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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 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.

"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer

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