Thursday, 2 April 2009

Moving On From Capitalism

History will show that the year 2008 was either the year the World big players finally moved to change the whole financial system to something a bit more stable and equal or they sat on their collective hands and allowed a crisis turn into a full blown humanitarian disaster.
Last year saw a food crisis which saw the price of staples rocket, stretching budgets even tighter for us in the West but proving devastating for those with barley enough in affluent times in places like Africa, Oil prices hit records high with knock on effects to the gas and electric industry which then passed on these price increases to consumers with two unprecedented price hikes in our utility bills.
Thirdly the credit crunch became a downturn which led to a recession and continues to gather speed at a frightening rate towards a full blown depression equal to that of the 1930s.
That is the way of Capitalism it seems, a period of growth followed by a devastating collapse every decade such as we see now and which i witnessed in the 90s, 80s, and 70s. The devastation of unemployment, poverty, homelessness, families broken up, health issues and standards of living crumbling come with every downturn.
The people at the top may lose substantial fortunes but it is always those at the bottom that are affected the worst, those who were already the worst off.
With the Worlds leaders meeting in London to plot a way out of this latest crisis, the question that arises most forcefully now is do we keep out heads down and just wait it all out before continuing on the same path as usual with all the highs and lows or do we reform or indeed scrap Capitalism and look to replace it with something else.
Beyond doubt is the fact that unregulated Capitalism doesn't work, humans are too greedy, selfish and self-seeking to be allowed to run a system for the benefit of everyone. The pockets are too deep for those at the top so there is very little left to trickle down. When disaster does strike whether by mismanagement, as with the financial markets, or because of reduced consumer spending, as is the case with the majority of the 8000 businesses that fold each week in Britain, it is those at the top who get the large payoffs with everyone else having to trudge along cap in hand to the Social Security Benefit Offices for the £60 weekly allowance to live on. It was John Smith himself, the father of Capitalism, who warned that in his system "the new unemployed would either starve, or be driven to seek a subsistence either by begging or by perpetration perhaps of the greatest enormities and want, famine and mortality would immediately prevail'.
That we need to reform the system is beyond doubt, what we change to is the larger question. To stay with what we have means tighter regulation of the banks, more accountability for their actions, no rewards for failure and an end to the obscene bonus and sky high wages culture. The trickle down needs to improve with an increase in the minimum wage to lessen the inequality gap between the top and bottom but most importantly, reverse the flawed privatisation system that profits only the few.
The alternative is to consign Capitalism to the dustbin of History and find a system that concerns itself more with equality, humanity, an even distribution of profits and is less liable to collapse with such alarming regularity and consequences every decade.

12 comments:

Noah "Nog" said...

-"change the whole financial system to something a bit more stable and equal"

"Equality" in the distributive sense is largely a subjective concept insofar as it strays to any extent from absolute equality. And attempts at forcing equality simply take all of our stations in life out of our hands and give it to a central authority.
Further, to a large extent our notions of "fair" and "equal" are simply by-products of our interaction with markets (i.e. "equal/fair pay").

And stability should only have so much value. Progress cannot happen without the danger of failure.


You reference numerous economic downturns.
-The Great Depression of the 30s was almost completely caused by "institutional (government) factors". Most central banks at the time held the absurd "stable price level" policy causing inflation and rampant malinvestment. When a recession hit, government responses only worsened it into a full depression. And the tribute levied on Germany by allied governments ruined it and this added to the chaos and ruin.
-The recession of the 70s is fully attributable to institutional factors. Here in the states, Nixon's decision to implement price controls caused chaos and ruin. Problems caused by regulations where then used as excuses for more regulations.
-The recession of the 80s is fully due to institutional factors and is largely a continuation of the 70s problems.
-The recession of the late 80s and early 90s is fully due to institutional factors. the S&L crisis in the states and monetary problems are the fault of the Fed, and commodity price volatility is due mostly to wars and political upheaval.
-The recession of the first year or so for this century are due to awful monetary policy and the nature of the government controlled financial system.

-The present recession has similar (and entirely institutional) causes. All banking problems are the government's fault because there is not now and there has never been a modern system of free banking and the problems now are primarily due to the awful banking system.
And I must say at least a word or two about Alan Greenspan who was a free market man in word but not in deed. The Bush administration was essentially a neo-conservative one, and neo-conservatives are ultimately an offshoot of social democracy factions which happened to also like wars. There were never any "free-marketeers" at the wheel and the whole notion of a free-marketeer being at the helm of some deitific wheel of the whole economy is laughable.


You are correctly seeing bad effects; but you are not correctly attributing these effects to their proper causes, governments. You call things "capitalism" which are actually "mixed economies". Your assertion that "beyond doubt is the fact that unregulated Capitalism doesn't work" is made on the basis of a misunderstanding of causation and nomenclature.

You mention some specific problems with banks towards the end of your post which are pretty substantive. Folks who run things into the ground don't get nailed for it. The government-lead banking system is designed to do this to inspire "confidence" in the banking system. Banks, in some form or another, can be stable and solvent; but banks cannot be stable and solvent in a way that pleases the government.

Long story short: governments like borrowing money because it is a short term alternative to taxation which is politically unpopular, but they don't like repaying their debts and this is not to hard to figure out. Almost every government in existence (and certainly the U.S. Federal Government) would be unable to borrow exorbitant sums of money that they would almost certainly never repay on the free market. To get around this problem governments dominate their banking systems in an effort to rig the system to give them (read "uncreditworthy borrowers") more loans at lower rates. This government-enthralled financial system is what largely causes all of the chaos we see.

Under the present "system", governments methodically work to keep ultimately insolvent financial institutions alive as long as they can get away with it. But they cannot get away with it forever even if they are able to stave of the "retribution of the market" for a long long time.

A true free market would never tolerate insolvent banks, much less a 10% fractional reserve system with fiat currencies and arbitrarily set interest rates.


-Nog

Cheezy said...

While the recession has undoubtedly been caused by a combination of the commodity and housing bubbles bursting, Greenspan's 'irrational exuberance', liquidity problems in key markets, and a variety of other structural imbalances, I don't think that the economic recovery will ever happen under a command economy - it will take the power of marketplace, with the profit incentive for enterprise a necessary component, to get the world economy pulling out of recession.

Lucy said...

Nog - What i know about economics i could fit on the back of an envelope but in a very simplified nutshell, Capitalism, to me, is when private owners control and run everything and therefore take the profits and set prices and distribution of these goods or services. In my lifetime there has been a recession in the 70s, 80s, 90s and now 00's. Without looking it up i can probably assume with confidence that there were recessions in the 50's and 60s also. This says to me that for whatever reason, the Capitalism system falls over regularly with devastating consequences for those of us at the whims of the system.
Are you happy with a system that
falls off the face of a cliff once a decade? We all know people who suffered in the early 90s recession only to be hit again in this one through no fault of their own.
If the system is not robust enough then we have to find one that is or tinker with this one and that means making the financial institutions more accountable and not leaving the staples of life (food, oil, utilites) to private ownership who run things for shareholders profit and not for the good of everyone because they obviously don't care if you are cold, hungry or selling the family silver to survive.

Noah "Nog" said...

The financial industry is the most significant one in many senses in an advanced economy. It is the most damaging to nationalize. The "business cycle" is not an inherent feature of free markets but of state control of the financial system. No level of "privatization" in other areas can wholly compensate for the volatility that comes from a non-market monetary and banking system.

I would say that there may be cases where things like geographic monopolies make government (at least local government) ownership advantageous. There can only be one telephone line or road in a single place.

I'd keep government owned roads; bear things like government telecoms, airlines, and coal mines; heck I'd let 'em nationalize the States' health-care industry and dump out three times as many food stamps, if they'd give up the financial sector.

And as a side note, I happen to know more about the history of the British monetary system than the American one. Every significant government move throughout British history that has led to your current government led banking system has been a result of your government trying to borrow money to fight prolonged wars.

-Nog

Anonymous said...

Lucy,

Trying to say this as gently as possible, you really don't display a lot economic understanding in this post.

What do you mean when you say "... a bit more equal..."?

Not every economic downturn is "devastating" and nations with very controlled economies (France, Russia for example) have much worse unemployment than we face now in the downturn. Maybe the French just want us to share in their misery...

Q

Lucy said...

You don't have to be gentle Q, i preface almost everything i say about economics with how little i know about the subject as i also do when discussing religious matters. What i can speak about with some authority is the fallout when it all goes belly up which it seems to with alarming regularity and for all different reasons.
A bit more equal means less of a gap between the top and the bottom when it comes to wages, pensions and redundancy pay.
Quick example. The guy at the BP station where i get my petrol earns minimum wage (£5.73 per hour, 40 hour week lands him just under £12 pa), BP made profits of £13bn last year, Chief Exec Tony Harward earned £750,000 pa with £250,000 bonus and £90,000 in expenses. On retirement he will receive a guaranteed £1m per year. This is fair system to you?

Chris said...

How much economic understanding do you need Q to see that we are being screwed everyway we turn?
Truth is you don't need a degree in Economics to see the system we use is faulty and is prone to fall over. It might not effect you but i would say those that lose their house or their business or both find it pretty devastating and there was lots of those in the 80s and 90s where i live.

Anonymous said...

Lucy,

I do think it is fair because someone has to be CEO, but it didn't have to be the person that made it. Just like a Black man, from a poor family, with little political experience, from the Midwest can make it to president a person can make it to CEO.

Q

Anonymous said...

Chris,

I live in a small town that is very affected and in the 80's the savings and loan crisis started in Texas where I live.

Most of the people I come across that are in trouble at this moment are in that position because the spend more than they can afford. They buy things like 1 ton pickups that get 5 miles per gallon of gas (and they pay $25k+ for it). I bought a used 6 cylinder pickup for $5,000. They have the latest HDTV, Beth and I still have our TV we bought in 1991, and our fridge from 1990, and our crappy old stereo. I build our computers. We garden some of our food. We live in a 2,000 sqft house, but we saved until we could put 50% down. Point? Most people spend too much. We have old crappy stuff, but we also have some money.

A lot of people in Michigan, Indiana, Ohio area are hurting because the auto industry has problems right? Well, the auto industry has been in decline for 20+ years. Why didn't they move years ago and get into a different job? Lot's of reasons I'm sure, but they could have helped themselves and they didn't.

I do feel bad for the people that are hurting. But I don't think I can stop them from making bad decisions and I don't think the government can either. Do you?

Q

Lucy said...

We have very different ideas of fairness Q and i don't even class you as an opposite. Never classed you as a coffee drinking leftie either but i am quite surprised that we are so far apart on this one.

Anonymous said...

Lucy,

I like coffie a lot. We probably aren't so far apart. How boring would it be if we agreed about everything?

Q

Lucy said...

Keeping in the fashion of not agreeing with you Q, I agree with you.