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Comment by erikstarck | Hacker News Reader

"Institutions will try to preserve the problem to which they are the solution." -- Clay Shirky

This is brilliantly well put and one of the most important reasons capitalism works so much better than any other system: destruction of the preserving institutions is built in to the process.

"Too big to fail", on the other hand, is something completely different.

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capitalism works so much better than any other system: destruction of the preserving institutions is built in to the process.

Boy did you pick the wrong decade to argue this.

(The point being that it's a weakness of capitalism, or at least of the contemporary system everybody calls capitalism, that institutions that would otherwise die off are able to preserve themselves through political influence and other unsavory means.)

That's not a weakness of capitalism (an economic system), but a weakness in the way our regulatory agencies and legislatures interact (our political system).

People who call themselves "capitalists" typically want to reform the political end of things so it stops distorting the economic system.

Consider if government did not exist. A company can still use it's established might to artificially prolong it's existence.

If any thing regulatory measures are actually designed to prevent this. Whether they are effective or not is a different story.

What regulation is supposed to do and what regulation actually does are two very different things.

Again, people who call themselves "capitalists" would generally like to reform the regulatory/legislative system so that it supports, rather than distorts, the market.

From where I see it, it looks like people who call themselves capitalists would generally like to reform the regulatory/legislative system so that it only supports the capitalists.

I think the idea that economic and political "systems" are separate is dangerous, and part of how we got into this mess in the first place.

Economic and political systems are conceptually different, though there is a lot of feedback between them. It is dangerous to treat them as entirely separate, and also dangerous to treat them as exactly the same.

The specific criticism offered, namely companies retaining power due to legislative or regulatory influence, is at its core a political problem (with political solutions -- changing the way regulations and regulator-business relationships are handled.)

the "political problem" is that those enacting the political system are unavoidably susceptible to the same modus operandi which capitalism prescribes for the economic system - the self-interested pursuit of wealth.

"Economic and political systems are conceptually different, though there is a lot of feedback between them."

this reminds me of wave particle duality. energy/matter qua wave is conceptually distinct from energy/matter qua particle. but there is no question of "feedback between them". "they" are both just analytic vantages on the same singular phenomena.

This, it seems to me, is what ideologues always do: redefine the term so that an existing real-world thing doesn't count as an example of it. Communists did this with the Soviet Union (sure they're bad but a real communist society would never be like that). Ideological proponents of capitalism do it today: the US system isn't really capitalism because the government is too much involved. And extreme-programming software projects that fail weren't really following the process. To me this is an unhelpful line of argument that is preoccupied more with labels and beliefs than with what is actually going on.

Nowhere did I argue that our system is not really capitalist.

I just noted that the specific criticism given wasn't a criticism of capitalism itself, but of the government system of regulations and legislation that we have tied to capitalism.

It would be similar to, for example, criticizing the Soviet Union for corruption and calling it a critique of socialism, or criticizing a software company for stealing another company's code and acting like that was a critique of the extreme-programming process they were using. Valid criticism, sure, but not of the thing it's said to be of.

There are plenty of valid criticisms of capitalism, communism, socialism, extreme-programming processes, and so on. But there are also plenty of criticisms that are misattributed to one of those things, which IMO harms our ability to create solutions to the problems.

http://en.wikipedia.org/wiki/No_true_Scotsman

"My friend is Scottish, and therefore a jerk." "I think his Scottishness is incidental to being a jerk. There are more relevant factors that contribute to his jerkness. He may be both Scottish and a jerk, but that doesn't imply causation."

This is not an example of No True Scotsman. Just an example of criticism that should be labelled differently.

I vastly prefer "free enterprise" or "free markets" to capitalism for two reasons. First, the word capitalism is antiquated - large amounts of capital are no longer a requirement to succeed in business. Second, you can have arguments about what "capitalism" is - but "free enterprise" and "free market" are a lot more clearly descriptive.

> (The point being that it's a weakness of capitalism, or at least of the contemporary system everybody calls capitalism, that institutions that would otherwise die off are able to preserve themselves through political influence and other unsavory means.)

Now, this gets to the root of it - sectors like banking and healthcare are explicitly not free enterprise/free market. The entire banking system is a set of regulations, starting with the piece of paper of no inherent value that you're required to accept for all debts public and private in the USA, to the Federal Reserve choosing how much of this new paper to create whenever it likes, and so on.

Healthcare, likewise, with its artificially restricted supply of doctors, ridiculous licensing requirements (10-12 years, or more, hundreds of thousands of dollars of fees to become a doctor - I understand it's an important job, but they could get it lower). FDA requirements adding millions of dollars of cost and years of time to new drugs coming to market. Needing to pay $50 to see a doctor to get a prescription for basic antibiotics.

The sectors people usually point to as failures of capitalism - banking, healthcare - are not coincidentally the least free market sectors in the United States. People don't talk about this enough when they talk about the banking crash -

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

"The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.[1][2][3] Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.[4][5] The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation (Section 802.). To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions."

80% of the subprime mortgages came from meeting Community Reinvestment Act standards. So when someone says, "The last decade proved free enterprise doesn't work" - I'm always a little amazed if they use banking as an example. It's got to be one of the least free sectors in the United States.

80% of the subprime mortgages came from meeting Community Reinvestment Act standards

Where did you get that number from? I was under the impression that this whole argument is a Limbaugh-Beck-Hannity canard. The last reference I heard to it was a few days ago in Michael Lewis' interview with Diane Rehm, where he said the impact of this law on the financial collapse was negligible.

Fly-by-night brokers were writing mortgages for anyone who could fog a mirror, and not because the CRA forced them to. They weren't banks, the CRA didn't even apply to them. They wrote the mortgages because every single one was quickly profitable. If you know Wall Street is eager to buy every MBS anyone can put together, and it no longer matters to you how stupid those loans are (because you won't be on the hook for any of them and you know some bent appraisers), you want to write as many mortgages as you can possibly unload before the music stops.

Even for the banks to which the CRA did apply, it required the same lending standards for buyers in redlined neighborhoods, not lower standards.

Mortgage brokers didn't lend money to anyone. Banks did.

Mortgage bankers (i.e., bagmen for the brokers) would get involved briefly, just long enough to write the mortgages and flip them to get their capital back. But the CRA didn't regulate mortgage banks, only actual retail banks with FDIC-insured deposits. And if it had it still wouldn't have required the laughable lending standards they held (because they knew the risk wouldn't be theirs).

It's worth noting that this Clay Shirky quote is a modern retelling of a classic Upton Sinclair quote from 1935:

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"

(I, Candidate For Governor: And How I Got Licked, p109—available on Google Books.)

Are you serious? Capitalism is just as bad as anything else. The problem that capitalism perpetuates is the constant exploitation of the lower echelons. How is that so much better? Also, where is this built-in institutional destruction that you speak of?

  The problem that capitalism perpetuates 
  is the constant exploitation of the lower echelons.

"Under capitalism, people exploit people. Under socialism, it's the other way around!"

"People under people, exploit capitalism" - that makes no sense dude.

He probably meant that "people exploit people" phrase should be put the other way around, concluding that there's no difference in this aspect between capitalism and socialism at all.

Actually, thinking about it, it does! "People under people" is a metaphorical description of a business, and they "exploit capitalism", that is, use it to their advantage, selling products and living off the profit.

But, of course, that is not what the joke I quoted means. What it means is that, like Churchill's alleged saying about democracy goes, "it's the worst system except for all others". So far, anyway.

You're looking at the wrong end. He's saying that companies compete with each other and try to undercut one another, which allows some smaller companies to solve the problems allowed by the larger companies. These smaller companies rely on a problem still, but a smaller one (to convince people to switch, and thus get income, it must be smaller).

And you're talking about something totally different as far as I can tell, so it's not a very good critique of his point.

You don't need capitalism to have what you just described. When people bundle economic and social principles together that's when capitalism turns into what I described because under the banner of capitalism politicians refuse any social policy that runs counter to free market principles. In fact half of capitol hill has made this their battle cry.

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