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Campaigning For Capitalism

21 October 2009 No Comment

Capitalism, real capitalism, is under attack in America and around the world.  These articles entitled Campaigning For Capitalism are meant to provide insight and a case for why we should get back to embracing the free markets that made America the greatest economy that the world has ever seen.

For the first article in the series, Campaigning For Capitalism, I’m going to hit on a couple important points that seem to be mis-understood in America.  I hope you enjoy.

Bush’s Economy Was Not A Free Market Economy

All one should have to do is to go back to the fall of 2008 when George W. Bush made his famous quote about having to step outside the free market to save the free market.  Huh?  What a stupid statement.  One of the most important and crucial aspects of a free market is the free market’s ability to punish bad investments and re-allocate capital to proper areas.  More simply put, a free market must allow companies and individuals to fail.  Without failure, you have no free market.

Besides the lack of failure in Bush’s economy, the government was entirely too involved in the economy.  Whether it was artificial interest rates that resulted in asset bubbles or government induced housing, these policies would not have been in place were in not for the government.  You can make a strong case that the bubble that was created would not have inflated nearly as much if these policies were not in place.

While you can go on and on, Bush’s economy was not a free market.  So, the shift we’re experiencing towards socialism away from a free market is completely illogical.

Bailouts Open The Door For Frustration In Many Areas

These days it seems that the banks are making money hand over fist while the regular people of America continue to struggle.  Read this article for more details on this scenario.  The banks are making billions and are giving bonuses of insane amounts of money to their own people.  Average people and politicians are outraged.

The problem isn’t the bonuses and the profits of today.  The problem is the bail out that occured a year ago.  If we didn’t bail them out, they would have been out of business, and the banks that rose to the surface would have been more careful in taking on extraordinary risk.  Instead, the risky moves of the past were justified and they will continue.  When times are good, they will make billions.  When times are bad, they will come back to the government for tax dollars to absorb their losses.

The other terrible result of the bailouts is the fact that now these banks are bigger than they were before the crisis!  These too big to fail institutions are now even bigger!  While letting some banks go under and bailing others out, we’ve concentrated banking even further in just a few huge institutions.  Ridiculous.

Again, if we let the free market take its course, it would punish excessive risk.   Future banks would be more careful in taking on this kind of risk because they would be afraid of failure.  Profits and bonuses would be independent of tax dollars which means we wouldn’t have to concern ourselves with them.  Instead of our system improving and growing towards a better banking system through this crisis, we have cemented the structural ills of the system and are likely to repeat the sins of the past.  Too big to fail is the biggest sham we’ve seen in a long time.  It’s a phrase that is made up by the powerful elite in this country to save their own hides.

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