Capitalism flawed?

Sramana Mitra gives a well thought out reason for why she feels Capitalism is flawed. I believe she's wrong.

Capitalism works. Free markets will hold in check the greed inherent in human nature. The greed we must fight is that of politicians and regulators to have control. Free markets cannot hold that in check, and once control of free markets is gained by the government they are no longer free. Wresting control from government is only done at great cost, e.g. Fascism, Nazism, Communism, and–I have to add–well-intentioned Socialism.

When the government gets involved there are always strings attached; too many strings. The banking industry has been controlled (regulated) by government for 70-plus years. What happens in the industry happens because regulators allow it to happen; including the greed we see now. If a free-market system had been allowed to develop over the past 70 years greed would still exist, but the system would never have allowed it to get to the point we see now under government control.

Sramana says there are some systemic problems with Capitalism, but what she is looking at in the U.S. is not a Capitalistic system. Seventy years or more ago we planted a seed called socialism. At first it was small and not very noticeable. Over the years it has grown large in stature, and it's roots and branches extend into every nook and cranny of our once Capitalistic system. Capitalism is a different tree.

Is Sramana right? Or, am I right?

The Test of Time

You cannot build financial stability by spending.

Strength comes from a position of abundance. Spending will follow.

Letting someone else do these things for you is not stability or progress.

Willingly giving up the freedom to choose for your self is still bondage.

The price to get back freedom to choose is great and is not always attainable.

Freedom will go where it is appreciated. Fare thee well.

Economic Stimulus Packages

Where did the money come from for the billions and billions of dollars being used to "stimulate" the U.S. economy?

If the government took it from me (taxes) is it because they do not trust me to spend my own money?

Why should I trust them to do a better job of spending that money?

If the government borrowed the money to spend, who has to pay it back? The American taxpayers? I didn't want to borrow money to spend like that.

If the government printed $870 plus billion to spend we will have a great price to pay down the road.

We're Going the Wrong Way

This past year we bought a Wii for the family. We've had so much fun playing the games. It took a while, but finally we were able to snatch a Wii Fit board before a new shipment vanished from the store shelves. Exercising with the board has been fun and healthful. We are all much more active now.

Our most recent game purchase was MarioKart, which lets you race against others on a bunch of different race courses. It's been a lot of fun, but a little frustrating too since I'm not very good at it and I somehow frequently end up turned around a going the wrong way.

Which brings me to the point of this blog entry.

How has the United States moved so far from the principles of morality and personal freedom which were so insturmental in the development of the country in the first place? How have we gotten so turned around and not only going the wrong way, but wanting more of it?

More government control, more government protection from anything that might be painful. As I pointed out in my post Free to Fail these things might not always be pleasant, but they are absolutely essential to our development of character and ability to make choices that will keep us strong as individuals, as families and as a country.

Government can never supplant personal growth and integrity with government programs and regulations.

Here are two other observations on this problem. Douglas French and Star Parker

Federal Bailouts Hurt the Long-term Strength of Our Economy

Government bailouts only prolong the time inefficient management teams can keep control of a business. Inefficient management always hinders the health of a company and its progress. The sooner the ineffective are out the sooner the assets can be put to more productive use.

Lawrence Lessig's rant: the mistake in bailouts

Walter Williams - Bailouts and bankruptcy

Inflation/Deflation vs The Free Market Pricing Mechanism

There are many factors that economists and pundits bring up in describing inflation and deflation. Unfortunately most of these factors are symptoms rather than causes. Recently in the news headlines decry the threat of deflation.

The so called "pundits" are confused. Deflation and its opposite inflation are ultimately and always a function of the money supply. If too much money is injected into an economy--defined as the money supply increasing more than the supply of goods and services available--inflation is the end result. Conversely if the money supply does not keep pace with the supply of goods and services deflation occurs.

Government's responsibility is to keep a stable currency. That can be accomplished by tying the money supply to something like gold (the U.S. used to be on the gold standard) or increasing the money supply by the amount of growth in the gross domestic product of the country (not as good as the gold standard, but better than what we have now).

When the money supply is controlled by government, inflation or deflation is the sole product of its meddling. Even if those in government act with the very best of intentions, injecting too much money into the system leads to inflation; not keeping enough money in the system leads to deflation. Government meddling over a period of many years can destroy a currency. That is why the U.S. dollar's purchasing power today is only a fraction of what it was in the 1940s. Extreme actions by government can trash a currency in a very short period of time. Many examples of this abound (humanity doesn't seem capable of learning from others mistakes), but one of the best known examples is the Weimar Republic in 1923.

In our day, the rush by the U.S. government to "bail out" the financial industry and possibly other industries by injecting billions of dollars into the system can only lead to inflation. Let us hope it will not be hyperinflation.

The free market pricing mechanism is simply everybody reacting to market forces of supply and demand. If too much money is being supplied then prices go up, the opposite happens if there is not enough money in circulation.

The most important point about pricing in a free market is that prices still fluctuate even with a stable supply of money. If a particular product is not able to be supplied in amounts to meet demand the product's price will rise. If demand for a product declines and the supply becomes too great then the product's price will decline. The market is constantly adjusting prices.

This phenomenon is merely the natural functioning of a free market and has nothing to do with inflation or deflation provided the money supply is not being overly manipulated by government.

Sadly the U.S. government has injected billions of dollars into the economy and has intentions of injecting much more.

How can housing prices be in a tailspin if the government is injecting too much money into the economy and fueling inflation? The government has been pumping too much money into the economy for most of the 2000s and keeping interest rates artificially low. These two factors created an overblown demand for housing over the last many years pushing prices higher and higher. Now with the change in economic conditions the demand for housing has declined; many speculative markets have almost completely dried up. Demand is off and prices are adjusting accordingly.

Four other perspectives: Robert Higgs , Rich Karlgaard , D.W. MacKenzie , Steve Hanke, and WalterWilliams