Tell it to the hand October 8, 2007
Posted by franklittle in Capitalism, US Media, US Politics.trackback
A brief explanation of free market principles.
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To summarise capitalism in a few words and pictures – genuis. And how appropriate in cartoon style.
I understand your perspective and how this is a summary of capitalism, but it’s anything but. In capitalism the borrowers would have defaulted, lost their assets, never considered any recourse to government and the lenders would have taken a considerable hit when they resold their now less valuable assets.
That some people are talking about a bailout is a greater illustration of how deeply rooted is the notion that government must save us from our own bad decisions (to borrow what we can’t repay or to lend to those who should not be lent to).
Eagle, I get where you’re coming from. And from a strictly ideological point of view you’re right. But the reality of the application of contemporary capitalism is much as it set out in the cartoon.
Business, and big business in particular, is often very dependent on state subsidies and supports, while at the same time demanding that there be a ‘level playing field’ for their products.
Frank, I totally agree. Business is WAY TOO dependent on state support. Corporate welfare is the term used in the US.
And, I think it’s worse in Europe than in the US. Big businesses are protected in many, many ways from both external competition (which I can understand to an extent) and from internal small business competition (which is just wrong, to my mind).
Of course, worker protection legislation is one area where big business is of two minds. They’re opposed to anything that their external competitors don’t have to endure, but they’re not opposed to legislation that makes it tough for new businesses to compete with them. Workers’ rights laws are much more of a burden on small businesses than they are on big businesses.
Problem is that there are no perfect markets, and we’re unlikely to ever see any. Corporate welfare appears to be embedded into the system, and it crops up in the most unlikely places. How about aviation fuel, tax write-offs, etc, etc…
An amusing illustration of the flaws in American capitalism.
Anybody ever read those “Marx for Beginners” or “Introducing Keynesian
Economics” books from Icon Books? They have a similar format.
Very true
Of course, it’s not just American capitalism that’s flawed. See Northern Rock, Sachsen Bank or BAWAG for EU examples of similar issues. And, don’t get me started on the Japanese banks. In Japan the government never seems finished pumping money into banks in trouble.
At the same time, the voters seem to prefer this system to (a) one of unbridled capitalism (where banks fail) or (b) a system where the government is everything.
Without getting into the wider debate of what constitutes a market under capitalism, one reason why Governments and Central Banks intervene is not to save people from their own bad decisions, but to protect the wider economic interest from such fall-outs. Simply put, a bank or financial failure will impact on innocent people (e.g. businesses who want to expand will now find it difficult to obtain loans because of the current credit crunch, not because of the intrinsic merit of their development plans – jobs will not be created and growth will not be generated). That’s why the Bank of England did an about turn – the stakes were too high. Far away from the non-existant worlds of unbridled capitalism or government-is-everything-ism, we live in this world where markets are socially constructed. The ultimate (and, as always, political) issue is – who benefits.
Well, it is capitalism, and not just in the sense that it’s actually existing capitalism, but because advocates of capitalism will tell you, quite reasonably, that what you need for a prosperous economy is the confidence of the markets. Therefore, if aforesaid confidence requires a corporate bailout, then a corporate bailout they shall have.
Which is rational up to a point, but it does tend to suggest that for all that rationalism, the economy is fundamentally dependent on a spoiled-child outlook where a few people insist on having everything they want and always having their interests put before everybody else’s.