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Manner of Speaking
Joined: 09 Jan 2003
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 Posted: Mon Apr 20, 2009 11:08 pm Post subject: Nobody Really Believes in Free-Market Capitalism Anymore |
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Nobody really believes in completely free-market capitalism anymore...not even the capitalists.
During the Depression, a lot of countries initially abstained from intervening in the financial sector for ideological reasons; they felt that the government which governs best is the one which governs least, and several years went by before Roosevelt et.al. decided to give Keynes a try. This time, with the financial sector bailout, have you noticed that nobody - not even the hardcore financial bigwigs - seriously considered or advocated just letting the banks fail? As a policy option, it didn't even seem to be on the table.
Whether letting banks fail in the US and Europe would have been a good idea is a question I will leave to the policy experts...
...but it is interesting to point out that as a result, nobody really seems to really believe in real free-market capitalism anymore, at least for the financial sector. The merits of international free trade versus protectionism are debatable, depending on whether you are an economic theorist or an economic historian.
But when it comes to economics, I don't take an ideological position either way. I'm a capitalist, but I don't think that economic freedom should extend to selling asbestos-tainted cosmetics. I believe in market regulation, when it is justified and when it can clearly be demonstrated to be beneficial to all, eg., antitrust regulations. |
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Fox
Joined: 04 Mar 2009
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| Posted: Tue Apr 21, 2009 2:29 am Post subject: Re: Nobody Really Believes in Free-Market Capitalism Anymore |
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| Manner of Speaking wrote: |
| Nobody really believes in completely free-market capitalism anymore...not even the capitalists. |
Why is this particularly surprising? Extremist philosophies like completely free markets, purely state-owned means of production, and so forth are intellectually easy and have a certain charm, so of course they draw proponents, but inevitably people realize over time that something less extreme that incorporates good from both sides of the ideological spectrum is more effective.
Whether what is most effective is closer to the Capitalism or Socialist end of the spectrum is open to discussion. |
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oldtactics
Joined: 18 Oct 2008
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| Posted: Tue Apr 21, 2009 3:20 am Post subject: Re: Nobody Really Believes in Free-Market Capitalism Anymore |
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| Manner of Speaking wrote: |
| This time, with the financial sector bailout, have you noticed that nobody - not even the hardcore financial bigwigs - seriously considered or advocated just letting the banks fail? |
Your generalizations are annoying - I'm a libertarian and I still fully support free market capitalism and so do most of my political peers. Just because the government didn't have the balls to let the banks fail doesn't mean that none of us wanted them to. Nor does it mean that no one 'considered' it. Of course they considered it.
I don't have time to get into the whole thing right now, but you're missing the point of free market beliefs - the banks didn't fail because of the free market, they failed because the people in charge didn't have any foresight. |
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rollo
Joined: 10 May 2006
Location: China
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| Posted: Tue Apr 21, 2009 5:05 am Post subject: |
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The only place that free-market capitalism is practised in China. Almost no social programs. No protection for workers, the wealthy do as they please. It has worked to pull 350million out of poverty, but it is pretty brutal. Ironic tht a country with a communist government is the stronghold of Adam Smith .
Yes I think they should have let most of the banks fail. Get rid of the old so new systems and industries can develop. |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Apr 21, 2009 5:30 am Post subject: |
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| I do. |
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Manner of Speaking
Joined: 09 Jan 2003
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| Posted: Tue Apr 21, 2009 6:03 am Post subject: |
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Free-market capitalism is based on the idea that self-interest by each participant in the market provides the maximum possible benefit to all. In free-market capitalism, 'foresight' is not an end in itself; it serves self-interest. The banks "failed" because the senior managers practiced self-interest at the personal and professional level, regardless of whether or not they had the foresight to see how their decisions would affect the economy as a whole.
However, to get back on topic...it is interesting that nobody ever suggested the idea of using the bailout money as a venture cap fund to set up new banks, instead of bailing out the existing ones. It probably would not have taken any longer to set up a number of new banks than it would have to get the existing ones back on their feet. And by starting from scratch, the goverment could have ruled out a whole slew of abuses that lead to the current managerial, regulatory and compensation problems. Seems like it would have been a wiser investment. |
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Manner of Speaking
Joined: 09 Jan 2003
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| Posted: Tue Apr 21, 2009 6:04 am Post subject: Re: Nobody Really Believes in Free-Market Capitalism Anymore |
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| Fox wrote: |
| Why is this particularly surprising? Extremist philosophies like completely free markets, purely state-owned means of production, and so forth are intellectually easy and have a certain charm, so of course they draw proponents, but inevitably people realize over time that something less extreme that incorporates good from both sides of the ideological spectrum is more effective. |
Agreed. |
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soviet_man
Joined: 23 Apr 2005
Location: Seoul
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| Posted: Tue Apr 21, 2009 12:33 pm Post subject: |
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| Quote: |
| Nobody really believes in completely free-market capitalism anymore...not even the capitalists. |
The point at which the capitalist argument falls apart is this:
You have hyperactive financial speculators outsmarting themselves constantly by creating more and more complex financial contracts like derivatives that securitize and make money from more (and more) (and more) forms of risk.
They cannot be regulated because the speed of which they operate exceeds the pace of government regulation. |
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Kuros
Joined: 27 Apr 2004
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| Posted: Tue Apr 21, 2009 12:57 pm Post subject: |
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| soviet_man wrote: |
| Quote: |
| Nobody really believes in completely free-market capitalism anymore...not even the capitalists. |
The point at which the capitalist argument falls apart is this:
You have hyperactive financial speculators outsmarting themselves constantly by creating more and more complex financial contracts like derivatives that securitize and make money from more (and more) (and more) forms of risk.
They cannot be regulated because the speed of which they operate exceeds the pace of government regulation. |
The free-market reacts by:
a) punishing the speculators by decreasing trust in their transactions and lowering the price for their services
b) plunging into a depression, resetting real estate prices to reflect their true values
The controlled-economy state reacts by:
a) protecting peoples' investments and subsidizing the speculators' risks and damage
b) trying to avoid a depression at all costs
----------------------------
Tell me which model is more desirable? |
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mises
Joined: 05 Nov 2007
Location: retired
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| Posted: Tue Apr 21, 2009 1:31 pm Post subject: |
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Who gave the drunk speculators the alcohol.
If credit was priced appropriately, this speculation would largely stop. |
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Fox
Joined: 04 Mar 2009
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| Posted: Tue Apr 21, 2009 4:03 pm Post subject: |
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| Kuros wrote: |
b) plunging into a depression, resetting real estate prices to reflect their true values
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b) trying to avoid a depression at all costs
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Tell me which model is more desirable? |
I think the people who support economies with at least some government control find themselves drawn to the second model because it could hypothetically succeed at ending these "correction" cycles, while the first model simply accepts such cycle.
Can you really blame people for aspiring to more? |
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Privateer
Joined: 31 Aug 2005
Location: Easy Street.
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| Posted: Tue Apr 21, 2009 5:18 pm Post subject: |
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| Manner of Speaking wrote: |
| Free-market capitalism is based on the idea that self-interest by each participant in the market provides the maximum possible benefit to all. In free-market capitalism, 'foresight' is not an end in itself; it serves self-interest. The banks "failed" because the senior managers practiced self-interest at the personal and professional level, regardless of whether or not they had the foresight to see how their decisions would affect the economy as a whole. |
The theory (of the invisible hand of the free market) is that if everyone follows their self-interest the economy will take care of itself. Well, the truly big businesses at the top are taking care of themselves alright, but using taxpayers' money - money that is denied to everyone and anyone else if they get themselves into a similar pickle. So is this really providing the maximum possible benefit to all? Of course not: it's providing maximum possible benefit to those at the top.
Only democratically accountable political institutions can set limits to the pursuit of self-interest on moral - and, as it turns out, economic - grounds. We, the public, are not allowed to kill for gain and neither are big businesses. We, the public, are not entitled to bailouts when we're financially irresponsible and neither should the big business interests be. One of the main purposes of democracy is to make sure everyone is playing by the same rules.
| Manner of Speaking wrote: |
| However, to get back on topic...it is interesting that nobody ever suggested the idea of using the bailout money as a venture cap fund to set up new banks, instead of bailing out the existing ones. It probably would not have taken any longer to set up a number of new banks than it would have to get the existing ones back on their feet. And by starting from scratch, the goverment could have ruled out a whole slew of abuses that lead to the current managerial, regulatory and compensation problems. Seems like it would have been a wiser investment. |
I suspect what that would come down to would be appointing a new set of upper management for existing banks, because you'd still need the same pool of expert workers to run the same system, and most likely in the same physical institutions as well. You're not going to start a whole new banking system from scratch and expect everything to run smoothly.
So why didn't they get rid of the old set and appoint new people? Simple. Because the people running the banks run us, that's why. And if anyone dare suggest getting rid of them they scream 'nationalization'. |
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Privateer
Joined: 31 Aug 2005
Location: Easy Street.
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| Posted: Tue Apr 21, 2009 5:21 pm Post subject: |
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| Fox wrote: |
| Kuros wrote: |
b) plunging into a depression, resetting real estate prices to reflect their true values
...
b) trying to avoid a depression at all costs
...
Tell me which model is more desirable? |
I think the people who support economies with at least some government control find themselves drawn to the second model because it could hypothetically succeed at ending these "correction" cycles, while the first model simply accepts such cycle.
Can you really blame people for aspiring to more? |
All this talk about models ignores the fact that economies are run by people, who have their own goals. You can't take politics out of the equation! |
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Fox
Joined: 04 Mar 2009
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| Posted: Tue Apr 21, 2009 5:51 pm Post subject: |
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| Privateer wrote: |
| Fox wrote: |
| Kuros wrote: |
b) plunging into a depression, resetting real estate prices to reflect their true values
...
b) trying to avoid a depression at all costs
...
Tell me which model is more desirable? |
I think the people who support economies with at least some government control find themselves drawn to the second model because it could hypothetically succeed at ending these "correction" cycles, while the first model simply accepts such cycle.
Can you really blame people for aspiring to more? |
All this talk about models ignores the fact that economies are run by people, who have their own goals. You can't take politics out of the equation! |
I don't think it ignores that fact at all. In fact, part of what makes any given model a good or bad model is how well it accommodates the very people you mention. That's part of what makes models like Communism unworkable. |
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samcheokguy
Joined: 02 Nov 2008
Location: Samcheok G-do
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| Posted: Tue Apr 21, 2009 6:18 pm Post subject: |
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| -The invention on fake money is the most bizarre issue when you think about it. Once currency is worth what ever people think it is worth you have a certain chaos. 'm not advocating gold and silver, its heavy, and impossible to divide nicely, but still the whole concept of currency exchange has moved economics from a mathimatical one to a psychological one. |
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