Capitalism and the Financial Crisis

[JP226]

Capitalism and the Financial Crisis



There has always been contempt for economic liberty. Historically, our nation was an important, not complete, exception. It took the calamity of the Great Depression to bring about today's level of restrictions on economic liberty. Now we have another government-created calamity that has the prospect of moving us even further away from economic liberty with the news media and pundits creating the perception that the current crisis can be blamed on capitalism. We see comments such as those in the New York Times: "The United States has a culture that celebrates laissez-faire capitalism as the economic ideal. Or, "For 30 years, the nation's political system has been tilted in favor of business deregulation and against new rules." Another says, "Since 1997, Mr. Brown (the British Prime Minister) has been a powerful voice behind the Labor Party's embrace of an American-style economic philosophy that was light on regulation."

First, let's establish what laissez-faire capitalism is. Broadly defined, it is an economic system based on private ownership and control over of the means of production. Under laissez-faire capitalism, government activity is restricted to the protection of the individual's rights against fraud, theft and the initiation of physical force.

Professor George Reisman has written a very insightful article on his blog titled "The Myth that Laissez Faire Is Responsible for Our Financial Crisis." (http://georgereisman.com/blog/2008/1...sponsible.html) You can decide whether we have in an unregulated laissez-faire economy. There are 15 cabinet departments, nine of which control various aspects of the U.S. economy. They are the Departments of: Transportation, Housing and Urban Development, Health and Human Services, Education, Energy, Labor, Agriculture, Commerce, and Interior. In addition, there is the alphabet soup cluster of federal agencies such as: the IRS, the FRB and FDIC, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA.

Here's my question to you: Can one be sane and at the same time hold that ours is an unregulated laissez-faire economy? Better yet, tell me what a businessman, or for that matter you, can do that does not involve some kind of government regulation. A businessman must seek government approval for the minutest detail of his operation or face the wrath of some government agency, whether it's at the federal, state or local level. Just about everything we buy or use has some kind of government dictate involved whether it's package labeling, how many gallons of water to flush toilets or what pharmaceuticals can be prescribed. You say, "Williams, there's a reason for this government control." Yes, there's a reason for everything but that does not change the fact that there is massive government control over our economy.

It is incorrect to say that laissez-faire or free markets are unregulated. There is ruthless regulation, but it's not by government. Take the mortgage industry. In the absence of government interference, it is unlikely that a lender would extend a mortgage to a person with a poor credit history, making no down payment, and providing no verifiable employment history. But under the pressure of the government's Community Reinvestment Act and Fannie Mae and Freddie Mac buying up or guaranteeing such mortgages, a lender will.

When businesses make unwise decisions that lead to bankruptcy, their assets are sold off to someone else who might be able to put them to wiser use. Government bailouts give businesses a reprieve that the market wouldn't give them. Bailouts have at least two effects. They permit continued unwise use of resources and it creates what economists call moral hazard, the expectation of future bailouts and others hopping on the bailout wagon.

The blame for our current financial mess rests with government, with the major player being the Federal Reserve Board keeping interest rates artificially low and the congressional and White House market interference in the name of more home ownership. In the clamor for more regulation over our financial institutions, has anybody bothered to ask whether people in government know what they're doing?

[BNS]

Reminds me of my old thread. I agree the fault of this recession is not unrestricted capitalism, rather it is the cure. The free market is a better regulator than the government will ever be. It's primarily the government's inflationary abuse and mismanagement of our credit system that has lead to the debts and malinvestments that cripple our economies today. Unfortunately a lot of our leaders stink of Hoovers and FDRs and I fear they will only prolong or worsen the pain.

[Bovril]

1. The american political spectrum is so narrow that you can't really expect people to use terms in the sense you might use them theoretically either in the political or the public spheres. Same goes for most countries to a lesser extent.

2. This article maybe falls prey to the assumption that talking will be a good way of getting elites to give up on the institutional structures that they have to thank for being elites in the first place. I call that naive idealism.

[JayHawk357]

Freemarkets have the power to regulate?!?! Yea, they have the power to regulate that the rich get richer and the poor get poorer. Should sometime look up staturated markets. No such thing as the trickle down effect and the regulation we need is one that doesn't create greater disparity between rich and poor.

[BNS]

Freemarkets have the power to regulate?!?! Yea, they have the power to regulate that the rich get richer and the poor get poorer. Should sometime look up staturated markets. No such thing as the trickle down effect and the regulation we need is one that doesn't create greater disparity between rich and poor.

So what do saturated markets have to do with your exploitation scheme?

Secondly it seems paradoxical that "exploitation" would exist in a purely voluntary economy. Real exploitation sir is what the government elites backed by corporate elites are doing with their inflationary policies. They literally siphon our acquired wealth into their pockets without most of us even noticing, off of a currency we are forced to use. And then people complain that private savings are not reliable and the solution becomes even more government! Such is often the case with many over government regulations and intrusions, they only benefit the well connected and the growth of government.

I like the idea of government ensuring that honest people working honestly can get ahead.

But it was under Reagan they did away with all the things brought about by the Great Depression... that much is omitted in the article. It continued under Clinton, and culminated in Bush's administration. The Glass-Steagall Act? Done away in 1999. This speaks to me an institutional arrogance on the part of BOTH government and the financial institutions. What's that saying? "Every generation thinks itself more intelligent than the ones that came before and more wise than the ones that come after."

Really does it matter when the system it self is what is broken?

[War&Politics]

I think this economic crisis has always been a government failure and not truly a business failure. Businesses are currently unpopular enough and so they take most of the blame in the eyes of the government, the media and private citiziens. However, my personal opinion is that crisis like these are not caused by too much or too little government interference in the economy, but by government interference which preaches free markets in this sector, and heavy regulation in that sector and so on, eventually creating massive economic imbalances that can only lead to eventual crisis.

[JP226]

I think this economic crisis has always been a government failure and not truly a business failure. Businesses are currently unpopular enough and so they take most of the blame in the eyes of the government, the media and private citiziens. However, my personal opinion is that crisis like these are not caused by too much or too little government interference in the economy, but by government interference which preaches free markets in this sector, and heavy regulation in that sector and so on, eventually creating massive economic imbalances that can only lead to eventual crisis.

You are just being a member of the bougeousie with that logic.

[Da Skinna]

I like the idea of government ensuring that honest people working honestly can get ahead.

But it was under Reagan they did away with all the things brought about by the Great Depression... that much is omitted in the article. It continued under Clinton, and culminated in Bush's administration. The Glass-Steagall Act? Done away in 1999. This speaks to me an institutional arrogance on the part of BOTH government and the financial institutions. What's that saying? "Every generation thinks itself more intelligent than the ones that came before and more wise than the ones that come after."


My take on this idea of regulation/deregulation... it's not so much a case of too much or too little, but if what's there is doing its job. That speaks the right kind of regulation where it is rightly needed. When I hear Ron Paul saying too much and so many others on the left and right saying too little, that says there isn't the right kind of regulation.

[Last Roman]

I like the idea of government ensuring that honest people working honestly can get ahead.

But it was under Reagan they did away with all the things brought about by the Great Depression... that much is omitted in the article. It continued under Clinton, and culminated in Bush's administration. The Glass-Steagall Act? Done away in 1999. This speaks to me an institutional arrogance on the part of BOTH government and the financial institutions. What's that saying? "Every generation thinks itself more intelligent than the ones that came before and more wise than the ones that come after."


My take on this idea of regulation/deregulation... it's not so much a case of too much or too little, but if what's there is doing its job. That speaks the right kind of regulation where it is rightly needed. When I hear Ron Paul saying too much and so many others on the left and right saying too little, that says there isn't the right kind of regulation.

I'd add something, but I think he covered everything. It's not WHAT we do, it's HOW we do it (to a certain extent).

[The spartan]

Capitalism is a danger to itself. Without government regulation, businesses form up into monopolies which eliminates competition. Without competition capitalism can't live. Pure capitalism favors a select few getting very wealthy while it keeps the poor poor. It isn't fun, and it is exactly why no country has ever had the balls to try it.

[BNS]

Capitalism is a danger to itself. Without government regulation, businesses form up into monopolies which eliminates competition. Without competition capitalism can't live. Pure capitalism favors a select few getting very wealthy while it keeps the poor poor.

Name me one such monopoly and I will explain to you how it was government that secured it in the first place. Also the rich richer and poor poorer sounds like an attribute of our modern day government's inflationary schemes. Or are you really so naive to believe that most of our general prosperity and progress in the last century came from collectivization?

It isn't fun, and it is exactly why no country has ever had the balls to try it.

You have got to be kidding.

[The spartan]

Name me one such monopoly and I will explain to you how it was government that secured it in the first place. Also the rich richer and poor poorer sounds like an attribute of our modern day government's inflationary schemes. Or are you really so naive to believe that most of our general prosperity and progress in the last century came from collectivization?

You want me to list to you a monopoly? Or why monopolies are bad? Of course most of the past monopolies are government assisted, everything was. Are you suggesting that monopolies will NOT occur in a free market? Because I can guarantee you you are wrong in that idea. The idea of letting rich people do as they please without government regulation essentially just shifts power from officials we elect to a chosen few who just happened to have a good idea at the time of which we don't elect. This is not to say competitive business isn't good, indeed capitalism is a pretty good idea, it just can't act alone. Microsoft got into trouble for consolidating too much power. Walmart too is pushing the envelope.

You have got to be kidding.

Laissez-faire capitalism has never existed in practice.

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

[BNS]

You want me to list to you a monopoly? Or why monopolies are bad? Of course most of the past monopolies are government assisted, everything was. Are you suggesting that monopolies will NOT occur in a free market? Because I can guarantee you you are wrong in that idea. The idea of letting rich people do as they please without government regulation essentially just shifts power from officials we elect to a chosen few who just happened to have a good idea at the time of which we don't elect. This is not to say competitive business isn't good, indeed capitalism is a pretty good idea, it just can't act alone. Microsoft got into trouble for consolidating too much power. Walmart too is pushing the envelope.

Monopolies as we have come to know and fear would not exist in a free market. In a system where government does not block out competition, the industry leaders would have to continue to innovate and keep it's prices down or lose ground to competition. Don't paint me as a corporatist I have never suggested we let the rich have their way with government regulation, instead I'm against this government regulation in the first place, that way all economic ventures must equally respond to market regulatory forces or sustain losses.

Also how dare Microsoft and Walmart so adequately meet consumer demand and have such low prices!?

And prosperity is from innovation, from capitalism. Progress, as in societal progress, comes from the collectivization of humanity. The idea that people are the same and should be treated no different. So yes and no.

So you agree that individual liberty (capitalism) has lead us to economic progress. But on the other hand I guess when it comes to social progress I'll just have to concede that our ideas on social justice differ.

[The spartan]

Monopolies as we have come to know and fear would not exist in a free market. In a system where government does not block out competition, the industry leaders would have to continue to innovate and keep it's prices down or lose ground to competition. Don't paint me as a corporatist I have never suggested we let the rich have their way with government regulation, instead I'm against this government regulation in the first place, that way all economic ventures must equally respond to market regulatory forces or sustain losses.

That is complete and utter bullocks. Corporations can very easily consolidate
power just by themselves, all it takes is a good idea or other business cooperation. IDEALLY, yes, a free market would stay perfectly balanced, but that isn't how it really works.. Think of it like an ecosystem, usually things are balanced, but sometimes a certain species becomes superior for whatever reason, causes unbalance and eventually damage to the ecosystem.

We know people can be crooks. It happens. Business men and people in power are not exempt from this either. They can be exploitative and dangerous. Problems we have seen without regulation from the government:
Exploitation of child labor in orphanages
Debt entrapment of employees to force dependency to the company
Dangerous and unsanitary working conditions for employees
Overworking of employees
Unfair payment to employees for non-work related issues (race, sex, etc)

The list can really go on and on. Like I said before, without regulation from the government, businesses can consolidate and use power over the populace. The difference between a business and the government is that we directly vote for the officials in our government and have various methods to keep them in check. We have no such power over corporations.

Also how dare Microsoft and Walmart so adequately meet consumer demand and have such low prices!?

Mmm, nice, I am going to address these separately.
Microsoft: You wanted examples and I gave you one that did not result from government help. Microsoft has been found to have violated anti-trust laws and got in trouble because of it. A lot of people believe Microsoft commonly gouges prices because of their limited competition. It is a RIDICULOUSLY powerful corporation, and it is kinda scary to a degree.

Walmart: Sure Walmart gives low prices based on demand, and there is no worse killer of small businesses. Walmart has choked towns dry of an local department or general stores. That is a perfect example of what a monopoly can do. Walmart effectively consolidates power in many towns and kills other businesses that does not have the financial means to defend itself. That isn't exactly good for the economy and is in fact against the law.

[Da Skinna]

Name me one such monopoly and I will explain to you how it was government that secured it in the first place. Also the rich richer and poor poorer sounds like an attribute of our modern day government's inflationary schemes. Or are you really so naive to believe that most of our general prosperity and progress in the last century came from collectivization?

The railroads... the American standard... highways... prisons... drugs... alcohol. They all have powerful lobbies in government. If it's government's schemes... then its big business' complacency, or collusion.

And prosperity is from innovation, from capitalism. Progress, as in societal progress, comes from the collectivization of humanity. The idea that people are the same and should be treated no different. So yes and no.

[Nutsack]

Uh, France tried it. They failed.

[Viking Prince]

The current crisis is only partially due to misregulation by the government. In many cases the shareholders did not oversee management properly either. Speculation also played a part. There are many business failures or the system would not have snapped. To focus solely on the government regulation would be to miss the need to address and correct all of the failures.

[JP226]

Monopolies as we have come to know and fear would not exist in a free market. In a system where government does not block out competition, the industry leaders would have to continue to innovate and keep it's prices down or lose ground to competition.

They would still exist. You have to be careful about that. The good thing however is that they encourage this creative destruction that is the economy. Take cable for instance, with or without the government we would know cable as a monopoly. However them getting rich encourages satellite TV, an innovation and advancement.

[BNS]

They would still exist. You have to be careful about that. The good thing however is that they encourage this creative destruction that is the economy. Take cable for instance, with or without the government we would know cable as a monopoly. However them getting rich encourages satellite TV, an innovation and advancement.

I was a bit vague. My point is that they would not be so protected from competition as the government sponsored ones in the past.

[BNS]

That is complete and utter bullocks. Corporations can very easily consolidate
power just by themselves, all it takes is a good idea or other business cooperation. IDEALLY, yes, a free market would stay perfectly balanced, but that isn't how it really works.. Think of it like an ecosystem, usually things are balanced, but sometimes a certain species becomes superior for whatever reason, causes unbalance and eventually damage to the ecosystem.

If the ecosystem worked in accordance to your morality, us and other complex forms of life would not exist.

We know people can be crooks. It happens. Business men and people in power are not exempt from this either. They can be exploitative and dangerous. Problems we have seen without regulation from the government:
Exploitation of child labor in orphanages
Debt entrapment of employees to force dependency to the company
Dangerous and unsanitary working conditions for employees
Overworking of employees
Unfair payment to employees for non-work related issues (race, sex, etc)

Mostly problems that disappear as the economy advances.

The list can really go on and on. Like I said before, without regulation from the government, businesses can consolidate and use power over the populace. The difference between a business and the government is that we directly vote for the officials in our government and have various methods to keep them in check. We have no such power over corporations.

Yes we do, it's in our pockets and constantly dictating our will, interrupted only by government.

Mmm, nice, I am going to address these separately.
Microsoft: You wanted examples and I gave you one that did not result from government help. Microsoft has been found to have violated anti-trust laws and got in trouble because of it. A lot of people believe Microsoft commonly gouges prices because of their limited competition. It is a RIDICULOUSLY powerful corporation, and it is kinda scary to a degree.

What do I care for the supposed sanctity of laws. I see your assessment as false as Microsoft works one of the fastest deflating sectors of the economy, something the government tries to "correct". You want a culprit of high prices, look at Microsoft's chief competitor.

Walmart: Sure Walmart gives low prices based on demand, and there is no worse killer of small businesses. Walmart has choked towns dry of an local department or general stores. That is a perfect example of what a monopoly can do. Walmart effectively consolidates power in many towns and kills other businesses that does not have the financial means to defend itself. That isn't exactly good for the economy and is in fact against the law.

Economic fallacy. Since Walmart most efficiently uses it's resources, that means it frees up resources for other sectors of the economy. There is no loss in productivity only gain. Lower prices means consumers now have more left to spend on other consumer goods or invest, this makes the economy happy . It's a win for all, this is an obvious case where socialism and government intervention is not in favor of the people.