We should be screaming from the rooftops, “Capitalism is dead, long live capitalism!” The truth is capitalism of the form that had arisen by 2008 is flawed and has always been flawed. By that year, as a result of over 20 years of lobbying, we had one of the most regulation-free economic systems since before the Great Depression. Instead of a capitalist utopia, we were met with the biggest economic crisis since the Great Depression. Even Alan Greenspan, the chief economic adviser to five presidents and an Ayn Rand devotee, was forced to admit that he had found a flaw in the thinking that caused him to deregulate so many facets of our economy, specifically in the banking industry.
Capitalism is an important part of our society and history. It provides us with an incentive to work, innovate and create. It has provided us with an economy that has allows us to work with each other toward building a better world for ourselves and for our families.
However, capitalism has a very large drawback: It leaves each person at the mercy of another person’s greed. On a small scale this isn’t so bad. It’s not hard to learn who is likely to give you a bad deal and then avoid them. However, in a more complex system, the outcomes of transactions are often harder to understand until months or even years down the line, and by then it’s too late. Furthermore, since our economy is so interdependent, a failure in one sector can lead to failures elsewhere.
This problem can often be exacerbated by fact that corporations almost always award people for near term profit. A good example of this practice is at General Motors where the company offered workers lower wages in exchange for larger benefits packages. In the short term it was able to make more money as it was paying its workers less, but in the long term it ended up being unable to fulfill its promises to its workers. While this was not the only reason for GM’s failure, it was one of the largest contributing causes. By the time that GM failed, the people responsible for negotiating the terms had long since moved on.
While capitalism has many glaring holes, I would not venture to call it a failed system. However, it is clear that in its current form, capitalism cannot stand. The government has a role to play in this new form. It needs to achieve three goals: 1) remove lobbyists from the regulation process, 2) enforce transparency and 3) regulate the current industries and be ready to regulate new ones.
Leave a comment 43 Comments Write a letter to the editor
All letters to the editor must include a name, e-mail, daytime phone number and affiliation to Virginia Tech. Affiliation includes: year and major for students; position and department for faculty and staff; current city for alumni and parents.
Capitalism is fine on it's own it doesn't fail industries do. The banking system was engaging in high risk loans and as a result failed. That was capitalism at work removing the bad businesses and leaving the banks that made sound loans in a strong position to grow. Socialism gave us the bailouts, kept the bad banks in business which are still up to no good, and are largely responsible for the mess we're in now. Had we let Capitalism work without the government interfering we'd be recovering now.
Reply to this Top
What we have today is not capitalism. Privatized profit and socialized losses is not capitalism. Central economic planning of interest rates by the federal reserve is not capitalism. Government guaranteed monopolies is not capitalism.
One of the most regulation free economic systems since the great depression? What a joke. We have more regulations then any other time in history. Not to mention the regulators were the ones encouraging risky loans, but all of this is besides the point. The boom bust cycle is a direct result of inflation created by the federal reserve.
Reply to this Top
"Most of the economic indicators say that our economy is improving."
Let me translate, "I don't know anything about economics so you can safely ignore any point this article was trying to make."
I could go on and explain more, but you would just furrow your brow in a vain attempt to understand.
Reply to this Top
We need more regulations, like The Community Reinvestment Act of 1977, and the Equal Credit Opportunity Act of 1974. How did those work out for ya? Or Sarbenes-Oxley, that's doing use a world of good! Regulations will never compensate for the Federal Reserve Policy to inflate and create unsustainable investments and imbalances with implicit guarantees by the government to back up any losses.
Reply to this Top
Ya know, it would have been great if someone could have seen this coming. Oh wait, they did, maybe we should listen to them:
http://www.youtube.com/watch?v=2I0QN-FYkpw
Reply to this Top
"This explicit promise by the Treasury to bail out GSEs in times of economic difficulty helps the GSEs attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a huge unconstitutional and immoral income transfer from working Americans to holders of GSE debt....
Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market...
Reply to this Top
Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.
Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts."
-Texas Congressman Ron Paul, September 2003
Reply to this Top
Quoting an Austrian school economist saying that there is a recession coming, after a recession is easy. They always believe there is a recession around the bin.
Didn't they predict the last 12 out of 2 recessions?
If you want to find someone truly smart, find a non apocalyptic economist (non-Austrian) predicting a recession -- there are plenty out there.
Reply to this Top
What is your point? That sometimes predictions aren't right? Show me a Keynesian economist who has ever been right even once!
I'll wait...
Top
Imagine if you keep pulling a fire alarm until there actually is a fire. Just because you get it right once doesn't make you right it only makes you a malicious fool.
Minsky and Shiller both predicted the latest recession before it happened and are Keynesians. Krugman is arguably right on a great many things.
Top
The difference here is that Keynesians CAUSED the collapse, so their predicting it is.. ironic?
Top
Again, just saying that doesn't make it so...
Top
Thank you to the commenters above me for speaking reason. The argument against freedom is in favor of enslavement. The argument against capitalism is in favor of socialism and communism. The latter in both of these has brought down great nations, and people need to stop convincing themselves that we are "too big to fail." Just like you fail your exams even though you got in to VT, America can fail when wrong ideas get into her culture. Now read up and learn why everything in this article is wrong.. and start with JohnG's stuff, it's great.
Reply to this Top
One can argue in favour of a regulated economy without arguing for communism. Please read up on your political and economic theories. I wouldn't want your wrong headed ideas to fail you any exams...
As for socialism, how is that publicly funded school and that publicly funded military working out for ya?
Reply to this Top
Public schools? Really? You must have missed the part where American students' test scores are well behind their coutnerparts in other industrialized countries. Likewise, students in private schools learn more than those in public schools. As for the military, one, it's actually an enumerated responsibility of the federal government. Two, while the military is effective, it is not exactly a model of efficiency.
Top
Hokie Vet, try not to reason with such people. It's too easy for them to ignore the failed actions of No Child Gets Ahead by arguing for more communist controls.
Top
You two realize that this is the paper of a publically funded school, right?
Top
I think you meant "publicly" and I think that makes the point for itself.
Top
You'll have to explain your point since it seems to be incomplete. Almost all (if not all) other industrialized countries have public school systems. If our public school system is so bad because it is 'public' then you'll need to compare it to another nationwide system that is private run and performs better than ours. I haven't run across one and I doubt you'll find one. Our problems with education are in part a financial one, i.e. not enough priority in our funding for education. I would contend there are other problems like cultural ones, but they are generally more abstract and debatable. If you want to trash public schools you'll have to come up with a valid counterargument to be taken seriously.
Top
Geez, the person advocating public schooling misspells "publicly" and you don't get it, Mouse? Obviously you're a product of these schools too.
But really, if you're too thick to see the problems, no lengthy lecture is going to change your mind. Go do some research on your own and come back then.
Top
I think you're mistaken about who the schools are failing. "Publically" is a valid alternate spelling (http://www.merriam-webster.com/dictionary/publically). I ignored the spelling comment because it was an obvious attempt to derail intelligent discussion and it wasn't directed at me. Please attack the subject at hand, it's not enough just to make a claim. I outlined what it would take for me to consider the argument that public schools are inherently flawed. Instead of trying to make an argument you attack my intellect, which while it disagrees with you hasn't been proven incorrect. These are not tactics of a man with a provable truth on his side.
Top
@Mouse - you don't make the rules of debate, and no one has to follow your rules to make a point. Such immaturity isn't helping your lack of argument. Notice that Hokie Vet made a point - then you suddenly said everyone else needs a counterpoint to you. You offer no point, except for some random speculation, and an attempt to dismiss cultural issues which are paramount in an issue like this.
Top
Your ignorance of economics and history is astounding, though not surprising. A little knowledge is a very dangerous thing.
I challenge you to actually look into the level of regulation in the last twenty years. The number of pages in the Federal Register has been increasing since 1989[1] and that increase represents expanded regulation, not diminishing. From a minimum of 53,000 to a maximum of 83,000, it's hard to suggest that the economy was unregulated. Some sectors may have experienced some reduction (like banking) but they were still regulated by a myriad of federal and state agencies with varying degrees of activity.
The complexity and reach of government is precisely why lobbyists exist. Currying favor with your master is in the interest of every slave. The proper way to eliminate special interests is to eliminate the whip.
I'm not going to take on the role of the professors and teachers that have failed you, but let's just say that the missing piece of the puzzle for you is located in the Federal Reserve's manipulation of credit. The banking crisis was enabled (as are all booms) by the Fed's wanton creation of credit out of thin air and use of low interest rates to get that credit spread far and wide.[2]
I sincerely hope that your views are informed by the naivety of collegiate youth instead of willful blindness.
[1] http://www.llsdc.org/sourcebook/docs/fed-reg-pages.pdf
[2] http://mises.org/story/3556
Reply to this Top
http://www.actforamerica.org/index.php/learn/multimedia/video
The seven supports for the political movement of Shariah-Islam are
Funding: Middle East oil wealth
Leadership: Shariah Scholars and Muslim Brotherhood
Strategic Plan: The Muslim Brotherhood Project 100-year plan
Unifying Evil: Western influences symbolized by infidels
Goal: Subjugate the world to Shariah-Islam to create Caliphate
Committed Membership: Shariah organizations & members
Rules: Written rules of Shariah Law
http://www.stopshariahnow.org/index.php?option=com_content&view=category&layout=blog&id=66&Itemid=88
Reply to this Top
Patrick, the problem is not the other guy's greed, but rather our own. People made investments in real estate and markets that didn't pass the too-good-to-be-true test. They did this because they wanted a quick buck. Trust me: little research went into market stability or prospectus reading. I refused to even consider buying a house during the real estate boom because of the reckless abandon buyers were exercising - buying houses without inspections, or often even sight unseen, just to beat the crowd. Now that we have a deserved market adjustment, everyone is crying foul. I do agree that greater transparency is needed for the sake of consumer protection, but this, too, is something that the government moves too slowly to provide. What we really need is for an industry insider to step up and put everything in layman's terms, and make a fortune doing it.
Reply to this Top
JohnG, you hit the nail on the head.
How easy it for everyone to blame "capitalism" and the greedy businessmen.
We have not had a free-market since 1913, when the Federal Reserve was created to control money supply by way of interest rates. That's not capitalism, that's centralized planning to a degree.
We need much less regulations, not more.
Reply to this Top
Corporations dont award for near term profit, people in corporations do that. Guidelines and regulations will not fix any problems, people enforcing guidelines and regulations will fix problems-maybe. Capitalism is not what sucks or has failed but rather the people.
Reply to this Top
I just vomited in my mouth.
Reply to this Top
Short term gains for right now. No is no need for fear in a bull market there is always going to be NASDAQ trading. The DOW is irrelevent.
Reply to this Top
The Dow is irrelevant!? That's like saying synergy is irrelevant or differing profit shares is irrelevant. What the hell do you know about business James.
Reply to this Top
He's right - the DOW tells you very little as an economic indicator. It's like using your trip odometer to tell you if your gas tank is empty - yea, you can get something from it, but certainly not the best indicator.
Top
Synergy is for Faggots!
Differing Profit Shares is for Faggots!
If you don't know what dividend reinvest plans mean than you don't belong in this conversation. The key is insider trader we'll tell some people info but keep the rest from the public.
Top
Jeff gets it, you should get into finance you could have a bright future.
Top
I just vomited again.
Reply to this Top
If you don't understand capital gains distribution, than I suggest you buy some NASDAQ stocks and then look at the NASDAQ market, my friend. You sound stupid, the DOW is for Faggots! How can anyone like it without a pillow between your teeth.
Top
Dude is this an act? You are hilarious.
Top
You figured it out, do a you tube search for Boardroom Jimmy
Top
My mistake I meant to say bear market not a bull market. Sorry for anyone that may have confused.
Reply to this Top
Here's a thought: Read Ayn Rand's books--read what she really said and stood for--then look at Alan Greenspan's actions. You should see that in even accepting the chairmanship of the Fed he was turning his back on everything he ever learned from Rand. Stop equating the two, thank you.
Reply to this Top
Here's a thought, try reading an actual economist, like, say, Milton Friedman. Maybe spend 4 years studying it and then you'll be qualified to talk about economics. You and the Ron Paul crew are a bunch of ignorant morons.
Reply to this Top
You do realize that Ron Paul is a Friedman apologist, right?
Top
The author should research the Carters Community Reinvestment Act and how it lead to the bloated growth of the sub-prime industry long before 2008.
Perhaps this country as a whole needs to refresh itself on the differences between a recession and a depression before we compare the 2008 recession to the Great Depression. Considering during 2008, the U.S. GDP dropped a measly 0.5% and unemployment rates hovered around 7-8% (3rd quarter in 2008), whereas in 1930, the U.S. GDP dropped a whopping 14% and unemployment rates skyrocketed upwards toward 23-25%, it's a far cry to claim this is "the worst" our economy has been since the Great Depression.
This is not to diminish the economic challenges the country is facing, but lets work on getting facts straight before we start using grossly distorted (and highly inaccurate) metaphors that lead us to falsely believe capitalism has one foot in the grave.
The fact of the matter is: free markets fluxuate. Free markets will see years of great growth and years of economic struggle. This country hasnt seen a recession like this since the 80s, and we as a nation apparently have a very short memory to have forgotten what that was like. However, we recovered then, just like we recovered after the Great Depression, and just like we are recovering now. No doubt about it, improvements can be made to our system, but theres no need to throw our hands up in the air and foolishly declare capitalism preemptively dead.
Reply to this Top
Well said. It's nice to see people can post reasonable discussions without dismissing their opposition with playground tactics.
Reply to this Top