There is much ballyhoo about this financial crisis being the failure of capitalism.
And if we are to be intellectually honest, this is a failure of capitalism, but it doesn't mean it's broke. This is part of capitalism. People and companies who do stupid things get wiped out. The bailing out of these deadbeat losers is purely socialist in nature.
That being said, I know those of you on the left love to see capitalism "at its worst." Which this is.
Of course it pales into comparison to communism at its worst, which last I recall was what, 100 million people dead?
Just wanted to put things in perspective.
Sorry to disagree, but I think this is a failure of government intervention in the marketplace.
ReplyDeleteWithout a national housing policy pushing for more home ownership, Fannie and Freddie buying and securitizing loans, the Community Reinvestment Act, and activist monetary policy to bring us out of the Clinton Recession, none of this would have happened.
Every housing crisis and banking crisis we've had has been the result of ill-conceived government policy and/or lax bank examination.
Sure, this was fueled by "greed" and "theft" but those motivations always exist. Anyone can rob a bank any day of the week. But if government makes the banks keep more money in their vaults, reduces the number of police, and reduces the maximum punishment for bank robbery, then more people are going to do it.
One of the basic rules of economics is that people respond to the incentives they are given.
But is this capitalism? I don't think it is. I think this is the result of politicians pushing financial decisions toward social goals rather than economic ones. Granted, the individual consumer constantly choosing debt over equity doesn't help, but who made the loose money available?
ReplyDelete"Of course it pales into comparison to communism at its worst, which last I recall was what, 100 million people dead?"
ReplyDeleteThat low? Though most of the Commies said they were socialists, and they did not consider their actions failures, but minor successes on the road the ultimate success.
That is not a failure of capitalism, it's capitalism at its best! During times of economic growth even monkeys can make money. Now we get to see who's done his homework and who's an idiot.
ReplyDeleteAs you said, recessions are part of capitalism, so it's not a systemic failure. The only failure that has happened was the lack of commonsense.
By the way, you probably remember that I wrote that I support the financial relief packages because I was afraid of the possible economic damages due to bank failures. Well, I have to correct myself. You were right. Let them fail. Now that I've seen what long-term political implications such rescue packages have, i.e. more socialism, I've turned all against it.
Sadly, now as I'm cheering for the Great Depression redux to come, its probability has sunk pretty much to zero, because the rescue packages seem to work. Now, all my hope rests on the outstanding CDSs and the ongoing oversupply of the housing market.
Cap'n -
ReplyDeleteI make the same point when discussing the situation with coworkers who are in a panic. People made bad decisions, and this is the invisible hand coming down to spank them.
I personally think it makes the case for more capitalism. If government hadn't gotten involved with the housing market, financial institutions wouldn't have taken the risks with subprime mortgages that they did. Then, this whole situation wouldn't exist. Or, at least, it wouldn't be as dramatic.
Of course, it's easier to blame the "rich," so that will be the mantra in the coming months.
Too bad, since it's the "rich" who provide jobs, capital, investment, taxes, and know-how to make this economy run.
The day a man in poverty offers me a career (or even a job) is the day I'll change my tune.
Captain:
ReplyDeleteI was wondering if you could update a chart you did in September of '07 - Consumer Debt as a % of GDP? I think this issue, as much as any other, is a major contributor to our current malaise.
http://www.cato-at-liberty.org/2008/10/15/gods-that-fail/
ReplyDeleteAwesome read, and makes a similar point. Also, there is a chart, probably included just to make it that much better for The Captain.
I agree with Robert Miller - it's a failure of government policy and the resulting intrusion into the marketplace.
ReplyDeleteAnd yes, it was a failure not of capitalism, but one of socialism - that government policy resulted in those getting and brokering mortgages having nothing at risk - which is about as far away from real capitalism as one can get.
I must say that you all make good sense, but near the top of this post, someone said "greed will always exist". There is the rub. With out regulation, oversite, or some sort of accountability, we will be right back here in short order. Are you saying that's ok?
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