Capitalism

A remarkable thing happened last night on the MSM. CNBC Mad Money host Jim Cramer yesterday pinned the tail of recent stock market declines squarely on President Obama's backside. It was remarkable opening commentary, from a Wall Street guy who admits to supporting Obama's policy goals and who all but endorsed his candidacy during the campaign.

Only twice before in my memory has Cramer ventured into the political realm to assign blame for stock market performance -- last summer and fall, respectively, with Bush deficits and Bernanke/Fed inaction on the collapse of major investment banking firms.

Cramer's treatment of Obama was gentle compared to the spitting-mad tirade he threw at Bernanke ("'They know NOTHING!). 

Cramer says nothing we haven't heard at this and other conservative blogs -- except to agree that national health care, cap-and-trade, are good policy objectives, they just have to be pursued at the right time.

At the same time last night, David Gergen commented on Anderson Cooper that Obama's team seems to be losing focus, pushing too many ambitious policy goals to the point where they are starting to undermine the foundation objective of stabilizing the economy.

All of this commentary points to one of two possibilities: Either Obama is an overly ambitious Harvard guy, naive about how much change the national can absorb in a year, or he is a reckless ideologue -- he just doesn't care if his accelerated agenda wipes out private savings, because he is so absolutely certain in that "righteous wind at our backs."

Cramer himself raised the possibility that maybe he "just doesn't care about the stock market," and implored Obama to show otherwise.

As if in response this morning, Obama says he won't base policy on the "gyrations" of the financial markets.

Fair statement, but it only proves Cramer's point: There is no gyration in the markets; it is a freefall collapse. Were that we were seeing gyrations! Two and three hundred point drops wouldn't be so troubling. But the decline, since the election and inauguration, has been steady and strong, especially after Obama policy pronoundements.

If capital is indeed on strike, and stays on strike, Obama's confident words this morning about a 2009 recovery ("I'm certain of it") will come back to haunt him, just as John McCain was quickly haunted by his statement that the fundamentals of our economy are sound. It will be no satisfaction to see, given the suffering that is being inflicted.

This is a repost of an entry I wrote for QandO a few days ago. I'm reposting it here, for a different audience to get a look at it.

It is a lengthy think piece, and it may be completely off base. But the fundamental point I think we should be looking at is this: We are, quite possibly, watching the collapse of the Post-WWII global financial system. The first collapse in the 1930s saw off the Gold Standard. This collapse will probably see off the concept of government-backed fiat currencies.

So, what happens then?

Two days ago, Jon Henke posed the question, "What policy should Republicans be advocating and pursuing to limit government and regain popular support?"

With Barack Obama and the Democratic Congress proposing new bailouts and a significant amount of additional government spending to create jobs and restore the economy, Republicans have a phenomenal chance to reinforce our earnest belief in limited government.  I propose a simple policy that will allow us to both "limit government and regain popular support": Republicans must fight Democratic efforts to build a nanny state to solve the economic woes. Instead, our policy should be offering solutions to revive the economy that are rooted in free market principles.

Indeed, Thomas Sowell points out that government intervention may actually be harmful to the economy:

Even in the case of the Great Depression of the 1930s, increasing numbers of economists and historians who have looked back at that era have concluded that, on net balance, government intervention prolonged the Great Depression.

I recently had a unique chance to discuss the economy with renowned economist and monetary policy expert Dr. Allan Meltzer (which you can read at length here).  Meltzer and other leading economists have observed that the big problem plaguing the economy is the housing crisis, and that the government's efforts to breathe life into the economy have neglected this issue.  Meltzer proposes a free market solution to the housing crisis that could be immensely effective as a step toward getting the economy back on track:

To address the housing problem, Congress and the administration should take actions that increase the current demand for housing. For a limited time, say up to the end of 2009, allow buyers to use the value of their down-payment (or some part of it) as a tax deduction. Or, reduce the tax rate for qualified buyers who purchase a house between now and January 2010. Or do both. Give the benefit to all home buyers, including those buying a second or third house.

The bottom line is that the battle of free markets versus government control is one Republicans can – and should – win.  Dr. Meltzer noted that he often says, "Capitalism without failure is like religion without sin."  Yes, the free market will inevitably fail on occasion – and Republicans, as champions of capitalism, must pursue a policy that ensures that the free market is given the chance to fix itself as it has many times before.  If Republicans can identify innovative free market solutions to the economic woes like the proposals outlined by Dr. Meltzer, we can help ensure limited government while making real progress toward economic recovery.

Say what you will, call him names! A lame duck, yes mistakes have been made, the rules of laissez-faire capitalism were violated, but right now it is he who stands between prosperity through free market principles, and the forces of Statism, who wish to reduce the financial sector to a tragic shadow of its former self, a mere government utility!

Here are two opinions: one by the most underestimated US President in history, George W. Bush - and an article by Objectivists Yaron Brook and Don Watkins on the Op-Ed page of the Ayn Rand Center for Individual Rights: a urgent plea for the separation of Economy and State. Europeans are urged to take note of a field virtually unknown to them. But first, the news:

CNN: "Bush ready to defend free-market principles during summit" (...) President Bush signaled that he's ready to defend Western-style capitalism and free-market principles during what will be one of his last appearances on the world stage. (...) As leaders of the world's 20 largest economies, dubbed the G-20, gather in Washington, some European leaders are pushing for global financial regulation. (...) >>>

Wall Street Journal: "The Surest Path Back to Prosperity - 'If you seek economic growth, social justice and human dignity, the free-market system is the way to go'," by George W. Bush As we have seen in recent months, financial turmoil anywhere in the world affects economies everywhere in the world. And so this weekend I'm going to host a Summit on Financial Markets and the World Economy with leaders from developed and developing nations that account for nearly 90% of the world economy. The leaders attending this weekend's meeting agree on a clear purpose -- to address the current crisis, and to lay the foundation for reforms that will help prevent a similar crisis in the future. (...) the actions taken by the U.S. and other nations are having an impact. Credit markets are beginning to thaw. Businesses are gaining access to essential short-term financing. A measure of stability is returning to financial systems.

(...) we must recognize that government intervention is not a cure-all. For example, some blame the crisis on insufficient regulation of the American mortgage market. But many European countries had much more extensive regulations, and still experienced problems almost identical to our own. History has shown that the greater threat to economic prosperity is not too little government involvement in the market, it is too much government involvement in the market.

We saw this in the case of Fannie Mae and Freddie Mac. Because these firms were chartered by the U.S. Congress, many believed they were backed by the full faith and credit of the U. S. government. Investors put huge amounts of money into Fannie and Freddie, which they used to build up irresponsibly large portfolios of mortgage-backed securities. When the housing market declined, these securities, of course, plummeted in value. It took a taxpayer-funded rescue to keep Fannie and Freddie from collapsing in a way that would have devastated the global financial system.

There is a clear lesson: Our aim should not be more government -- it should be smarter government. All this leads to the most important principle that should guide our work: While reforms in the financial sector are essential, the long-term solution to today's problems is sustained economic growth. And the surest path to that growth is free markets and free people.

In the wake of the financial crisis, voices from the left and right equate the free-enterprise system with greed and exploitation and failure. It's true this crisis included failures -- by lenders and borrowers and financial firms, and by governments and independent regulators. But the crisis was not a failure of the free-market system. And the answer is not to try to reinvent that system. It is to fix the problems, make reforms, and move forward with the free-market principles that have delivered prosperity and hope to people all across the globe. (...)

Nations that pursued other models have experienced devastating results. Soviet communism starved millions, bankrupted an empire, and collapsed as decisively as the Berlin Wall. Cuba, once known for its vast fields of cane, is now forced to ration sugar. While Iran sits atop giant oil reserves, its people cannot put enough gasoline in their cars.

The record is unmistakable: If you seek economic growth, social justice and human dignity, the free-market system is the way to go. It would be a terrible mistake to allow a few months of crisis to undermine 60 years of success. (...) >>> Give Bush a buzz z

- Caption: "The Anchorage" by Bryan Larsen -

Ayn Rand Center for Individual Rights: "Stop Blaming Capitalism for Government Failures", by Yaron Brook and Don Watkins

Speaking of the financial crisis, French president Nicolas Sarkozy recently said, “Laissez-faire is finished. The all-powerful market that always knows best is finished.” Sarkozy was echoing the views of many, including president-elect Obama, who assume that the financial crisis was caused by free markets--by “unbridled greed” unleashed by decades of deregulation and a “hands off” approach to the economy. And given this premise, the solution, they say, is obvious. To solve this crisis and prevent another one, we need a heavy dose of Uncle Sam’s elixir: government intervention. (...)

But while capitalism may be a convenient scapegoat, it did not cause any of these problems. Indeed, whatever one wishes to call the unruly mixture of freedom and government controls that made up our economic and political system during the last three decades, one cannot call it capitalism. (...) Take a step back.

In the lead up to the “Reagan Revolution,” the explosive growth of government during the ’60s and ’70s had left the American economy in disarray. A crushing tax burden, runaway inflation, brutal unemployment, and economic stagnation had Americans looking for an alternative. That’s what Reagan offered, denouncing big government and promising a new “morning in America.” (...) Bush Jr., often laughably called a champion of free markets, presided over massive new governmental controls like Sarbanes-Oxley and massive new welfare programs like the prescription drug benefit.

None of this is consistent with capitalism. (...) The government’s job under capitalism is single but crucial: to protect individual rights from violation by force or fraud. America came closest to this system in the latter half of the nineteenth century. The result was an unprecedented explosion of wealth creation and consequent rise in the standard of living. Even now, when the fading remnants of capitalism are badly crippled by endless controls, we see that the freest countries--those which retain the most capitalist elements--have the highest standard of living.

Why then should capitalism take the blame today--when capitalism doesn’t even exist? (...) Consider the current crisis (...) the driving force is clearly government intervention: the Fed keeping interest rates below the rate of inflation, thus encouraging people to borrow and providing the impetus for a housing bubble; the Community Reinvestment Act, which forces banks to lend money to low-income and poor-credit households; the creation of Fannie Mae and Freddie Mac with government-guaranteed debt leading to artificially low mortgage rates and the illusion that the financial instruments created by bundling them are low risk; government-licensed rating agencies, which gave AAA ratings to mortgage-backed securities, creating a false sense of confidence; deposit insurance and the “too big to fail” doctrine, whose bailout promises have created huge distortions in incentives and risk-taking throughout the financial system; and so on. In the face of this long list, who can say with a straight face that the housing and financial markets were frontiers of “cowboy capitalism”? (...)

This is just the latest example of a pattern that has been going on since the rise of capitalism: capitalism is blamed for the ills of government intervention--and then even more government intervention is proposed as the cure. The Great Depression? Despite massive evidence that the Federal Reserve’s and other government policies were responsible for the crash and the inability of the economy to recover, it was laissez-faire that was blamed. Consequently, in the aftermath, the government’s power over the economy was not curtailed but dramatically expanded. Or what about the energy crisis of the 1970s? (...)It’s time to stop blaming capitalism for the sins of government intervention, and give true laissez-faire a chance. Now that would be a change we could believe in. >>>

Wall Street Journal have a touching short documentary on the Great Depression up on their video archive ...

Art in this post by the Quent Cordair Fine Art Gallery for Romantic Realism

[Vodaphone] figured that the market in Kenya would max out at 400,000 users. Today that company, Safaricom, has more than 10 million. The company has done it by finding creative ways to serve low-income Kenyans. Its customers are charged by the second rather than by the minute, for example, which keeps down the cost. Safaricom is making a profit, and it's making a difference. Farmers use their cell phones to find the best prices in nearby markets. A number of innovative uses for cell phones are emerging. Already many Kenyans use them to store cash (via a kind of electronic money) and transfer funds.

I don't think people understand how closely political economics is tied to freedom.

When taxes are raised and government is allowed to expand, individual Americans effectively cede a portion of their liberty. In certain situations, this is vital and unavoidable. A good example is our nationalized police force; no one wants public order to be maintained solely by private corporations.

Unfortunately, history has taught us that government constantly abuses and increases its power when given the chance. This trend is painfully obvious in the United States, where the national government now controls a great many things it was never originally intended to control.

In the past hundred years, the ideologies of socialism, communism, and fascism have advocated governmental dominion over the economy. Modern power does not exist in military might, but in economic strength; therefore, socialist, communist, and fascist governments who controlled their nations' economies have almost always been totalitarian. The great atrocities of modern times have been perpetrated by governments such as these. There are too many examples to list.

Conversely, in a true capitalist society, private individuals would have more power than they have ever had. (Note that an economy controlled by corporate conglomerates and monopolies is not at all capitalistic. It is oligarchic.) In a capitalist society, government cannot control the people; it can only defend and protect them. Power is diffused, rather than concentrated; it truly belongs to individuals. A capitalist society is not only stronger, but freer.

Americans are (understandably) wary of "Big Brother" when it comes to wiretaps and surveillance, but the much more real peril to our freedom lies in Uncle Sam's increasing control over the economy. We prostitute our economic power and freedom for governmental promises of comfort and welfare. The promises are rarely kept, and the power is rarely returned to the people. Does our government deserve the increasing power with which we are entrusting it?

Recently, Democrats in Congress advocated nationalizing the oil industry. (It'd be funny if it weren't true. And what does Maxine Waters, a former teacher, know about the economy?) Apparently, they haven't heard of Hugo Chávez.

Barack Obama, of course, is no different (and neither is McCain, essentially). According to the Wall Street Journal, "Sen. Obama cited new economic forces to explain what appears like a return to an older-style big-government Democratic platform skeptical of market forces. 'Globalization and technology and automation all weaken the position of workers,' he said, and a strong government hand is needed to assure that wealth is distributed more equitably. He spoke aboard his campaign bus, where a big-screen TV was tuned to the final holes of the U.S. Open golf tournament." (For the record, a strong government hand is not needed to "assure that wealth is distributed more equally." I think there are much better ways to do that.)

Consider this: any power given to the government is not only given to the "good" politicians, but also to the "bad" ones. Liberals, do you really want men like George Bush to run the economy? Conservatives, do you really want the Bill Clintons of the world in control of your economy? Wouldn't it make more sense to let the people control the economy?

Only 47% of Americans oppose nationalizing the oil industry. In my opinion, that Democrats (and some Republicans) would even suggest policies such as these under the guise of capitalism is completely duplicitous.

America, meet Socialism.