again.

And I think that Ackman, he ended up ending his position. He said he was going to short till the end of time against Herbalife, but he eventually moved Pershing Capital’s Investments out of that. So, to go back with that, it’s not necessarily a bad thing. Some companies are bad. It’d be great if they failed. And some companies they’re good, they got hard. They may have served a need at a particular time and place, but now they’re not serving people’s needs. And so the market can realign as a result. But that doesn’t mean of course, that if someone had a job and now they’re unemployed, we leave them destitute because world the market has to realign my friend.

We should still though the market can’t solve every problem. So, I believe capitalism is the best the system we have to promote the common good. It’s not perfect, but it’s the best. But I firmly agree with the Popes when they say that we cannot leave humans wellbeing up to market forces alone, there is a role for charity. There is a role for government to use targeted entitlement programs to make sure people are not so destitute that they starved to death or that they can’t get basic medical procedures or that they have to be homeless. We can provide for individuals like that and we ought to do, but ultimately, when you look at countries around the world, those that went from extreme poverty to a decent standard of living, they did not do so through foreign aid, no country ever got rich on foreign aid.

Most countries, we dumped foreign aid on the corrupt kleptocracy is the government’s there, they steal the foreign aid and doesn’t help people, or will dump, products like t-shirts or cotton or shoes like Tom Shoes. You buy one pair another pair goes to Africa, all that does is it puts all the African shoe makers out of business. People have this, I don’t want to say it’s like a racist view. They think of the poor in Africa as just people that are sitting around in huts, when really you’ve got growing businesses there that want to succeed, and an African Shoemaker can’t compete with an American company like Tom’s Shoes that dumps cheap shoes on the continent. So, sometimes we think we’re going to help the poor, but here’s the lesson. And this is the lesson that undermines both socialism and distributism, good intentions are not enough.

Good intentions are not enough. You might have great intentions, and many socialists and distributors have great intentions, but they don’t understand. The world is Pope Leo XIII said they don’t understand the world as it really is. And that when we try to do something with a good intention, it can have a perverse unintended consequence as a result and make the problem worse even though we didn’t intend that. If you want to see that in full scale, check out my book Can a Catholic be a Socialist? Wow. I went long in this episode. I only got to the first question about GameStop. So, here’s what I’m going to do, it’s late. I’m going to try very hard to record a part two, because I don’t like super-duper long episodes. We just had a super duper long, a round table.

I’ll leave this as a part one. I’m going to record the next episode as a part two on the Q and A that was submitted on the round table. It will either appear this week or next week. Seeing if I’ve got enough gas in the tank to record. There will be a free for all Friday, super fun one, stay tuned for that. But thank you guys so much. I really appreciate listening to the podcast. If you want to help out, be sure to share it with friends give a like a, you can leave a review on iTunes or Google Play, and that would be greatly appreciated. So, I’m going to close this out as part one. I do promise there’ll be a part two on the Catholic Economics, Q and A either this week or we’ll air it next week. So, thank you guys so much, and I hope you have a very blessed day.

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