Capitalism

[Breaking Bohan]

We all know that USA just passed $700 Billion dollar bailout, so that US investment banks (and other banking institutions) won't fail because of subprime mortgage/credit crisis. Now that gov owns much of these properties, and is going to be deciding which companies get help and which won't - is USA still capitalist system?

 

If not, is that bad, and where do you see it going?

[Mike Tequeli]

Yeah it is, just isn't free market capitalism as they'd like to think. Funny thing is, if you let the system go completely free market, problems tend to solve themselves, but our system is like half and half and then we need sh*t like the bailout to fix it. Not that I'm a fan of the bailout. I'd like to hear what illspirit has to say about it really, or any libertarians out there. They must be sh*tting bricks but I haven't heard a thing from Penn or Maher or anybody.

 

Capitalism works though, once people realize it's pretty much the only thing that works, they'd stop trying to implement new ideas. When everything else falls apart, capitalism breaks out like some natural instinct. Anything else is forcing nature.

[ilikensrs]

Yeah it is, just isn't free market capitalism as they'd like to think. Funny thing is, if you let the system go completely free market, problems tend to solve themselves, but our system is like half and half and then we need sh*t like the bailout to fix it. Not that I'm a fan of the bailout. I'd like to hear what illspirit has to say about it really, or any libertarians out there. They must be sh*tting bricks but I haven't heard a thing from Penn or Maher or anybody.

 

Capitalism works though, once people realize it's pretty much the only thing that works, they'd stop trying to implement new ideas. When everything else falls apart, capitalism breaks out like some natural instinct. Anything else is forcing nature.

Do you have any evidence to support your claim that free markets will solve their own problems? Considering the incentives to make short term gains at the expense of long term profits, to shift every possible cost to external parties with no control over transactions, and it's inability to effectively manage common pool resources, I dare say that the only solution markets effectively provide a solution to is the problem of how to concentrate wealth in the hands of the few at the expense of many.

 

For the original question, the U.S is absolutely still a capitalist system. Governments have been transferring public funds to private ownership for a long time, and this is just a recent example of a longstanding practice.

[HolyGrenadeFrenzy]

 

Do you have any evidence to support your claim that free markets will solve their own problems? Considering the incentives to make short term gains at the expense of long term profits, to shift every possible cost to external parties with no control over transactions, and it's inability to effectively manage common pool resources, I dare say that the only solution markets effectively provide a solution to is the problem of how to concentrate wealth in the hands of the few at the expense of many.

 

For the original question, the U.S is absolutely still a capitalist system. Governments have been transferring public funds to private ownership for a long time, and this is just a recent example of a longstanding practice.

Greed exists as a part of the evils of humanity, so, although some systems make the it easier for it to flourish, that doesn't mean that a system can stop it nor does it mean that the system or any system is to blame for such problems.

 

 

Yet, I still largely agree with what you have said.

 

Capatalism is not based in allowing banks and the few control economies through the intentional use, misuse and abuse of directly controlling the flow and inflation and deflation of currency value as we currently have today.

 

 

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

-Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)

3rd president of US (1743 - 1826)

 

 

http://www.sonic.net/sentinel/naij2.html

 

[illspirit]

Capitalism, like most other inanimate things or systems, isn't good or bad in and of itself. Any system can be used for either, and no system is infallible. So, given the choice of potential success or failure by government regulation over the same potential via consensual means, I will always take the latter. Even though government can smooth out some of the rapid, downward changes (and, in reverse, delay upticks), it is always backed by the threat or actual use of coercive, lethal force. Regardless of whether this force is aimed at the "right people" (usually determined by populist, mob mentality), it only serves to legitimize the authoritarian urges of the people drawn to government work. And it always desensitizes the public to further expansions of the state; or even worse, conditions the public to ask for more of it.

 

233 years ago, we fought a bloody revolution in large part due to sales taxes on tea and stationary. Yet after two centuries of ever increasing cries from the public to "do something" about this or that, we've reached the point where the government thinks it can control or tax anything. And the public demands more of it.

 

That said, Mike Tequeli is correct that we don't have a true free market. This crisis was caused mostly by the Federal government forcing banks to lend out money to people who couldn't afford it via the Community Reinvestment Act and its progeny/amendments. Lots of CRA supporters are pointing out that it only forced a fraction of the banks to do anything, and that the rest was all greed. This is true to an extent, however it ignores that the ones who weren't forced to do so were still encouraged by the implicit Federal backing via Fannie and Freddie. Either way, it is a result of governmental social engineering, and getting mad at the executives who took the bait is akin to beating the family dog because it sh*t on the carpet after feeding it chili and locking it in a bedroom for twelve hours.

 

At any rate, I think the bailout might end up being largely symbolic. I heard somewhere that a number of the institutions who are affected by the mess aren't going to take part in the bailout anyway because of all the strings which are attached to it. Even if a substantial number do play along, the (half-ass) plan probably won't do anything other than drag the whole situation out for longer than it would have taken for the market to correct itself. Granted, this will probably make the damage more gradual, and perhaps limit the floor it would reach in the short-term. But overall, I feel the rewarding of bad behavior, both on the part of the market and the government, will only serve to obfuscate the lessons that should have been learned through all of this.

 

But, then again, I'm not an economist.

 

 

For the original question, the U.S is absolutely still a capitalist system. Governments have been transferring public funds to private ownership for a long time, and this is just a recent example of a longstanding practice.

Wha? Transferring public funds to private owners, AKA public-private partnerships, is a hallmark of fascism and corporatism, not capitalism.

[ilikensrs]

For the original question, the U.S is absolutely still a capitalist system. Governments have been transferring public funds to private ownership for a long time, and this is just a recent example of a longstanding practice.

Wha? Transferring public funds to private owners, AKA public-private partnerships, is a hallmark of fascism and corporatism, not capitalism.

I wasn't being particularly serious. My point was that western governments in general seem very fond of giving public money to their friends in the private sector, and that this is hardly the first time this has happened. If the U.S was a capitalist country before the bailout, it still is now.

 

 

Either way, it is a result of governmental social engineering, and getting mad at the executives who took the bait is akin to beating the family dog because it sh*t on the carpet after feeding it chili and locking it in a bedroom for twelve hours.

 

Nice analogy, maybe not quite what I wanted to read over breakfast but it demonstrates your point well enough. However, I like to think that top flight executives earning over $60m a year would be slightly smarter than a dog and at least attempt to consider the consequences of their actions.

 

Regardless of whether they were implicitly encouraged to lend money to risky customers by the government or by their competitors making massive short term profits (and massive executive bonuses), they should have known better. That was their job and the justification for their obscene pay - that they knew better than other people and would take good care of your money.

 

 

 

At any rate, I think the bailout might end up being largely symbolic. I heard somewhere that a number of the institutions who are affected by the mess aren't going to take part in the bailout anyway because of all the strings which are attached to it. Even if a substantial number do play along, the (half-ass) plan probably won't do anything other than drag the whole situation out for longer than it would have taken for the market to correct itself. Granted, this will probably make the damage more gradual, and perhaps limit the floor it would reach in the short-term. But overall, I feel the rewarding of bad behavior, both on the part of the market and the government, will only serve to obfuscate the lessons that should have been learned through all of this.

 

I'm running out of time here so I'll keep this brief and maybe come back to edit and expand it later. Regardless of whether the government goes ahead with the bailout or not, the bad behaviour has already been rewarded. The people steering the ship straight into the iceberg have already got their pay. As long as large corporations continue to buy policy from a politician they own, you will see this kind of scenario repeat.

 

[illspirit]

 

I wasn't being particularly serious. My point was that western governments in general seem very fond of giving public money to their friends in the private sector, and that this is hardly the first time this has happened. If the U.S was a capitalist country before the bailout, it still is now.

Righto. My political snark detector must be broken since there's so much going on that just seems too absurd to be true. But, yea, the US is still capitalistic, just not truly laissez-faire in the Rand/Smith/Friedman sense.

 

 

Nice analogy, maybe not quite what I wanted to read over breakfast but it demonstrates your point well enough. However, I like to think that top flight executives earning over $60m a year would be slightly smarter than a dog and at least attempt to consider the consequences of their actions.

 

Regardless of whether they were implicitly encouraged to lend money to risky customers by the government or by their competitors making massive short term profits (and massive executive bonuses), they should have known better. That was their job and the justification for their obscene pay - that they knew better than other people and would take good care of your money.

Yea, it does seem odd that they would go along with something so incredibly stupid without a fight. But, then, with the implied backing of the fedgov (and surely an assumption that they would be bailed out like the S&Ls were), it could be that they thought the risk was the path of least resistance. Had they not played along, they would have been shouted down as racists, and they had Janet Reno threatening to bring down the full weight of the government on them for a while there too. Not to mentions the cost of defending against countless lawsuits by ACORN (fun fact: represented by Barack Obama..) and such which demanded that banks lend the money to people who couldn't afford it.

 

 

I'm running out of time here so I'll keep this brief and maybe come back to edit and expand it later. Regardless of whether the government goes ahead with the bailout or not, the bad behaviour has already been rewarded. The people steering the ship straight into the iceberg have already got their pay. As long as large corporations continue to buy policy from a politician they own, you will see this kind of scenario repeat.

Yes and no on the already being rewarded part. While the CEOs have already made a bunch of money, most stand to gain even more if their companies are bailed out. For instance, some dude from Lehman Brothers was in front of Congress today, and they were talking about how he still has like ten million shares in the company. Should it come back to life, those shares will be worth a lot of f*cking money.

 

And as painful as it might be, it may do well to teach the share holders a lesson as well. Seeing as CEOs are generally appointed by and have their pay set by a board which is elected by shareholders, they can and should reign this in on their own. If they get stung enough times (without the gov bailing them out..), perhaps they will start to realize "hey, maybe we shouldn't keep hiring such expensive, pompous asshats who want to bleed the company dry?" Or, at the very least, start demanding more transparency from the boards.

 

You're right that it won't change as long as they have politicians in their back pocket. Luckily for them, it looks like they'll have the number two recipient of Fanny/Freddie donations in the White House next year.

 

[Breaking Bohan]

But who will CHANGE capitalism for the better!?

 

What about the people who can't pay their home loans? What about those who can't get loans? Or can't afford to pay for gas or their bills? What about those people whose retirement funds have gone down due to the drop in the stock market?

[Attorney General]

 

But, yea, the US is still capitalistic, just not truly laissez-faire in the Rand/Smith/Friedman sense.

Well sure, this country has never been a true laissez-faire capitalist state, right? I think we can all agree that even though the US employs a mixed economic system...it's base is still largely Capitalistic.

 

Even back during the Great Depression, the economy was resuscitated by the government handing out massive contracts to domestic companies, which in turn boosted productivity and economic output. It put more disposable income in the pockets of the poor, and in time the money spread. The gov't has always guided the economy with it's fiscal policy, for better or worse, throughout history (I know I'm preaching to the choir here, illy, forgive me). So this is no different, except that it's funded by taxpayers in an effort to protect investors.

 

These investors leveraged their capital in an effort to earn more of it...just like any entrepreneur does when he or she opens a business. So what happens when these same investors pull their cash out and invest in in foreign markets? I'll try to put myself in their shoes for a minute...and I imagine that it wouldn't be long before I'd be looking at the Euro...or any other safe bet I could find overseas. To me at least, these investors made their bed, now they should have to sleep in it. Why should taxpayers like you and I bite the bullet for them?

 

The bailout, the way I understand it, will indemnify those who took risks...the same people who reaped the rewards before the market went to sh*t. So taxpayers are waiting in the wind while price of gas increases and the value of their dollar decreases all the while their taxes are on the rise...yet they're forced to provide a safety net for shareholders who made ill-advised investments.

 

Also, lets not forget that although they pushed this through Congress in a hurry, it's typical that the economy takes time to feel the effects of legislation like this. Isn't operational lag a legitimate concern, or will all these repossessed toxic securities be salvaged and spread the wealth like a wildfire after being repurchased? Or would it have been more beneficial to hand out stimulus checks like f*cking food stamps, pray we avoid hyperinflation and that the Invisible Hand redistributes the wealth and boosts the economy over time?

 

There's a lot of questions that have yet to be answered. I don't know much, but I do know that if the bailout doesn't restore confidence in the credit market, I'll be out 4,200 more dollars and still no banks will even think about loaning me money for law school a couple of years down the road.

[illspirit]

I realize that we've never had a true free market. Hell, even the Founders had a bit of a protectionist streak in them when it came to tariffs and such. My (obtuse) point was that this wasn't a failure of capitalism. At least not in its entirety.

 

With regards to the government resuscitating the economy during the Depression, I dunno. Lots of people seem to think that the government did lots of things that only made it worse. For example: (http://volokh.com/posts/1222450700.shtml)

 

As for the current bailout, I'm mostly agnostic about the whole thing. Did something need to be done? Sure. But it looks to me like they rushed through the biggest, most dramatic sounding idea (complete with ginormous numbers pulled from their ass) in order to look like they were doing something. Well, that, and to grab some more extra-Constitutional powers. Had they not put this off until election season, something far less expensive would have almost surely been the result.

[Attorney General]

 

With regards to the government resuscitating the economy during the Depression, I dunno. Lots of people seem to think that the government did lots of things that only made it worse. For example: (http://volokh.com/posts/1222450700.shtml)

 

Nice, I like that site. Volokh is the guy you've been talking about lately, right?

 

Anyway, I hear ya. Seems like there's always at least two schools of thought when it comes to economic policy. I share a number of beliefs with libertarians, so more times than not I end up leaning more toward classical economic approaches...as opposed to Keynesian concepts.

 

Hazlitt's Broken Window Fallacy (http://freedomkeys.com/window.htm) illustrates your point quite well...I just happen to think that the war exacerbated the recovery. It fixed what would have been fixed on it's own, but it made it happen quicker. That's what I believe about the Depression (although any mention of the NRA was conspicuously omitted from this semester's Economics text ), but we'll never really know either way.

 

Hey now! I'm losing my focus again. In this instance, I'd advocate gov't intervention...but only if it's a virtual certainty that this bailout pulls us out of a recession. I'm just curious as to if it had to come in the form of a three quarters of a trillion dollar bailout funded by taxpayers that amounts to nothing more than window dressing if banks continue to horde their cash.

 

That said, this bailout is broader in scope than most of the public seems to think. In fact, I heard that the biggest loser from the Dow's plunge last week was a national retirement fund in Denmark that had spread it's stake in securities all over the market. Not just the United States, but the entire world will look back on this month 10 or 20 years from now and critique our (mis?)handling of this situation. I can't propose a solution, because I'm far from an expert, I just hope we've made the right decision.

[rconway]

I think it is a very serious financial crisis. If mishandled then it will become a serious one and I think this does not mean the end of the United States position in the world economy. We will have to wait and see.

 

 

[lloydo]

I was watching a news topic today on stock prices etc, looked as if the numbers were posative and going up? Is this the same for everyone, or just the UK.

 

Anyway, Capitalism seems to work because it manipulates the human mind to want more, freedom grows from it and eventually common sense dies away due to human rights, soon enough your once proud country will have it's currency degraded by a continuous stream of immigrants, jobs become scarce, crime will rise because police have no powers (in my town they only leave the station if a serious crime occurs) and many will perish before they grow as the system needs failures in order for big buck profits. No one will speak out, ironic in a democratic world, they won't speak out because they have their rights and freedom, they just don't want to lose it, even if it means your family gets raped whilst you can do nothing but walk away.