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An anti-capitalism poster from 1911, published in the Industrial Worker, a socialist-anarchist newspaper
Fire, the wheel, the printing press...and the capitalist economic system.

When listing all the numerous inventions that improve our lives, one of the most important is usually ignored: the capitalist economic system.  With recent market turmoil causing some observers to claim capitalism itself has failed, it's apropos to take a closer look at the technology behind it.

Capitalism is an invention, no different than the transistor or the automobile. Like those others, it's comprised of many smaller inventions: the corporation, the bank, the stock market, commodities, securities, futures, etc. All together, they are a group of technologies invaluable for efficiently converting labor and resources into goods and services. Nothing we've devised has ever worked so well.  Most of our prosperity and standard of living derives from it.

Take Russia. By far the world's largest country and the richest in natural resources, it has a highly educated and hard-working populace. Yet when Putin took over, their GDP was barely larger than the tiny island of Hong Kong's, and despite quintupling in the last few years, it's still a tenth of the US economy. Or consider China which, after allowing a small bit of capitalist endeavor to penetrate its system, transformed into the world's fourth-largest economy nearly overnight.

One of the reasons so many people (including some misguided economists) have trouble accepting capitalism is its apparent simplicity. It just seems impossible that a system so seeming chaotic can outperform something intelligently planned by trained economists. But that assumption is itself incorrect. Where a planned economy is like a single-core processor, capitalism is a neural-net processor with millions of nodes. A socialist economy is run by a few government-appointed individuals. But in a free market, every time you buy or sell a product, you're adding a calculation to the system. Whether you buy a car, rent a movie, or get a haircut, you're contributing to the price and quantity of goods and services. Cut a trip to the mall because gas went up another 5 cents, and you've input data to force down the price. Go anyway and you've voted to raise the price further.

The system appears simple, but in reality it's an enormously complex, self-regulating, highly adaptive mechanism. And like most mechanisms, it works best when no one pours sand in the gears.

There's a strong theoretical basis that any intervention in a market reduces its efficiency. But still governments keep trying to tinker under the hood. Their shade-tree efforts invariably do great damage. Our current fiscal mess is a marvelous case in point. It's been cast as something too difficult for average people to understand, but it’s really very simple.

Consider.  A couple applies for a loan. They make $60K a year, and need to borrow $700K. Their credit history is poor or nonexistent. The house has doubled in value in recent years-- only because all the other homes around it have as well. And the only reason they can afford the payments is because interest rates are so low and they're being offered a balloon mortgage that, if rates climb or their house depreciates will surely bankrupt them.

Does it really take a rocket scientist to know how risky this is? And that a bank with a large portion of its portfolio in such loans is also in peril?

So why did so many banks take such risks for so long? Here's the key to the whole problem: government intervention. In a free market, interest rates will rise in step with rising risks. They didn't -- thanks to the Fed. And government-sponsored enterprises (GSEs) such as Fanny Mae, Freddy Mac, and the Federal Home Loan banks kept the music playing. With most of the risk ultimately guaranteed by the federal government, no one really cared.

The bailout will ultimately cost a trillion dollars. It's also left us an industry that's effectively been nationalized, and a precedent that will encourage future industries to take more inappropriate risks. But worst of all, we have people on both sides of the political aisle calling for still more government involvement. Capitalism hasn't failed here-- government intervention has.

What goes up must come down. When a market rises too fast, it must eventually decline. The longer one prevents that, the harder that fall will be. Very simple. It's a shame our politicians can't understand that.

But the technology itself is still sound. And if we just leave the machine alone, very quickly it will start working again.

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RE: The worst system except all others
By rvd2008 on 9/22/2008 10:39:07 AM , Rating: 2
so, how who decides if poor is an exception and how to deal with it? Do you really believe those who contribute to the system are rewarded the most in capitalism?

RE: The worst system except all others
By pmonti80 on 9/22/2008 10:40:46 AM , Rating: 2
Don't bother answering him, just don't bother ...

By erikejw on 9/23/2008 11:39:43 PM , Rating: 4
"The point is, ladies and gentlemen, that: Greed, for lack of a better word, is good. Greed is right; greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms, greed for life, for money, for love, knowledge — has marked the upward surge of mankind and greed, you mark my words — will not only save Teldar Paper but that other malfunctioning corporation called the USA.”
Gordon Gekkos

By clovell on 9/22/2008 11:19:43 AM , Rating: 2
Welfare reform, progressive taxes, etc. A lot of it has already been implemented.

RE: The worst system except all others
By arazok on 9/22/2008 11:22:34 AM , Rating: 3
so, how who decides if poor is an exception and how to deal with it?

In some cases it’s obvious. If it’s a disability, I’m all for giving these people a hand.

Do you really believe those who contribute to the system are rewarded the most in capitalism?

Absolutely. As an example, the company I work for was founded in 1991 by a 30 year old ex pitney-bowed sales rep. He risked everything he owned to create a small business, with no guarantee it would work out. Within 10 years, he grew the company into a medium sized business employing 250 people with offices in Canada and the US. He sold the company for $30 million and retired at 42 years of age.

Some people would view him as a greedy capitalist. What a bastard, he made millions off the labour of others! What about that poor guy cleaning his shop floors for minimum wage!

I see a man who provided jobs for 250 people. I wouldn’t have a job if it wasn’t for him, or people like him, because I don’t have the balls to risk everything I own on a venture. So, in this capitalist system, he risked more, and was rewarded more. I am not willing to risk more, and I am rewarded with less. You reap what you sow.

RE: The worst system except all others
By rvd2008 on 9/22/2008 11:47:16 AM , Rating: 2
So, you are not "one of those evil bastards who don’t pity the poor" as you put it after all if you are "all for giving these people a hand"? Well, at least in well defined disability cases...

I see your point and there are examples like that. However, the gap between poor and rich is widened and the middle class became poorer. How can this happen if capitalism rewards those who work hard and deserve? Where is the problem?

RE: The worst system except all others
By jgvandemeer on 9/22/2008 11:51:30 AM , Rating: 4
How can this happen if capitalism rewards those who work hard and deserve?
Ooh! Oooh! Easy one, pick me! Because the poor don't work hard and aren't deserving. Most of them also didn't take advantage of the free education they were offered when they were younger.

Now, give me my cookie.

RE: The worst system except all others
By rvd2008 on 9/22/08, Rating: -1
By Hieyeck on 9/22/2008 12:46:44 PM , Rating: 4
Harvard educations are hardly free. I think he's talking more about things like... oh... I don't know... COMPLETING HIGH SCHOOL. Honestly, if those people really believed that 'being the man' and 'gangsta' was going to help them succeed in life, they deserve it. Charisma; cunning; intelligence - pick any two and succeed. Pick all 3 and you're swimming in a pool filled with Benjamins.

Celeberties are lucky. Capitalists tend to be charasmatic and cunning.

RE: The worst system except all others
By FITCamaro on 9/22/2008 12:55:03 PM , Rating: 2
They also didn't expect things to be handed to them. He never said they were college graduates. He said they took advantage of the free education through high school that the government provides. They did what they had to do to succeed. Look at the guys who formed Google. They're not from rich families. They went to school and had a good idea. Now they're billionaires. Idiotic liberal ones at times but still billionaires.

There will always be people born into money. They are not to blame though for the poor staying poor. Anyone can go to college today. Regardless of financial situation. In fact kids with poor parents are almost better off because they qualify for so much more in financial aid. If you're someone like me who the government decided his parents made too much money, you get loans, thats it. My parents didn't help me pay for college. I took out loans.

If someone doesn't make it today its because they didn't try. No one held them down, repressed them, or anything else. They choose not to do well in school. It largely the parents fault. But its not the fault of "greedy" businessmen. I hope to be one of those people one day.

I have absolutely no pity for the poor. Do I like the fact that others have it harder than me? No. But I don't feel that its my fault or anyone else's (except their parents) that they are where they are.

RE: The worst system except all others
By BuddyRich on 9/22/2008 1:52:16 PM , Rating: 2
That is not true. There are well documented invisible barriers for both people of colour and barriers based on gender at truly reaching the pinnacles of success. These are systemic to our own cultural biases and are slow to change, if they change at all. I don't think idiotic quotas or affirmative action are the way to go either, but to say that hard work is all it takes is just as naive as expecting a handout. Hard work will get you far, but only so far, then you need luck and/or help from the established to really make it, and it really is still much an "good old boys" club in getting that help, leaving one only luck. It is a self propagating cycle that helps keep the rich, rich as there is a similar cycle that keeps the poor, poor.

There are socio-economic factors that play into one being poor. They aren't excuses, but factors that make it X times as hard for someone to succeed from a poor background as opposed to one from even a middle class background. Averages alone will say a greater percentage of the poor will fail comapred to their middle and upper class compatriots and continue the cyclic nature of the poor being poor with their own families. Are the parents to blame? Perhaps, or maybe it was a grand-parent, or perhaps just circumstance... who knows, but I choose to have pity and advocate changes to help the poor, just as you choose to have none and be greedy and protect your stash... That's the beauty of democracy, I have the right to my opinion, and if I can enough people to believe what I believe it can be enacted.

Ultimately though, you only have to look at Maslow's hierarchy of needs. Until people have the basics taken care of (food, shelter, saftey) their thoughts will not be on anything else, that is just human nature. Its easy to say "work harder" but if you don't know where your next meal is coming from, its alot harder to think about bettering yourself vs. thinking about your next meal.

That's why I think a socialist/welfare state mixed economy is the best vs. a truly capitalistic one. The basics are met and allow someone from all walks of life to truly make it. Then there are no excuses for those that fail, and they truly do have only themselves to blame.

RE: The worst system except all others
By theendofallsongs on 9/22/2008 2:00:53 PM , Rating: 3
factors that make it X times as hard for someone to succeed from a poor background as opposed to one from even a middle class background.
Sure. If your parents are poor and lazy, they're probably going to instill that kind of behavior in you also. If your parents are hard working and well educated, chances are you're going to be as well. No big secret there.

RE: The worst system except all others
By BuddyRich on 9/22/2008 2:17:36 PM , Rating: 4
And do you chose your parents? There is that luck again, nothing to do with hard work.

Something at least has to be attempted to stop the cycle, IMO. Otherwise it will keep propagating itself. Which is fine if you are outside of that cycle, but man, I would hate to be caught in it.

I suppose this could also be seen as the nature vs. nurture debate... perhaps I am placing too much emphasis on the nurture side (in this case upbringing) but I definitely think it has an affect...

By FITCamaro on 9/22/2008 2:24:20 PM , Rating: 2
Yes and I'll feel sorry for people who had poor parents and thus were never taught to make good decisions. Not give them everything for free because of it.

In the end everyone has a choice. You can live in squalor like your parents, complaining because others have more. Or you can work hard to get out of it and take responsibility for your actions. Because in the end, they are your own. You can't choose your parents. You can choose how you live your life. If you make the choice that depending on the government to solve your problems is the way it should be because your parents told you so, that's your fault. Not mine.

RE: The worst system except all others
By porkpie on 9/22/2008 3:55:51 PM , Rating: 4
And do you chose your parents? There is that luck again, nothing to do with hard work.
The hard work is what YOU do, not what your parents do. Plenty of kids had poor parents and still got a good education and learned the value of hard work themselves.

All you deserve is a CHANCE in this country. You don't deserve a free ride.

By therealnickdanger on 9/25/2008 8:35:01 AM , Rating: 3
Wait... so you're saying that I shouldn't continue to collect food stamps and live in section-8 squalor while riding on 30" rims? I shouldn't buy that gold chain? I shouldn't buy so much weed and alcohol? I shouldn't buy a plasma instead of paying off my trailer? You make it sound like I actually have a choice! How dare you mock my condition! You racist! You sexist! You class-ist!

By murphyslabrat on 9/26/2008 3:31:10 PM , Rating: 2
Dude, chill. If a kid has a great enough desire to succeed, they will. They will use computer resources, available for no cost at school and at libraries, to research their options; options which include the Pell Grant, which is currently paying 110% of my education. Or, they can find a mentor in a teacher or some other adult. Maybe such is not true for larger schools, but most teachers are willing to answer questions, as long as you show that you will take the answer to heart.

You guys talk of a cycle. That cycle is not unbreakable, it makes things harder when you don't have a father or mother that pushes you to excellence, but that does not rule out excellence. The resources are there, the opportunity is there; all anyone really needs is a will for there to be a way.

Really, there are only two situations where a kid is screwed, and the first is if they are unwilling to chase-down success. The second, is if the kid is mentally which case they are really screwed.

By jtemplin on 10/8/2008 1:22:18 PM , Rating: 2
Its good to hear some others on this forum have a background in Psychology! They BOTH matter BUT consider this example. You could have the deck STACKED genetically ok. This baby is going to be perfect in every category, no genetic disorders, propensity for intellect and athleticism. Then you implant this embryo in the womb of a crack addicted mother.

Now your perfect embryo is going to be a crack baby. Not so perfect anymore.

A competing (but likely complementary) idea is that of canalisation, where the phenotype is buffered against environmental change--a sort of phenotypic predestination. To integrate thoughts: I feel in the crack baby case its fair to say that the environmental extreme represented by crack will necessarily drag the child's capability for achievement down as compared to the same genotype in a crack-free high-SES mother.

By Spuke on 9/25/2008 7:09:37 PM , Rating: 2
There are socio-economic factors that play into one being poor. They aren't excuses, but factors that make it X times as hard for someone to succeed from a poor background as opposed to one from even a middle class background.
It IS harder for the poor to succeed. The environment of the poor is not conducive to success hence the reason why they are poor and continue to be so. I was born and raised poor (government housing, single mom on welfare). In defense of my mother, she did not stay in those conditions. She moved off of welfare, got a good job (eventually got laid another, not so good, job) and owns a home.

I am now upper middle class, married, have a degree and a great career. Was it hard? Hell yes! Poor people generally don't know how to succeed so I had to teach myself. I was literally on my own for the most part as my family just didn't know how to get where I wanted to go. This is the plight of many poor people. They are literally stuck where they're at and without motivation, are doomed to perpetuate their plight. But the opportunities are there.

My brother also has a degree but my sister does not and lives at home with my mother. My friends from my neighborhood have no degrees, one did not graduate from high school, and all but one bounces from job to job. One of them has had the same job since high school but has no motivation to move on. All are very intelligent and are quite capable but have no motivation to succeed.

I am an example of how it can be done but it DOES take some creativity, motivation and hard work. Not everyone is capable of leading themselves (most people are sheep) and therein lies part of the problem. There may be some people that would intentionally stand in your path but those are not the majority and, nowadays, those types are irrelevant. I did it and I'm not a genius. Others can to but they need some guidance (that can be helped) and motivation (must be self generated).

By jtemplin on 10/8/2008 1:12:00 PM , Rating: 2
Good post BuddyRich +1

RE: The worst system except all others
By arazok on 9/22/2008 12:45:44 PM , Rating: 3
However, the gap between poor and rich is widened and the middle class became poorer. How can this happen if capitalism rewards those who work hard and deserve?

Easy, because the middle class (or the poor) are not getting poorer, only the gap is widening.

The poor’s income is stagnant because of the same things that make them poor to begin with. In 20 years, a bus driver isn’t going to be any better off then he is today. If you don’t ever attempt to do anything other then drive a bus, you shouldn’t expect to be rewarded for it.

The rich are becoming richer because they excel at what they do. They identify what sectors of the economy provide wealth, and they go there. Some get computer engineering degrees and work in that field, others take chances and create businesses.

As the economic pie grows, nobody is getting less, but some are getting more. People only feel poor because they see others with more.

By FITCamaro on 9/22/2008 1:05:52 PM , Rating: 2
Well said. If you never aspire to do more, you deserve nothing more. You don't deserve a big house, a luxury car, and yearly trips to Europe solely because other people have it. But the government is giving them more for nothing (in their minds) each time they raise the minimum wage. Of course the reality of that is that its just getting more people fired, cutting others hours, and made it harder for small businesses to stay in business.

But oh right they're letting people go or cutting hours because they're greedy businesses right? *rolls eyes*

RE: The worst system except all others
By mattclary on 9/22/2008 2:32:35 PM , Rating: 2
the gap between poor and rich is widened and the middle class became poorer

Totally disagree. Compare the Rockefellers to the poor around 1900. The poor then didn't have a pot to pi55 in. Today the "poor" have color TVs, satellite dishes and iPods.

I think anyone can theoretically make something of themselves, no matter how poor they are, but you really have to have the DRIVE and that is rarer and harder to come by than money.

I have a small computer repair business that provides a nice little supplemental income. If I was as driven as some, I could quit my day job and do nothing but do my own thing.

RE: The worst system except all others
By on 9/22/2008 3:40:13 PM , Rating: 2
Capitalism means the poor are having to eat free government cheese while the rich are riding around in their million dollar yachts. Why should I suffer because my parents didn't get a good education? The government should provide equally for everyone. Don't we all have equal rights?? Tax the rich at 90% and that'll pay for free education and healthcare for all!

By Andy35W on 9/23/2008 1:38:48 AM , Rating: 2
The poor then didn't have a pot to pi55 in. Today the "poor" have color TVs, satellite dishes and iPods

All bought for on credit.




By jtemplin on 10/8/2008 1:07:38 PM , Rating: 2
Interesting excerpt from a National Alliance to end Homelessness fact book about a study in New York on homelessness. The homeless people that cost the most to our society ARE the ones who need help the most. That is because they have staggeringly high rates of mental illness.
Although chronic homelessness represents a small share of the overall homeless population, its effects on the homeless system and on communities are considerable. Chronically homeless people are inefficiently served by the systems they interact with, including emergency shelters, emergency rooms, hospitals, and police departments. These systems in turn are adversely affected by chronic homelessness.

A landmark study of homeless people with serious mental illness in New York City found that on average, each homeless person utilized over $40,000 annually in publicly funded shelters, hospitals (including VA hospitals), emergency rooms, prisons, jails, and outpatient health care. Much of the cost was for psychiatric hospitalization, which accounted for an average of over 57 days and
nearly $13,000.

When people were placed in permanent supportive housing, the public cost to these systems declined dramatically.
The documented cost reductions—$16,282 per unit of permanent supportive housing—were nearly enough to pay for the permanent supportive housing. If other costs, such as the costs of police and court resources and homeless services were included, the cost savings of permanent supportive housing would likely have been higher.

In other words, the study found that it cost about the same or less to provide permanent supportive housing as it did for people with serious mental illnesses to remain homeless. But while the costs were the same, the outcomes were much different. Permanent supportive housing results
in better mental and physical health, greater income (including income from employment) fewer arrests, better progress toward recovery and self-sufficiency, and less homelessness.

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