backtop


Print 108 comment(s) - last by jtemplin.. on Oct 8 at 1:47 PM


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.



Comments     Threshold


This article is over a month old, voting and posting comments is disabled

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.


“And I don't know why [Apple is] acting like it’s superior. I don't even get it. What are they trying to say?” -- Bill Gates on the Mac ads














botimage
Copyright 2014 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki