The day after Obama won the election, a Republican friend of mine on Facebook joined a group that planned on getting together on Inauguration Day to mourn ‘The End of Capitalism as We Know It’*.
Members of the group were waxing bitter in the message board, complaining about how Obama was a socialist who was going to destroy the U.S. economy.
I had to laugh … and cry.
Cry because these people were so caught up in their own right-wing economic philosophies (many of which I actually agree with) that they couldn’t even for one moment take the time to appreciate the historical significance of what this country’s voters had just done.
No matter what your politics, every one should be able to do what John McCain eloquently did on election night: Recognize that this country has taken a large, profound step to move past its racist beginnings (and recent history) and elected a candidate that preached unity and bipartisanship and re-engaged vast segments of the American people by inspiring a renewed sense of hope and idealism.
But many of Obama’s opponents don’t even want to give him a fighting chance. They believe he is doomed to fail and his liberal agenda will cause the collapse of the American empire and its glorious capitalist experiment … which is why I also had to laugh when I read those messages.
That experiment has already failed. The empire is already collapsing. Socialism is already here … And it all happened under a Republican administration.
Just today, Treasury Secretary Hank Paulson generously let the American people know that after careful deliberation, the $700 billion he asked for from Congress is now going to be put to a vastly different use than was originally intended.
Money that was supposed to be used to buy up bad loans and mortgages rotting away on the balance sheets of banks and gumming up our credit system is now going to be doled out (in a command-control style, I may add) to buy stakes in troubled banks, as well as potentially help out a number of as-of-yet unspecified companies in as-of-yet unspecified non-financial industries.
(So much for the program’s name: TARP, Troubled Asset Relief Program. Calling it the Tits and Ass Relief Program would have made about as much sense).
Mark my words: The cost of this program will end up far exceeding $1 trillion (though we may eventually get some of that money back). And that’s in addition to the hundreds of billions the Fed has already spent trying to buck up our decrepit financial system.
Instead of facing the consequences of a decade-long U.S. consumer spending binge, which was encouraged and exacerbated by a housing/credit bubble caused by our government’s easy money policies, we are flailing around haphazardly, trying anything and everything to bail our way out of this mess. But all we are doing is throwing good money after bad, and leaving future generations of Americans an enormous, crippling pile of debt.
The most egregious example of this will likely be the auto industry bailout that is quickly becoming a political inevitability. Right now, the best I can hope for is that the money comes attached with some sort of regulatory plan and set of conditions. If changes aren’t made to the auto companies’ operating structure (i.e. mainly, a renegotiated contract with the labor unions), they’ll be facing the same dire situation a few months down the road because they just cannot currently compete with the lower-cost manufacturers in Japan and throughout the rest of Asia.
Do I think an auto bailout is a good idea? No way. I’d much rather see GM and Ford be allowed to go bankrupt, and work to restructure their operations through that process, while we spend the money we’ll be using in the bailout to retrain displaced workers and invest in start-ups pursuing new green energy technologies. But I understand millions of jobs are at stake. I understand that the American people would find it hard to understand why Wall Street and the fat cat elites who work there and produce nothing of tangible value got bailed out while the manufacturing engine of the country was left to wither on the vine.
The fact of the matter is, America has never been a purely capitalistic system. We came to grips some time ago that capitalism without safety nets ends up benefiting the few at the expense of the many, and will eventually destroy itself through social instability. That’s why we have Social Security, and welfare, and Medicare, and public schooling and student loan programs, etc. etc.
But it is still quite ironic that the biggest government nationalization and socialist expansion efforts in decades will be coming at the end of a Republican administration that never pursued the fiscal responsibility platform of the conservative movement and is now too afraid to deal with the nasty flip side of the free market policies it espoused.
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*I think that was the name of the group – I can’t find it on Facebook any longer … maybe they, too, realized the insanity of their hypothesis
I agree with almost anything you write, except the part about “capitalism without safety nets”. I think the tremendous increases in wealth over the entire world the last century proves capitalisms ability to raise standards not only for the rich but also for the poor. A common mistake about free capitalism is that it feeds off the poor. It doesn’t. Compare the data about economic freedom (i.e. capitalism) to the progress of reducing poverty in different countries, and the pattern will become quite obvious.
(there is actually data that suggest that the poor are the ones gaining most from capitalism – not in absolute numbers, but well in percentage)
//hpx83 Save capitalism
Hans,
Without question, meritocratic-based capitalism as the foundation for an economy is the best option out there, and when a developing country begins to embrace the free market, it will undoubtedly benefit from large aggregate gains in wealth and standards of living.
But capitalism does not have a moral conscience and is just fine with creating large swaths of have-nots, even if those have-nots may be better off than they were in a non-capitalist system. Because the haves can be relatively few in number, income inequality becomes a huge threat to societal stability.
I think it’s safe to say that pure capitalism is just a theory; in every free market-based country in the world, numerous ‘socialist’ programs exist to make sure that the ‘losers’ in capitalism are at least able to enjoy relatively comfortable lives (and the chance to move upward). In the United States, this manifests itself in policies like a progressive tax, and the programs I mentioned in the post above. In my opinion, this is not only morally laudable, but practically wise because widening income inequality will eventually threaten any society.
And let’s face it, capitalism doesn’t always work efficiently. We’ve seen twice this decade how in the short term it can create extreme conditions and market bubbles that cause violent dislocations that create a lot of angst and pain. Now some of that inefficiency may have been caused because we don’t have a pure capitalist system, and the government intervenes with its own set of goals, but i think extreme market dislocations with painful consequences happen even in pure capitalism.
I didn’t know we were on a first-name basis. Have we met?
Capitalism does not “create” a lote of have-nots. Capitalism allows everyone to create their own future. I will agree that some will be more successful than others – are they to be blamed for this? And on what do you base the fact that the haves can only be relatively few in number? Empiricism? But none of us have ever experienced free capitalism. The only time where something close to free capitalism existed, was back in a time when the majority of the world was below the poverty line – so of course most of them would be have-nots regardless of the political system! Capitalism is what has allowed middle-classes to emerge all over the world the past two centuries, and it has pulled the lower classes up out of poverty in all developed countries.
The whole “inequality” argument is based on the belief that everyone will contribute equally, so everyone should have the same amount of money. This is not true – which means that there is nothing morally wrong with different levels of wealth. And if this is a threat to societal stability, it is because people encourage those less fortunate to think that they have a “right” to the products of other peoples efforts. I do not think it is reasonable to regulate capitalism out of fear of a communist revolution. If such an event would occur, one should consider it for what it is – an act of terrorism. But this discussion is all based on some “early 20th century” view of the world, which we have (thanks to capitalism) left long ago.
Everyone seems to think that people would be worse of in a free capitalist society – yet no one ever manages to provide anything substantial to back this up. Unless the argument is that the majority of people are lazy and incompetent and must feed of the few competent, something which I will not agree upon (neither the statement or the effect).
As for the two failures of “capitalism” this decade, no one knowing the background would consider them failures of capitalism.
The first “crisis” was due to the fact that incompetent investors failed to properly value the “.com”-companies. If you had eyes to see with you would have known not to invest. Companies that promise the world but has nothing to show for are generally not to be trusted. If you want to gamble – sure. If you (like so many others) thought that bad investments have ceased to exist, you have yourself to blame.
The current crisis is nothing but the failure of the regulatory government trying to “control” the economy and at the same time demand that credit be expanded, loans be given to people who cannot pay them, and if it doesn’t work we will regulate some more. There are economists (a few, almost exclusivly “austrian economists”) who saw this crisis on the horizon a long time ago, but no one wanted to listen because the government was busy guarantueeing that everyone would win, pass go, and collect $200 million.
My bad on use of your first name – I saw your email within WordPress and just assumed it was listed here as well … we’ve never met (as far as I know!)
Capitalism does indeed create haves and have-nots, though perhaps the word create is a bit too loaded. But owners of capital typically earn more at the expense of laborers, and most real-world examples of capitalism (as pure as we have, anyway) have indeed resulted in pretty significant income inequality. That’s not a bad, immoral thing, necessarily, but I do personally believe that rich countries and people should look out for their fellow man and alleviate as much suffering as possible (I understand you disagree, and that’s cool. Just a difference of opinion).
I also believe, however, that more than being the moral thing to do, creating quasi-socialist policies is WISE. I do not think huge, prolonged gaps in income inequality are sustainable. You can talk all you want about how a revolution of the proletariat is an act of ‘terror’ but I’m with Marx on this one: A pure free-market capitalistic society will eventually do itself in.
I don’t consider either the dot-com bubble or current housing/credit crisis failures of capitalism, either, even though there are deleterious consequences that arise from them.
The former example, in fact, was a beautiful example of how well capitalism can work – people pinpointed an exciting new technological advance with broad implications for economic productivity, and enormous sums of capital were invested to help develop the necessary infrastructure.
Entirely new businesses and industries were created in that era, including one of the most valuable companies in America today, while other business and industries found themselves struggling to survive because of all the changes the Internet created (creative destruction). Sure, expectations got out of whack, so eventually there was too much capital chasing too few returns, which caused the market bubble and a lot of investor losses. But that’s part of the beast.
The current crisis is a lot more complicated. Certainly, some of the fault lies with government policies encouraging low-income lending, and in my opinion we are only worsening the situation with all these bailouts by institutionalizing the concept of moral hazard into our markets. But I also feel deregulation and the repeal of Glass-Steagall exacerbated the problem by allowing non-banks to use extreme amounts of leverage and make the vast majority of the problematic loans we have today.
The problem is we want it both ways, and it’s a very difficult balance to achieve.
enjoying the discussion, tho!
No problems on the name – just caught me by surprise so I thought maybe someone had managed to track me down. Isn’t that hard really
“…but I do personally believe that rich countries and people should look out for their fellow man and alleviate as much suffering as possible (I understand you disagree, and that’s cool. Just a difference of opinion).”
The thing is, you misunderstand me. I’m all for helping out people who are worse of than me. I will gladly give money to any number of charitable causes. I do not have any need for excessive luxury, as long as I got mine covered, I’d gladly give away the rest. My problem lies with FORCE. I do not wish to be told that it is my moral obligation to care for others, because it isn’t. Yet this is what the government does with all it’s wealth-redistribution. The moral implications of being a socialist is, whether you wish to acknowledge it or not, a view of the world where people do not care enough about eachother to be “allowed” to be free.
I won’t ignore Marx – eventhough it’s not exactly my favourite writer, he managed to get a few parts right. But remember when it was he wrote – during a time where the majority of the population were below the poverty line – and I do not talk about the modern western standard “comfortable living”-poverty line, but the african starvation poverty line. I believe that with the technological advances of the last century, we could all be living in a fairly comfortable peaceful world, where war, poverty and environment problem was a thing of the past. If you look at how far capitalism got us, despite regulations, imagine how far it could have gotten us without.
And yes, we like creative destruction. It’s the driving force of effectivisation. Have not though about the .com-bubble in the way you described, but of course you have a point, although I think that technology had a lot to do with the fact that the IT-business got back on track so quickly afterwards. As for the current crisis, everyone seems to think that wrong is right, and right is wrong. The bailouts is the worst part of it all, because if the problem as such is too many investments in things that aren’t paying off (which we will see alot of throughout the industry up ahead), giving/lending money to companies that can’t stand for themselves is pretty stupid. Almost as stupid as trying to avert a crisis caused by low interest rates by lowering interest rates. Think I wrote a rather sarcastic piece about that called “Great britian is for sale” a week or so ago. As for the Glass-Steagall act, it is becoming obvious that it was a patch of the regulatory mess that had pretty far-reaching effects. They should have removed the rest of it simultaneously and they would realize that what their network of regulation is covering up is nothing but the prosperity of the free unregulated market. (gosh, that turned into an ideological rant).
Also, I have opinions on fractional reserve banking, but that is a further discussion.
If you want to keep exchanging opinions, I’m all for it. I guess my “libertarian horseshit” (which was a comment I got recently) tends to aggravate and scare a lot of people off, so anyone who actually understands what I am getting at is welcome to criticize as much as they like.
Cool … at heart, i consider pretty much a libertarian as well, esp. on the social side, but I guess I still have the bleeding heart that prevents me from totally joining the ‘dark side’
And I guess that philosophy of mine is actually fueled by a rather dim view of humanity. I believe if not ‘forced’ to redistribute wealth, the haves wouldn’t do nearly enough to help out their less fortunate neighbors. Charity would only go so far, so i don’t mind a bit of institutionalized ‘charity.’
Good point about the times in which Marx was theorizing. Perhaps an absolute free market society would produce enough wealth that even people on the low rungs were doing well enough that they didn’t mind the income disparities and saw it as motivation more than anything else (the key point obviously would be that all obstacles to moving up and down those rungs were removed – I’m assuming you agree that govt must absolutely play a role in removing institutionalized forms of discrimination to ensure a meritocracy).
The other shortcoming with capitalism in my opinion – and why government sometimes has to step in and regulate – is that it doesn’t take into account certain useful non-economic factors when determining where capital gets deployed. The environment is one obvious example. i have no problem with a coherent and well-thought out government energy plan since i don’t think the free market alone would keep us from destroying our planet. (It doesn’t think long-term enough). unfortunately, what tends to happen is that lobbyists direct our energy strategies and we get nonsensical ideas like ethanol subsidies implemented.
Again, it’s very hard for me to even imagine a world in which all unnecessary regulation is removed and how that would work itself out.
I’d love to add you my very modest blogroll if you allow me.
It may be dark on this side of politics right now, but I take comfort in the fact that it will always be right. Thing is – I am scared of the implications of the free society sometimes as well. But that is always only a split-second until I realize what “free” means. It means that whatever we want, whatever we wish, we may create. Want an insurance for the ones born under lesser circumstances? We can create it. Want someone to take care of the old and sick? We’ll fix it. In the end, I have to believe in mankind – because otherwise – why aren’t we still in the stoneage? Which is usually what I respond to people who think economy is a “zero-sum” game, where one mans wealth would mean another mans poverty.
And institutionalized forms of discrimination requires institutions
Another fine thing about capitalism – discriminating would not only make you target for anyone who wishes to demonstrate and protest – it would also mean immediate monetary loss. Because if you won’t hire / rent / sell from / buy to people based on race, sex or religion, you are going to be in a world of trouble when the guy who does shows up.
Environment is one of the hardest nuts to crack as a capitalist, I’ll admit to that. A good way to start would be to privatize more land (and why not sea?). After all – who burns down a forest when he could live off selling pieces of it and then replanting the trees? A lot of the environment destruction we are seeing is only because of poverty (burning down rainforest, setting up cheap plants that pollute etc.).
You are of course very welcome to add me to the blogroll – since we are trying to spread the word of true capitalism – any help is appreciated!