Why capitalism fails
boston.com
boston.com
The Federal Reserve, by setting a single interest rate for the entire economy, destroys local market signals. (What you want is a locally adjusted rates to reflect natural cycles in decoupled local economies - this is what happens if you don't regulate centrally.)
The government's monopoly on the issuance of currency is important, too. And what about the SEC that went after innocent people like Martha Stewart and ImClone founder Sam Waksal, while blind to actual crooks such as Bernard Madoff? What about the federally-owned Fannie Mae and Freddie Mac? They were to a large extent responsible for the housing crisis. They have so much of the market, and it's government regulation and backing that gave it to them.
On a national scale, private business, if devoid of these corrupting government influences, would not fail all at once, nor would it fail with such lasting severity as we've seen in the last century. It's notable that all of the regulatory bodies (and a great many more that I did not mention) were created in the last 100 years to "stabilize" the market - but it doesn't take great genius to see that all they have accomplished is to take little local pockets of boom/bust (which add up to overall growth and stability on a national scale), and pack them into huge booms and busts that cause much longer and deeper cycles that you can't escape from as easily by moving to a new city.
And don't forget that this sort of centralization is important for marshaling resources necessary to run an expansionist empire (think about the economic policies in America during the two world wars, and the American empire that resulted).
To help differentiate between the "capitalism" the article smears (what should be called a mixed economy - some capitalism, some regulation), and actual capitalism, see http://www.capitalism.org/.
Capitalism didn't fail. Anymore than Socialism, or any other economic -ism. When nations allocate resources in a foolish manner, they fritter away their resources. End of story.
No need to 'restructure' capitalism so that it doesn't happen again. Capitalism is fine. Just don't fritter away your resources.
A good example of frittering away resources is diverting roughly 30% of your nation's personal income EVERY YEAR to one sector, Financial Services, in the form of 'guaranteed bonuses'. BTW, these people are managing roughly 20% of our nation's annual personal income. About 20% goes in through mutual funds and 401ks and the like, and for managing it, we pay them 30%. Anyone other than me see a problem here?
Another example, starting wars in intractable parts of the world to go after a man whose stated aim is to get us to start a war in an intractable part of the world. And thereby bankrupt us.
I heard the other day that the United States and Israel are thinking about placing 'a security umbrella over the Middle East'. I am not a general, but 'security umbrella over the Middle East' sounds pricey to me.
Or how about allocating more resources to Real Estate than to new technology development. That's a good example of foolishness.
BTW - Fannie and Freddie were not government owned, or even government backed. The entity I believe you are talking about is Ginnie Mae, which takes care of HUD housing, housing for Native Americans and handles housing for our nation's Military Veterans. Basically, Ginnie handles all of the sub prime people. Further . . . and are you ready for this? Ginnie is solvent! The only problems it has, it acquired in clumsy government attempts to save Fannie and Freddie. 'Give us all of your money, we need to save Fannie and Freddie who went private, acted foolishly and fell flat on their faces.' That's basically what they told poor little Ginnie. Foolishness.
Additionally, Ginnie was EXPLICITLY backed, whereas Fannie and Freddie were IMPLICITLY backed. Which brings me to another foolish practice, letting private corporations encourage the belief on the part of the general populace that they are backed by the US government. There should be no such thing as implicit backing, that is fraud, plain and simple.
In summary, they say no matter how far a jackass travels he will not come back a horse. Foolishness is the cause of our problems, and no matter what structure you place a fool in, he will still be a fool.
Capitalism may have problems, or even create them. Government Regulations may have problems, or even create them. But those are not the problems that got us to where we are today. Foolishness did. The abiding belief that money can create money. The belief that ANY economic system can give you something for nothing, is foolish.
We can stay with Capitalism. We can even submit to government regulation. But by all means we must invest our money wisely.
Realize that in the future you may have to do real work. You may need to produce real things. You may need to sell them to real people, for real money. The whole stock market and real estate thing may not work for you anymore the way it used to. That is the economy, or the market, or whatever you want to call it, doing what it is supposed to do!
We are in a different stage of Capitalism. Stock markets may work beautifully for today's Chinese citizens, for today's American's . . . not so much. Don't whine about it, or try to set things up so that they work a while longer. This is Capitalism, the market is showing us the way, we just don't like the road ahead.
So telling us that the Fed is the reason for the recent panic is ridiculous. Capitalism by itself is highly destructive. Without state interference you would have a famine in the US by now.
[edit:] See also: http://money.howstuffworks.com/fed1.htm
Capitalism is bad because it lets us grow too quickly? I don't understand. Are you talking about market bubbles? Like that have been going on for four hundred years or more? If so, that's called a feedback loop: the system overgrows and then contracts. When you make a mistake and correct it, there's some adjustment involved. Surely that's better than no adjustment at all, right? I mean, to have everything perfectly valued would only happen in a fantasy world.
Or perhaps I misunderstood.
I do not believe judging a phenomenon as a success due to an effect of a weakness is rationally sound.
I would say capitalism is not as good an economic system as one that enables steady, predictable co-existence of human society and synergy with the earth above meteoric, unsustainable growth, which on the downside causes pain, suffering, misery, death and perhaps the decimation of spaceship earth.
Besides, the one driver of commerce and every little transaction isn't and can't be greed anyway - it's trust. It is silly to blame this recent bubble on capitalism and markets when it was just as much driven if not started by state actors. As for the rest - "unsustainable growth, which on the downside causes pain, suffering, misery, death and perhaps the decimation of spaceship earth" - bullocks.
Capitalism and markets have resulted in less pain, suffering, misery, and death than any of the alternatives. Indeed it has been a central driver in alleviating many of these problems by ensuring need is reflected in the incentives. Growth in the longer run means innovation and that more needs are being met and more suffering is being averted - and that, at least to me, is a good thing.
Right. The implicit cooperation. The implicit cooperation by the wealthy few that ultimately best serves the moguls' already grotesquely large fortune.
As an aside, we should really teach Marx better in modern schools. We teach the brilliance of his insights without then following it up with the many ways he was mistaken. I think sometimes Marx is being taught by the Humanities department and not Economics professors.
Capitalism magnifies inequality as those with money get richer and those without toil to that end.
To varying degrees, societies make a value choice (whether implicitly or explicitly): that people to live unequal but wealthier or equally poorer. There really isn't much of a middle ground - or at least not that yet exists. I find it curious that those of a certain ideological persuasion focus more on the inequality rather than income mobility which is, what at least I believe to be more important and why many of us here seek to create and build our own businesses.
Surely you can't believe the planet itself is going to explode or something, can you? I mean, what you're really saying is that more growth will make the planet into a state that you find offensive and hard to live with -- dirty skies, polluted water, etc.
If that's the case then I'm with you. Glad to talk about how clean we want to make things and what kind of rules we want to put on ourselves so the world meets our ascetic approval. (offline, of course)
I don't think you believe the planet itself is going to be destroyed. Life will continue, right? It'll just get ugly and uninhabitable for poor people -- which is not an acceptable option, by the way, but it's not destruction.
Or are you somewhere in the middle, thinking that somehow the planet will manage to kill just us and the rest of the ecosystem (or what's left of it) will continue?
When you use words like that, you really still need to explain yourself some more. I'm just grasping at straws here.
If we can get twice as far on a litre of petrol with no other costs (worse car, etc.) that is economic growth.
What about the stone age, bronze age, iron age... gun powder, the wheel... Fire!
These inventions may have had a much greater impact on human well-being than anything you mentioned and all were way before the promotion of capitalism.
Capitalist countries like the US, Mexico, Colombia, South Africa are the most crime ridden in the world. In the US alone more than a million people is in prison. People live in gated communities to protect themselves. Due to the digital divide only a small part of the world population has Internet access.
Surely, a greater portion of the population has access to food and medicine than at almost any other point in history. Communism has scored some massive failures when it comes to feeding people (5 year plans, etc. etc...)
> Globally the literacy is very poor and education rudimentary.
Surely, the world literacy rate is higher than at almost any point in history.
> There are more slaves now in the world than in any other periods of history.
As a percentage?
> Capitalist countries like the US, Mexico, Colombia, South Africa are the most crime ridden in the world.
I believe this point to be accurate and relevant, although the high US crime rate is probably also related to our common law system.
> Due to the digital divide only a small part of the world population has Internet access.
But still far more than at almost any point in history! The internet is a great sticking point in debates about government investment. I don't think it would exist without capitalism, but I gather that it was greatly accelerated by government R&D money.
There was no commnism yet. It was state capitalism. See http://en.wikipedia.org/wiki/State_capitalism
In fact, though I'll be the first to admit I'm not familiar with Minsky's work, the article makes it sound like his theories are basically what we've been doing for the last 2 years (Prop up failing industries, use the government as an employer of last resort, etc...) I have two issues with this:
1. We've been doing just that for 2 years and the end result thus far is we're still in a recession and our government is dramatically poorer. When the government has to hold up "slowing job loss" as an accomplishment that doesn't impress me (It's also what FDR tried for 10 years to no avail)
2. In large part pumping money into failing institutions is what got us here. Let me cut through the economics babble and just put this in logical terms. Capitalism works because the best businesses succeed while the worst fail. If you prop up the worst so they can't fail you get a situation where they'll take crazy risks because there's no fear of failure. Hence where we are now.
So Microsoft, Wal-Mart, McDonald's and Exxon are the best?
Microsoft made good enough software that ran on the cheapest hardware available. So people could do everything on a PC that they could do on say...a Mac for a fraction of the cost (sure it was probably harder to do but people obviously valued the money they saved more)
Wal-Mart sells products the cheaper than anyone else. 'nuff said.
McDonalds may not be the best food but they spend millions per year making sure it's consistent. You can go to a McDonalds in Los Angeles and a McDonalds in London and it's going to essentially be the same food. People value that. Plus it's again cheap and good enough.
Exxon has actually made several innovations in customer experience that help push it up over it's rivals. Here in Southern California for example we have SpeedPass which is an RFID device on your key chain that allows you to purchase gas quicker and without pulling out your wallet.
So the point is all those companies delivered what the market wanted.
Otherwise Wal-Mart products would be as cheap as they could be whilst still being made to last and be repaired and low impact, low energy, etc. - all products would be traded in a way that workers were not paid immorally low wages. McDonalds would sell food that is good enough to keep you healthy rather than being carefully chemically balanced to be good enough to bring you back next time (high sugar, high salt, high fat, strong marketing). Exxon would be investing not only in ways to let you give them money more quickly but hugely into increasing fuel efficiency and alternative transport systems that would use renewable resources.
This is one of those times when my background in economics threatens to overwhelm me with analysis paralysis while writing a comment. Just to be concise about it: economics is a descriptive science, but we conflate it with a prescriptive one. Sometimes, that is definitely warranted--as a society, markets are a way to get things done, and we need to understand them as much as we can in order to implement them. But the hubris that comes with thinking that we basically get it, that we comprehend these ridiculously complex chaotic dynamical systems, leads to mis-allocated resources and anti-humanist policies.
As a mere observant of the events around me at the time, I considered Clinton’s response bulshiterian and Castro’s response truthy.
Fortunately for all of us Castro’s preferred economic system has proven more unstable than capitalism and totally collapsed, but unfortunately the current prevailing economic system of capitalism has also failed to evolve in the right direction.
Capitalism has still two inherent disadvantages:
(01) It is a highly unstable system
(02) It has a propensity to make the richer richer and the poorer poorer.
My solution? Code happily and wait for the storm to pass :)
See: http://en.wikipedia.org/wiki/State_capitalism
The GDR was also called democratic but it never was, so don't get fooled by propaganda labels.
The poor in the first world are richer than the rich were for most of history. The poor in the third world are no poorer than in the past.
So no.
So yes.
If you want, pick a standard of absolute wealth and try to argue that the rest of my statement isn't true.
We need a system that propagates benevolence and vision.
Please, pick apart the phrase "rational long-term self-interest" - and note that "long-term" means on the timescale of your lifetime.
I disagree with your implicit Malthusian assumption that resources can be overconsumed/hoarded in a meaningful way. The universe is chock-full of atoms and energy, and the key to unlocking more is always just a little more technology (which we have a pretty good track record at doing!)
Greed is not good.
To quote MGMT, "Take only what you need from it."
How were the bankers doing that? The bigger the fraud, the harder they fell. How is Bernie Madoff doing?
Is former Merill-Lynch CEO Thain a fraud? Not exactly. But he didn't fight a principled battle against all regulations. What I'm saying is that it's much better to be like John Allison, the former CEO of BB&T (one of the few that didn't get into subprime as a matter of principle) than it is to be like anyone else. Allison is great, and he did great, and he's free of any and all guilt! Everyone (CEOs included) that fall short of that ideal pay a price (remember, there's no such thing as a free lunch, ever, in anything) proportional to their deviation from the moral ideal (set by Objectivism).
You should not assume that Thain and other bankers are happy just because they have "a lot" of money. Nor should you assume that they have the skills to keep their money "in the family" for several generations. That implies a level of familiarity with their individual philosophies that you simply do not have! (And to be honest, I don't know either, apart from what you can tell about them from reading the paper.)
Proposing a "solution" to the worlds ills that can't possibly work in the real world is ultimately uninteresting. You are free to bemoan it, but you should be aware that your "utopia" works far less well than the system you bemoan.
Capitalism replaced feudalism, a system that didn't work anymore at all, it did of course only for a few people as well while it lasted. Now capitalism does not work anymore either. It's the information age and the situation has changed to such an extent that a new system will be born out of the current demise of capitalism. Those who will adopt the new system first, the most progressive parts of the world, will succeed first.
Some parts of the world still stick to feudalism. In Nepal a monarch just has been ousted. So progress won't happen everywhere at once this time either.
We don't exactly know what will follow, maybe Perecon or a similar system but we can't stick to capitalism as if nothing has changed since the steam engine has been invented.
The digital economy has it's own rules (see open source, music industry failure, successful companies making no profits like Twitter) and will most probably pave the way.
Nobody would suggest that we have to keep using the steam engine when there are better ways to solve the problems we face. Nonetheless most people treat the steam engine capitalism as the end of history. Those people will soon become history themselves.