Don't Blame Capitalism
Just as prices in a free market are set by supply and demand, financial and real estate markets are governed by the opposing tension between greed and fear. Everyone wants to make money, but everyone is also afraid of losing what he has. Although few would ascribe their desire for prosperity to greed, it is simply a rose by another name. Greed is the elemental motivation for the economic risk-taking and hard work that are essential to a vibrant economy.
But over the past generation, government has removed the necessary counterbalance of fear from the equation. Policies enacted by the Federal Reserve, the Federal Housing Administration, Fannie Mae and Freddie Mac (which were always government entities in disguise), and others created advantages for home-buying and selling and removed disincentives for lending and borrowing. The result was a credit and real estate bubble that could only grow -- until it could grow no more.Similarly, the FHA, Fannie and Freddie were created to encourage lending by allowing primary lenders to turn their long-term risk over to the government. Absent this implicit guarantee, lenders would probably have been much more conservative in approving borrowers and setting interest terms, and in requiring documentation of incomes and higher down payments. Market forces would have kept out unqualified buyers and prevented home-price appreciation from exceeding the growth in household income.
Real credit can be supplied only by savings, so artificial steps to stimulate lending will only produce inflation. By refusing to allow market forces to rein in excess spending, liquidate bad investments, replenish depleted savings, fund capital investment and help workers transition from the service sector to the manufacturing sector, government is resisting the cure while exacerbating the disease.
Gods That Fail
Where to begin? Certainly we haven’t had any unregulated capitalism lately. As I put it the other day, the kind of capitalism that has encountered the current crisis is “the kind in which a central monetary authority manipulates money and credit, the central government taxes and redistributes $3 trillion a year, huge government-sponsored enterprises create a taxpayer-backed duopoly in the mortgage business, tax laws encourage excessive use of debt financing, and government pressures banks to make bad loans.”
4 comments:
I have always hated money. Capitalism, socialism, ect are all government ways of controlling people. Slavery exists nowadays, still. You have to spend your time working to pay for food, housing ect. Capitalism is founded on artificial scarcity to make a profit. Money served a purpose, once, but now the technology is good enough, and there are enough resources out there to provide for everyone. The earth's resources belong to all of us, who are these corporations that think it is theirs?
Aaron,
I have to take issue with two things in your comment. One, the earth's resources do not belong to all of us, they belong to owners of the property, both physical and intellectual. The fundamental aspect of property rights is one of the key element to prosperous society. Just look at any society that fails to protect property rights and you will see poverty.
Scarity does not lead to profit, value creation does. The world does not have an abundance of meteorites, yet the onces that does exist are not making people billionaires. It is the selling of products for profit without interference with the price setting mechanism that leads to societal progress. That mechanism alone assures that resources are used properly and productively.
There are not enough resources to satisfy everyone's needs on the planet. That is a fact. Now over time, we can use those resources effectively to raise the global standard of living but it will only come with free-trade, property rights, rule of law, and a capitalist system that rewards profit and punishes loss.
I can tell from reading over your blog and answers that you have thought this through and have a good degree of intelligence. I agree with many things about capitalism, but one thing has always gotten under my skin. I do not care for fancy material possessions, myself, and have never seen the point in them. The problem I have, is that society says the rich are better than the poor. Now, human life is priceless, and no one can really place a value on it. The problem is, the rich DO have a better quality of life. Why should they eat good, healthy food, have nice cars that don't break down, ect, while others cannot afford a doctor, and have to stay sick and in pain? That is not right. Poor people do not deserve to live a sad, crap life just because they do not have some green paper in their pocket. I am not saying that money will make everyone happy, but it seems to take care of food and medical bills, ect. And slavery does exist nowadays, I worked at a gas station, and did not get paid nearly what I made for the company, that is true with just about any job. People get stuck with some worthless factory job they hate, and they end up doing it the rest of their lives to feed their kids and put a roof over their heads, instead of enjoying life, and pursuing whatever job would make them happy. I agree with personal property rights to an extent, but like I mentioned before, we are all living on this earth, all humans, no one has more of a claim on the planet than anyone else. Why should they?
Aaron,
I certainly understand your frustration. Inequality has been one of the biggest targets for capitalist opposition. But inequality is actually good in my opinion. It is the drive to make one's life better (or the lives of their children) to makes people take chance and start new business. Or it is the prospect of a better education that allows you to get a better job and provide more comforts in life. Plus, why should people that work harder and create more value for society be paid the same as people that do not even bother to roll out of bed in the morning?
Most of your commentary above is about the choices that people make. No one forces anyone to take a factory job they hate. They take it because it is their best alternative, even though they might not like it. Another aspect that makes capitalism great is that it actually creates alternatives for people. Unlike communism where people are told they will work at the gas station or the factory and have no choice in the matter.
The rich do enjoy a better quality of life and that is great. It should be an inspiration to everyone that wants those comforts in life. Hard work, a good education, and maybe a little luck has created wealth unlike the world has every seen in the US. Just because there are people that are not motivated by luxury, maybe you are one of them, does not mean that everyone else should have to live under restrictions that do not make it possible for them to enjoy those things.
Remember what Thomas Jefferson says about government-
"The government that can provide all that people want is powerful enough to take everything away."
Post a Comment