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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: Oh please
By masher2 (blog) on 9/22/2008 11:38:33 AM , Rating: 0
> "Unregulated capitalism will put a (very) low price tag on (any) human life. "

Nothing could be further from the truth. A corporation whose product injures or kills someone pays a very high penalty in both the civil court system, as well as loss of sales and consumer confidence.

Governments, on the other hand, have started wars or ignored disasters for the sake of a few votes. Of the two, it's clear which holds human life the cheapest.


RE: Oh please
By rvd2008 on 9/22/2008 11:53:34 AM , Rating: 2
People with the money will be untouchable in unregulated capitalist society. There will be no court hearing for the poor. And consumers will not even be aware of a death threatening product if corporations are not overlooked. Welcome back, 19th century!


RE: Oh please
By FITCamaro on 9/22/2008 1:00:35 PM , Rating: 2
Tell that to companies who've been sued for millions because someone was a freakin idiot.

Why do you think Superman costumes have a tag that says "Does not endow the wearer with the ability to fly"?

Why do you think McDonald's coffee cups say "CAUTION: VERY HOT!"?

Why do you think household cleaning products have directions not to eat them? (Small kids don't read so it isn't for them.)


RE: Oh please
By BuddyRich on 9/22/2008 2:02:36 PM , Rating: 2
But then lawsuits and the like are only for money. They become a "cost of doing business" and some things like safety shouldn't have a price. Start holding CEO and Boards of Director members criminally responsible and then things truly would change.

I mean if I kill someone, I am charged with murder and my freedom is taken away if convicted. Even if it was unintentional I'd still get charged with manslaughter and still go to prison for a few years. As an added bonus I can still get sued civilly in a wrongful death suit and liable for a lot of money too!

If I am a company and build a car that has an unintentional design flaw that kills a couple hundred people, I write a cheque, maybe for millions, to settle a lawsuit...

Millions of dollars vs. an individuals freedom. Somehow the above doesn't seem fair to me.


RE: Oh please
By theendofallsongs on 9/22/2008 2:14:06 PM , Rating: 2
Why is it people with your attitude always seem to know so little about law and business? Executives can already be held criminally responsible for product injuries, if you can prove intentional neglect. It's no different than personal manslaughter. If your hand slips on the wheel and you kill someone: no charge. But if you accidently killed someone because you were drunk or talking on the phone, you can wind up with jail time.


RE: Oh please
By BuddyRich on 9/22/2008 2:30:06 PM , Rating: 2
True. But the nature of a corporation obfuscates who is truly responsible and makes that intentional neglect almost impossible to prove in most cases. With the government, their actions are supposed to be transparent, and with the aid of the Access to Information Act, and the like fall under far more public scrutiny than a corporation which has no obligation.

Look at all the cover-up the cigarette companies tried when they were sued (again civilly, not criminally), and this was evidence that was destroyed that was covered under subpoena.


RE: Oh please
By FITCamaro on 9/22/2008 2:21:17 PM , Rating: 2
So who should go to jail for an unintentional design flaw? All the engineers who designed it? The engineering lead? The product manager who signed off on it? The CEO?

Corporations exist to protect those who own them and who work for them. You can't have people going to jail because a product was defective. You hitting someone with your car and killing them because you weren't paying attention is your fault. And if you hit and someone and kill them and it isn't your fault, you don't go to jail. If you're playing with a gun and accidentally shoot someone and kill them, it's your fault. All the employees of a gun manufacturer should not go to prison because someone decided to use their product to kill someone.


RE: Oh please
By BuddyRich on 9/22/2008 2:49:31 PM , Rating: 2
So you are saying that mistakes when made by a collective are forgivable, but a mistake made by an individual is not? Is it the problem that you can't assign individual blame appropriately in the case of the collective that no one should be blamed?

Its a bad example but lets say it was a specific engineer who nodded off and forgot to carry a one and something was designed sloppily... should that individual engineer be charged, just like I would be if I nodded off at the wheel? I think he should be, people would be a lot more careful in their work if that was the case. And if blame cannot be ascertained, it should fall on the CEO, who would also ensure that fewer mistakes are made.

All I am illustrating is that without the same level of deterrent that exists at an individual level a deregulated market will never work for the interests of individuals, particularly in matters like safety, etc. because there is not a big enough deterrent in market forces alone for corporations to ensure safety.


RE: Oh please
By on 9/22/2008 3:43:55 PM , Rating: 2
Simple solution: ban all corporations entirely! Their good for nothing but greed and coruption and sqeezing the rights of the common man. I dont understand why we ever allowed them to get started in the first place.


RE: Oh please
By FITCamaro on 9/22/2008 4:01:06 PM , Rating: 2
If your idea were to happen every business in the world practically would be out of business. It is impossible to completely eliminate any and all defects from every product. No all the lawsuits might not be successful, but the legal fees would destroy companies. As others said, if there is intent to create a product that is dangerous, an employee can be sued.

And when it comes down to it, a company is successful by having trouble free products. A company constantly being sued for defects that kill is not one that lasts very long. Hell look at Firestone. Some lies were spread about their tires being defective and it nearly put them out of business. Nevermind that people were driving the tires under-inflated, over rated speeds, and on vehicles that, regardless of the tire, were known to flip.


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