Free Market Capitalism

Peter Saunders in his memorable piece “Why Capitalism Is Good for the Soul”: wrote;

“The way this [capitalism] has enhanced people’s capacity to lead a good life can be seen in the spectacular reduction in levels of global poverty, brought about by the spread of capitalism on a world scale. In 1820, 85% of the world’s population lived on today’s equivalent of less than a dollar per day. By 1950, this proportion had fallen to 50%. Today it is down to 20%…. In 1900, the average life expectancy in the “less developed countries” was just thirty years. By 1960, this had risen to forty-six years. By 1998, it was 65 years. To put this extraordinary achievement into perspective, the average life expectancy in the poorest countries at the end of the twentieth century was fifteen years longer than the average life expectancy in the richest country in the world—Britain—at the start of the century.”

I often read, from my liberal friends, that free market capitalism leads to income inequality. It can and does, and yet, it also increases the total size of the pie to be shared. It benefits all mankind, not just those who reap more rewards than others. What other system can claim such wondrous universal results for everyone?

Friedrich August von Hayek, an Austrian economist and social theorist, wrote; "a market system with freely adjusting market-determined prices is, when embedded within an appropriate institutional structure, a marvelous mechanism for coordinating human action."

A free-market economy is a complex system and also an adaptive complex system which helps to explain why it works. Hayek wrote; “The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all.”

The decisions of millions of people feed information into the system to form the prices that emerge. For free market capitalism to work however, those participating in the market must be allowed to act on their knowledge and prices must be allowed to adjust freely. When government acts unreasonably to restrict entry into markets, or to keep prices from adjusting to protect the consumer, markets do not function correctly. When government intervenes in markets it is assuming that it's decision-makers have better, or more knowledge than the millions of people creating the market.

The best regulator of market behavior is the carrot of profits and the stick of losses. This is rarely the case with government. If government is involved in a project that doesn't achieve its goals does it suffer loss? In political capital of those whose name appears on the project perhaps, but not in monetary terms. And, the usual solution, when a project fails, is to spend more money on it, not amend or discard its goals.

Posted by Royal Flush at March 11, 2011 4:36 PM
Comments
Comment #320006

Royal Flush,
The problem with today’s market is the fact no one is being honest with the facts. Even our Elected Officials are blindly looking at the data and saying everything is going to be alright. For why is oil increasing daily when the world supply out paces demand? Could it be that some know that if the Global Economy roars back to life than the oil supply cannot keep up with demand?

Yes, with gas approaching %4.00/gallon it is only a matter of time before we face another economic meltdown. And with no government assistance this time I do believe we will see prices fall as businesses are put on the market for pennies on the dollar. In fact, where I would have given $.15 cents on the dollar in 2008 on bad credit, not if, but when the next meltdown happens I wouldn’t give a penny for most businesses.

For without Consumers who will feed the market? Governments being broke can Private Sector Business keep the market above 6000 points? Seems the Want-to-Rich are in for another bath before things are going to be forced to get better since the 400 Wealthy still believe they can win the Race to the Bottom.

Posted by: Henry Schlatman at March 11, 2011 6:14 PM
Comment #320008

Royal Flush,
Just curious- socialism could be credited with the same results you credit in your article, and much more plausibly. Geographic determinism could also be credited as well, and so could technological innovation. Virtually every government and economic philosophy in the history of the world exhibits adaptive traits and an ability to innovate, even totalitarian models such as the USSR. Personally, I think geographic determinism plays a much greater factor than any underlying economic philosophy.

Britain practiced capitalism (and mercantilism) in earlier centuries, yet did not see life expectancies jump until late in the 19th. The improved quality of living could be assigned to the factors I mentioned- socialism, technological innovation, and geographic determinism- just as readily as capitalism. Care to expand on your point?

Posted by: phx8 at March 11, 2011 6:31 PM
Comment #320009

Henry S. writes; “Yes, with gas approaching %4.00/gallon it is only a matter of time before we face another economic meltdown. And with no government assistance this time…”

No government assistance would be appropriate if we believe in free market capitalism. “The carrot of profit and the stick of losses” is necessary.

Posted by: Royal Flush at March 11, 2011 6:34 PM
Comment #320010

“No government assistance would be appropriate if we believe in free market capitalism. “The carrot of profit and the stick of losses” is necessary.”

This religion we have to believe in, free market capitalism, that will make everything all better didn’t work the first time around. In fact it was saved by what most conservatives refer to today as socialism. When can we apply facts instead of beliefs to our economic policies?

Posted by: j2t2 at March 11, 2011 6:41 PM
Comment #320012

phx8 writes; “socialism, (geographic determinism and technological innovation) could be credited with the same results you credit in your article, and much more plausibly.

Free-market capitalism was and is practiced by the most successful nations in the world. Socialism has not produced the benefits for its people that capitalism has. Geographic determinism can play a part, but Japan, Israel and other countries have done well without geographic advantage and Africa, with many natural resources has not, for the most part, risen to the level of many Western nations.

Technological innovation, I maintain, is a direct result of capitalism.

Posted by: Royal Flush at March 11, 2011 6:50 PM
Comment #320013

RF,
If you have never read “Guns,Germs, and Steel” by Jared Diamond, you should pick it up at the library. It’s a great read, and whether you agree or disagree, it will certainly give you a lot to consider.

How would you assess the example of the USSR? After WWI, it was a broken country with an impoverished population of liberated serfs, and various foreign armies fighting throughout the land. By the 1960’s, despite the ravages of WWII, the USSR was an industrialized, economic superpower, one of only two in the world, and it did this without the benefit of a Marshall Plan. The serfs of 1919 were now well educated and healthier, thanks to universal health care. It achieved many technological innovations including Sputnik, putting a man in space, juet aircraft design, and advancements in metallurgy.

Since the collapse of the USSR and the introduction of free market capitalism, Russia’s has seen rank corruption and the concentration of wealth into oligarchies result in declines almost across the board, including life expectancy.


Posted by: phx8 at March 11, 2011 7:09 PM
Comment #320014

Of course free-market capitalism can be corrupted with government or other interference. We see that today in the US.

Thanks for the book reference…I’ll look for it.

Posted by: Royal Flush at March 11, 2011 7:17 PM
Comment #320015

Phx8:

socialism could be credited with the same results you credit in your article, and much more plausibly.
Can you give one example of a Socialist government that has been successful? So far, they have all failed. The only one that could be pointed out as possibly being successful is China, but since their government is only 25 years old, it’s a bit too early to call that one.
Geographic determinism could also be credited as well…
I think you’re correct that this plays a role, but it doesn’t mean anything if the people don’t know what to do with it. Look at the massive natural resources that many countries in the middle east have, yet they are also some of the poorest and most tumultuous countries in the world.
and so could technological innovation.
This would be true if governments could be credited with technological innovation, but the overwhelming majority of advancements have come from private industry, not government.

Let’s look at a massively oversimplified version of the history of the United States:

1776: Independence declared by a rag-tag group of petulant colonists.
1787: Government formed based on the principles of limited government and individual freedom.
1914: U.S. emerges as world superpower in military might, economic strength and political influence. Approximate birth of Progressivism.
1933: The New Deal
1965: The Great Society
Present Day: Progressive ideas have replaced many of the ideals our nation was founded on. The Federal Government is now injected into almost every aspect of our lives. Our political influence on the world stage is severely diminished. Our economy is on the verge of collapse. We’ve indebted ourselves to the point of no return with decades of promises that we can’t possibly keep, all in the name of social engineering.

Yes, there are a million factors that have influenced our country and our history certainly is not perfect, but if we take a step back and look at the big picture, it’s pretty clear to see which philosophy has resulted in a greater level of prosperity.

Posted by: Kevin Nye at March 11, 2011 7:26 PM
Comment #320016

Phx8:

Since the collapse of the USSR and the introduction of free market capitalism, Russia’s has seen rank corruption and the concentration of wealth into oligarchies result in declines almost across the board, including life expectancy.

Excellent point. The former USSR certainly has its growing pains, but so did the U.S., and I think the most important lesson here is that despite their achievements, ultimately the USSR did collapse. Their model worked for a while, but in the end it was not sustainable. I think that’s the point that most conservatives are making about our current path. It’s not sustainable.

I believe it was Margaret Thatcher that said it best (I’m paraphrasing a little):


The problem with socialism is that eventually you run out of other peoples’ money to spend…

Posted by: Kevin Nye at March 11, 2011 7:31 PM
Comment #320018

phx8

You need to read Antony Sutton’s Book on the USSR. It’s subtitle is Soviet Technology is Western Technology. 1700 pages of documentation of how the USSR became powerful mainly at the expense of the United States.

Posted by: 8tom humes at March 11, 2011 8:44 PM
Comment #320021

Royal

Good work.

phx8

Russia doesn’t have free market capitalism today.

We should be a little more circumspect is naming systems. I prefer the system that allows significant choice in economies and decentralizing decision making. The Heritage Foundation does a index of economic freedom every year. Generally speaking, the freer economies are nice places to live and the less free are shit holes.

Re Guns, Germs and Steel - interesting read. Not much sense in it. Even if he is right, his “advantages” have unfold over thousands of years. It would not explain the changes in our lifetimes or even in the last hundreds of years.

The Soviet Union was a disaster. It took them a generation to catch up with where Russia had been under the Czar and they would have been much better off if Lenin and Stalin had died as children. The Communists clouded the history for years. The Czar times were bad by our standards, but better than the Communists who followed them. Neither the Czar nor the commissars believed in free markets.

Re geographical determinism - too simplistic. Successful people get the resources, not the other way around. It is amazing the changes that happen when land comes under different management. Manhattan is one of the best city sites in the world. It didn’t do the Indians much good, which is why they were willing to sell for twenty-four dollars worth of beads and trinkets.

There is no such thing as a “natural” resource. A resource only becomes a resource when the culture and technologies are available to use it.

Tom Hume

You are right. The most prolific Soviet inventor was RegUS PatOff. That was written on many of the Soviet machines.

Posted by: C&J at March 11, 2011 9:39 PM
Comment #320024

In the example of the USSR, the economic system relied upon centralized planning and government ownership of the means of production. So yes, it failed, and their totalitarian political model was despicable and drenched in blood, and yet, we can’t simply pretend it did not succeed in the first place. Just to cite one example of technological innovation, the Soviets developed the MiG fighters, an aircraft superior to US fighters. The F-86 Sabre was an inferior knock-off. Both sides depended upon R&D people from the Nazis to develop rocketry. There are other examples, but the overall point is that government R&D can and does succeed, and if we judge the USSR solely on its economic achievements, they were tremendously successful during the first half of that century.

In the US, massive government investment in the space program developed computer technology. It was a military-industrial complex (which isn’t exactly a capitalist system), combined with the economic power of allies, that ultimately proved overwhelming. An American political model allowed freer exchange and dispersal of information, something sorely lacking with the Soviets. The USSR failed for several reasons. They were totalitarian, and it was primarily the poltical model- not economic, but political model- that proved unable to adapt or change. They poured massive amounts of money into their military, and then became mired in a disastrous war in Afghanistan. Without a political system that allowed for timely withdrawal, their war, massive corruption, and excessive investments in the military finally did them in… The advantages of a capitalist system married with a socialist/corporatist system, as seen in the US, Germany, Japan, and elsewhere, turned out to be the superior model. Strictly speaking, there is no example of a purely capitalist system today.

It’s interesting that the US repeated the USSR mistake with its invasions of Afghanistan and Iraq. The wars incurred enormous amounts of debt and played major roles in the current financial distress.

C&J,
“Successful people get the resources, not the other way around.”

Not exactly. In the case of the American Indians, they lacked a crucial resource. They lacked domesticatable animals on the American continent. The lack of exposure to the various diseases, diseases already experienced by Europeans through their exposure to livestock, gave the Europeans immunities, and left the Indians utterly vulnerable to disease.

Posted by: phx8 at March 11, 2011 10:32 PM
Comment #320029

phx8

There are lots of reasons why the Indians were not successful. I do not dispute their bad luck. But the fact that they could not use the resources at hand in the ways others could speaks for itself. The English, on the other hand, coming from a relatively small place managed to imprint a nearly a whole continent with their basic culture.

It is difficult to explain in a few words. Advantages work on themselves. Those that have small advantages tend to get more and so become bigger and more advantaged and then they get more. When we are looking at the end result, we can always point to the advantages. But others had similar opportunities w/o the results.

I think it is too complicated to call it any one thing, but clearly culture matters. You can often see it very clearly when you cross a border or when a different culture arrives and suddenly a poor place becomes wealthy, or vis-versa.

As a student of Roman history, I point to the changes caused by the various barbarian invasions. I visited Roman cities in the Middle East. Romans ran aqueducts, grew crops and maintained roads when the German, Arab or other barbarians took over, everything went to hell in the generation or so it took the Roman engineers to die out. The land had not changed, only the management.

Re the Soviets - they were very unsuccessful as an economy. The victory in WWII, which they won by numbers and lots of blood, gave them access to German resources. They literally moved factories from Germany. They also grabbed German rocket scientists, who were responsible for their gains.

The Soviet system slowed the development of Russia. We can never know history that didn’t happen, but it is very likely that a Russia that did not experience the revolution would have ended up much more prosperous in a shorter time w/o the second biggest murder of civilians in world history (Mao was #1; Hitler #3)

So if the question is “Did the Soviets make progress?” The answer is yes. If you ask “Did they advance as far as others in similar situations?” the answer is no.

YOu are right that there is no example of a pure capitalist system. The free market is NOT and never has been a pure system. It is a pragmatic system based on choice and dispersal of decision making. Karl Marx (the Marx brother whose jokes were not funny) defined capitalism, but the old fart never knew what he was talking about. We still follow his bogus definition when we compare Marxism, which has a “holy book” and a specific ideology with capitalism, which does not have such a coherent plan (which is why it works)

American “capitalism” has gone through at least three radical-revolutionary changes in my lifetime, but the system is so robust that most of us didn’t even notice.

The Soviet Union fell because it was based on an elaborate hoax - Marxism. They learned too late that - like the Chinese - they could talk Marxism as long as nobody important really believed it.

Posted by: C&J at March 11, 2011 11:48 PM
Comment #320031

C&J, why do you waste you time at Discuss America. Most of the very few comments in all three columns are made by David Remer. It’s almost as if he is trying, by himself, to keep the site running. I read it once in a while but have no desire to comment. DA is a look alike of WB, but WB is much more interesting. There are a lot of interesting topics you could present on WB. JMHO

Posted by: Beretta9 at March 12, 2011 12:00 AM
Comment #320034

Beretta

I promised David to give it a chance and I am keeping my word to him. I have been busy lately anyway and not writing much in general. Thanks for the note, however.

Posted by: C&J at March 12, 2011 12:16 AM
Comment #320035

“President of China?
Obama’s lament.
9:01 AM, Mar 11, 2011 • By WILLIAM KRISTOL

“Mr. Obama has told people that it would be so much easier to be the president of China. As one official put it, ‘No one is scrutinizing Hu Jintao’s words in Tahrir Square.’”
Mr. Obama is right.
If you’re president of China, people around the world who are fighting for freedom don’t really expect you to help. If you’re president of China, you don’t have to put up with annoying off-year congressional elections, and then negotiate your budget with a bunch of gun-and-religion-clinging congressmen and senators. If you’re president of China, you can fund your national public radio to your heart’s content. And if you’re president of China, when you host a conference on bullying in schools, people take you seriously.
Unfortunately for him and us, Barack Obama is president of the United States. That job brings with it certain special responsibilities. It’s a tough job—maybe tougher than being president of China. But Barack Obama ran for president of the United States. Maybe he should start behaving as one.”

http://www.weeklystandard.com/blogs/president-china_554012.html?nopager=1

In China, you just throw your critics in prison, or kill them.

Posted by: Conservativethinker at March 12, 2011 12:25 AM
Comment #320039

Conservativethinker,
If President Obama was given the same powers of the President of China it would not be the Right who is in trouble, but the Left. For how many times has he stood up to his own party who wants to run over the Republicans? In fact, if President Obama would have took a page from President Bush his first two years the House of Representatives would still be in the hands of the Democrats IMHO.

No, the Right in America might want to thank President Obama instead of blasting him. For who believes Workers need or deserbe Healthcare? Who would rather give to the Rich and steal from the Poor? In fact, let’s talk about giving tax cuts to the Wealthy while declaring the States must defualt on their contracts with their own empolyees.

Yes, the Right might want to thank President Obama for remaining a Gentleman because if I had the Bully Pulpit everyday the American People would hear how the Republicans are so scared of the Finite World they live in that they only want the top 1% of the population to have all the money and resources. And are in fact ready to destory their own base in order to obtain and maintain their Standard of Living as seen by their willingness to take away the Rights of the Working Conservative Citizen.

Royal Flush,
If America has a Free Market than why are the Republicans supporting the Oil Companies and Banks by protecting them and giving them money? It seems to me if we want a Free Market than the Oil Companies, Banks as well as the Insurance Companies need to stand on their own and face the Bull Run. For why can’t I sue these corporations for destorying my ability to make a profit since it is so easy to prove they caused the problem we now face?

Posted by: Henry Schlatman at March 12, 2011 2:10 AM
Comment #320047

“The best regulator of market behavior is the carrot of profits and the stick of losses. This is rarely the case with government.”

j2t2 made the point that without massive government assistance in 2008, the US economy would have collapsed. I have yet to hear a rebuttal from the “free market” advocates. Unless of course, they think that it would have been appropriate to allow our system to collapse.

Posted by: Rich at March 12, 2011 7:15 AM
Comment #320049

Rich, I have stated that Free Market Capitalism can be corrupted. Some prefer to place the blame for our recent economic meltdown on the shoulders of business while forgetting that our government aided and abetted in helping to cause and create the conditions that ripened this catastrophe.

I would have preferred that the “stick of losses” had been applied. When business is allowed to operate outside the margins of free market capitalism and is then rescued by government, it sends a perverse signal for future thieves and bandits.

Posted by: Royal Flush at March 12, 2011 11:36 AM
Comment #320054

“Rich, I have stated that Free Market Capitalism can be corrupted. Some prefer to place the blame for our recent economic meltdown on the shoulders of business while forgetting that our government aided and abetted in helping to cause and create the conditions that ripened this catastrophe.”

Royal, really? The cops not the bank robbers? When are we going to realize that it was corruption by the corporations and their and their ability to influence legislation that allows for this corruption.

Predatory capitalism eats itself when left unattended, as was recently shown to us. The capitalism of FDR, the regulated capitalism that leveled the playing field somewhat, allowed for a thriving middle class. The “free market” capitalism you believe in is predatory and has failed each and every time it has had free run of the jungle. FDR saved capitalism in the thirties and Obama saved capitalism from itself in the ‘00’s yet we still have these foolish notions it is not capitalism it is government, Or if only we has less regulations the market would take care of itself. Or if the… well enough said, but when do we realize that “carrots and sticks” work well some of the time but not for everything and not all the time? Especially when the top 1% have the carrots and the stick.

Posted by: j2t2 at March 12, 2011 12:56 PM
Comment #320057

Rich, I wrote; “government aided and abetted in helping to cause and create the conditions that ripened this catastrophe.” It was both…the cops and the robbers.


In capitalism there is failure, both personal and corporate; and it is failure, like natural selection, that makes for progress, to the benefit of all, even if failures seem like disaster at the time. Where failure is impossible, there is no need for effort. Without effort, society begins to sink back to the natural poverty enjoyed by humanity for countless millennia.

Posted by: Royal Flush at March 12, 2011 1:43 PM
Comment #320058

The above post should have been directed to j2t2.

Posted by: Royal Flush at March 12, 2011 1:44 PM
Comment #320061


Royal, the government was the cops that were bribed to let the robbers write policy. The voters are the enablers of the cops that take bribes to let the robbers write policy.

The thing about systems is that we develop them to fill a need. As conditions change we develop a new system to meet the needs of the current conditions. IMO, anyone who thinks capitalism is the final solution is only fooling themselves.

Capitalism is fast approaching a point where it’s power is so great that it can control governments and people. That is not good for capitalism. If not for the social welfare system in this country capitalism might have already met it’s end point.

What many claim as the achievements of capitalism came before the age of the mega corporations and the social conditions of those times are well documented.

In these modern times of the mega corporations, capitalism owes much to the taxpayers of this country for it’s innovative achievements.

Capitalism did not fight and win WWII, it didn’t win the Cold War, it didn’t put men on the moon, and the Market is not fighting and dying in Afghanistan. The book is still out on Afghanistan and Iraq, but for the rest, the people of America and the world have profited from those achievements while capitalism made much profit from them.

We the people have paid a heavy price in treasure and lives in Iraq while capital raked in the profits. Conditions in Iraq are worse than when we took Saddam out. The people are living in an appalling situation, their government has been totally corrupted by capital and the profits are flowing out of Iraq like oil through a pipeline.

Not one of the free market right has mentioned capitalism’s amoral stance designed to mask the fact that capitalism accepts the fact that humans are just monkey men, evolved in the Godless manner described by Darwin. If capitalism had a logo, it would be a group of chickens lined up in the pecking order.

Posted by: jlw at March 12, 2011 3:05 PM
Comment #320065

“In capitalism there is failure, both personal and corporate; and it is failure, like natural selection, that makes for progress, to the benefit of all, even if failures seem like disaster at the time.”

Agreed Royal but in the “free market” or greed market system we have currently, the failure of the few in a certain industry can cause a ripple effect as we have seen. Just think where we would have been without the relatively small efforts of the government. I realize this goes against the ideology of the far right but it is what it is. Only the top 1% would have been spared the aftermath of an economic collapse. That does not mean they are better, just means they have more money.

It’s funny how those on the right use the ability to gain money as the sole means of their “natural selection”. Why not most spiritual or strongest. Why not most intelligent or kind. I believe it is because they fall for the Ayn Rand books but I would think you would have a different take so enlighten me please.

” Where failure is impossible, there is no need for effort.”

Agreed. Failure is good to a certain level, in fact it actually helps to benefit the rest of us as well as the person actually doing the failing. The failure of a small group of companies causing a financial meltdown that would affect all of us in this country and most of the rest of the world is however a bit more failure than we should accept in any system.


” Without effort, society begins to sink back to the natural poverty enjoyed by humanity for countless millennia.”

Yes, we are in agreement yet again Royal. But that doesn’t mean that a predatory capital system is the only system that allows for this effort by any means. That is the fallacy of the far right and their social darwinism theory of economics.

Posted by: j2t2 at March 12, 2011 3:56 PM
Comment #320068

The problem with Free Market Capitalism is that the description has been reinterpreted since it was used back in the much more regulated, much more taxed days of the Cold War.

It used to mean that we didn’t really have central planning, not that there were no government controls or anything. It was a distinction made between us, and the Soviet Union and its satellites.

The Republicans, nowadays, seem to use the term not merely to reflect a freeing of prices from government control, which is what free market is supposed to mean, but to bash any government intervention, even ones backed by the necessity of the public good. Their support for deregulation in the face of the massive oil spill in the gulf is an example.

So, I would say the Republican’s concept of free market economics is one that’s been grossly distorted, taken far beyond its useful descriptive purpose.

There’s a better word for what happens when you let company’s carry out their economic activities, even when it harms the nation’s economic security, or its environmental safety. It’s called corruption. It’s what happens when the interests of a private, powerful few overwhelm the good of the country as a priority for those who are governing us.

Let’s call what the Republicans call a free market economy what it actually is: an economy whose rules have been corrupted by private interests, interests whose influence has led to bad policies and a series of terrible disasters, both in the markets, and in the real world.

Posted by: Stephen Daugherty at March 12, 2011 4:05 PM
Comment #320069

jlw…I don’t know what you are comparing free market capitalism to, but it’s not responsible for any of the things you describe. Look up Free Market Capitalism and read and understand the definition. Then, come back and we can discuss it further.

Posted by: Royal Flush at March 12, 2011 4:28 PM
Comment #320070

Mr. Daugherty, most R’s or D’s do not practice free market capitalism. Consequently, we have paid a terrible price.

Posted by: Royal Flush at March 12, 2011 4:35 PM
Comment #320075

You all think the ‘New’ Russia is really a true ‘Free Market’ society? Aside from the political and business corruption, Putin still maintains de facto control with the tacit approval of Medvedev and the main ruling party in the Duma.

Have you not seen the propoganda, the political favors that exchanged in the name of privatization (i.e., Gaszprov, et al)? How journalists are intimidated and killed, how indutries that make the most money are part of the revolving door of party apparatchicks?

My best friend married a Russian woman in 1994 and has spent or spends considerable time there. He was there in 1989 when Gorbachev was forced into the Crimea Sea resort, effectively in exile while the hardliner’s tried to make a last-ditch effort to re-inculcate society with the old Soviet communistic and socialistic ways.

The main reason the ‘new’ Russia hasn’t blossomed is because of the vestiges left over form the ‘old’ USSR and the unwillingness of many powerful ‘old’ Soviet hardliner’s like Putin and others who maintain control behind-the-scenes.

In other words, sadly, the transition from communism to a democratically-controlled free-market system has not been achieved yet. Even sadder, the black market that has developed, the gangs and the mafia-type thugs that still exist ruin the average Russian’s chances of navigating these social and political landmines.

Posted by: Kevin L. Lagola at March 12, 2011 5:12 PM
Comment #320079

Kevin,
“Have you not seen the propoganda, the political favors that exchanged in the name of privatization (i.e., Gaszprov, et al)? How journalists are intimidated and killed, how indutries that make the most money are part of the revolving door of party apparatchicks?”

In your most recent comment, I was confused about whether you were describing Russia or the United States, except for the part about journalists being killed. As far as I know, the only US journalists that have been killed in the last decade have been in Iraq, and that was a much larger than the ones killed in Russia.

Royal Flush,
A free market does not work without close government oversight and regulation. (Please note, government oversight and regulation is not socialism- it does not involve government ownership of the means of production). Left to itself, a free market will inevitably condense into oligopolies and monopolies. These will eventually restrict and prevent new competitors from developing. The oligopolies and monopolies will prevent adaptation and innovation until they themselves fail due to the inability to meet changing conditions. They become too big to fail… and then they fail.

We see many examples of this in the US economy, such as Big Oil. It’s very similar to the situation in Russia. Big Oil seeks to drill in parks and preserves owned by the public. Big Oil plays a very big role in electing politicians, including the previous president. Big Oil hires Republicans to come back through the revolving door as lobbyists. Big Oil, in particular Exxon, funds an echo chamber of right wing groups in order to create confusion over what to do about Global Warming. I could go on, but you get the idea.

Posted by: phx8 at March 12, 2011 5:52 PM
Comment #320080

phx8 wrote; “A free market does not work without close government oversight and regulation.”

I wrote; “”a market system with freely adjusting market-determined prices is, when embedded within an appropriate institutional structure, a marvelous mechanism for coordinating human action.”

Perhaps we differ in our definition of “appropriate”. Rule of law, contract law, private property and such is the appropriate role for free market capitalism to thrive.

Posted by: Royal Flush at March 12, 2011 6:03 PM
Comment #320082


Royal Flush, I thought it would be obvious that those who oppose a free market economy don’t understand what it is.

Is this part of the definition: unfettered by government regulations, tariffs and labor laws?

I know that some throw in a caveat, reasonable government regulations, tariffs, and labor laws, but that is not part of the definition of a free market. That is just window dressing designed to seem reasonable for the purpose of gaining supporters.

The definition of a true free market is the market rules, the market makes the decisions for all. There is no ‘within reason’ in the definition. None of that Adam Smith, a la David Remer social enlightenment crap, thank you.

Obama threatening the free market with the oil reserve should be grounds for impeachment. It is not like he would actually do it, but it is the thought that counts for both sides of the fence.

The best way to destroy the market is to give the free market a rope.

“The pendulum swings like a pendulum do…”

Posted by: jlw at March 12, 2011 6:31 PM
Comment #320083

Royal,

You place blame for the financial market collapse of 2008 on both government and the private markets. However, you fail to recognize that government regulation in the immediate decades before the collapse had been in full retreat. It was in an environment of de-regulated markets that they failed. Alan Greenspan, the great champion of de-regulation during his tenure as Fed Chairman, admitted in 2009 before Congress that he was shocked at the failure of the financial markets to self-regulate. It was a clear failure of the free markets. If it had been allowed to play out, it would have destroyed our economy and probably that of the world.

Posted by: Rich at March 12, 2011 6:35 PM
Comment #320091

Royal Flush-
I think the term “free market capitalism” has become less a meaningful descriptor, and more a pretext that folks use to push industry friendly regulation schemes and legislation.

We deregulated an awful lot, and let one of the largest sectors of our economy go more or less unregulated for a decade, even after a near-disaster almost crashed the banks.

Belief that this will work has become an article of faith for the Right, not a matter they let be disproved or discredited by adverse outcomes.

Me? I saw the junk bond-initiated crash in 1987, the failure of the S&L industry in the late eighties, the failure of LTCM in 1998, the Failure of Enron and Worldcom, the Housing Market Crash, The stock market collapse, and the Near failure of the biggest banks in the country.

We keep on seeing this system of yours deliver larger and larger systemic risks, relying on steadily more exotic financial instruments to make their money, and though it seemed to have created a great deal of wealth, much of that wealth disappeared with the bankruptcy and liquidation of Lehman Brothers.

Even the most rational system, given enough leeway in redefining itself, can create a monster, and the monster here is the endless, unmanageable complexity that the system the banks have created.

We cannot trust markets to function well or honestly without the rule of law. There is simply too much incentive to cheat the system, and remake it to suit the cheating. We need to take Wall Street Reform further, not roll it back in the name of trying for what must be the sixth or seventh time to vindicate the economy that was rightfully reformed out of existence after the start of the Great Depression.

It’s time to let the failures of the past rest, to end this destructive relitigation of economic regulations.

Posted by: Stephen Daugherty at March 13, 2011 12:38 AM
Comment #320092

There is a odd type of socialism. Its called “lemon socialism” and often promoted by free market faithfuls like GWB. Lemon socialism is the government assuming the important ,but non-profitable,services and production that private capital will not touch or assuming the downside risk.
Did you know that under GWB the US government became the insurer of nuclear plants? The private carriers would not touch them,with obviously and sadly,good reason. The federal government also took on the responsibility of securing the proposed facilities at substantial cost and garanteeing investor profits!If that is the kind of socialism being dissed,great. Now is the time to put an end to it.

Posted by: bills at March 13, 2011 5:17 AM
Comment #320095

BillS

Lemon socialism, as you call it, is exactly what government is supposed to do, although we would hope it does it well and with minimal expense.

Government’s role is to do things that individual citizens cannot reasonably do for themselves or cannot do in voluntary association. In that way, government helps create conditions whereby the people can prosper.

In some cases this means that government assumes downside risk. I agree with you that it should not mean that government is simply left holding the bag.

But consider the recent financial crisis. If we look for villains, we find them all over the place. Lenders who gave out too much cash were bad, but so were the borrowers to took out loans they could not repay. Along the way were all sorts of enablers, including parts of government such as Freddie Mac and Fannie. Many people were reacting to conditions. If you wanted to buy a house in 2005, you were content to pay “more than it was worth” because you assumed it would be worth even more next year. Besides, you had little choice.

When that crashed, the only entity with sufficient funds was government and the bailouts of 2008 and early 2009 were required. This kind of extreme situation seems to happen every 25 years or so. We should not let it become routine.

It may seem unfair, but if you go belly up when everybody else is too, you probably should be able to count on a government bailout, even if you contributed mightily to your fate, since the imperative is to save the system. If you go belly up during ordinary times, however, you probably should suffer the entire consequences alone.

Government’s job, in the end, is to keep the system going, not to mess with the individual components. So it naturally gets to do the sour things.

Posted by: C&J at March 13, 2011 9:08 AM
Comment #320096

Bills,
Not only will no insurer insure nuclear power plants, but they cannot be sued in the case of a problem. In addition, 100% of the constructin expense will be fronted by taxpayers. The plants will then be operated by private utilities who will keep the profit. Another example of ‘lemon socialism.’

It’s another example of why alternative energies such as wind and solar make so much sense, and deserve massive government investment. Same goes for converting transporation to electric cars and rail. As long as we’re going to practice ‘lemon socialism,’ why not fight the fossil fuel industries, and encourage small business innovation, job creation, and growth with taxpayer dollars invested in alternate energies? When the real costs and consequences of fossil fuels and nuclear energy are considered, they do not make economic sense, they involve terrible risks and sketchy foreign policies, they harm the environment, and so on.

I would like to say, I enjoyed this thread more than any on Watchblog in a long time. I challenged some assumptions and generally received thoughtful and thought provoking responses.

Posted by: phx8 at March 13, 2011 11:07 AM
Comment #320098

phx8, that was a very generous comment in your last paragraph and I am sure is appreciated by all those who have participated.

Posted by: Royal Flush at March 13, 2011 1:25 PM
Comment #320101

phx8

Massive investment by government in these alternatives is worse than lemon socialism, because it leads to corruption and dependency.

Unfortunately, in the things you are talking about, it requires government to leave its role as a provider of the big things that individuals cannot provide for themselves or in voluntary association.

Investment in alternatives, as advocated by many today, requires that government invest directly in firms and pick technologies. President Obama recently visited a firm in Wisconsin that was making solar products. He bragged that this firm had received thousands of dollars in government grants. AND … they still could not make a product that people would buy w/o government direct subsidies. Not good. Eventually children need to walk on their own.

Government does its best work when it builds structures that all can use, w/o creating specific advantages or managing the process of innovation. The Internet was like that, so is the Interstate Highway System. Both these big projects created innovations undreamed of by the government designers. This is as it should be. Innovation cannot be managed centrally.

I have changed my mind re high speed rail. I used to think it was a good idea. Now I do not, except in some very narrow corridors.

What changed my mind was the proposal in my home state of Wisconsin to link Madison & Milwaukee. It is a distance of only 72 miles. I understand the geography and demographics very well. I lived in both places; drove around the whole region and even rode my bike over much of the area. High speed rail makes absolutely no sense there, since it would take you longer to get to and from the stations than it would to drive to your destinations. The population density lies BETWEEN the points you would embark and disembark, so anybody dumb enough to take the train would end up driving almost as much to arrive at the stations. Only government planner w/o intimate knowledge of the circumstances would think that is a good idea.

Posted by: C&J at March 13, 2011 4:45 PM
Comment #320103

C&J,
Rail will not work everywhere, of course. It would make a lot of sense running along the West Coast between Seattle & San Diego. It would also make sense if population patterns are changed to adapt to rail corridors, rather than encouraging suburban sprawl. City planning works. Consider Portland, OR. On the other hand, lack of city planning fails. Look at Phoenix or LA.

The government can be fantastic at encouraging innovation. The majority of major new drugs come through federal grants to universities. Big Pharma is possibly the most useless oligopoly on the planet. Government seeded many past projects, ranging from the nuclear program of WWII, NASA, various computer projects for the military. Government also can used as a tool for innovative social engineering, as witnessed by the successful programs to reduce poverty initiated w LBJ.

The government subsidies are currently being provided to the Fossil Fuel industry. The situation is even worse than it was in the 70’s, when the first oil shocks hit. We’ve known for decades- literally decades- that fossil fuel is not a viable, sustainable source of energy. There is greatness in this country and its government of We the People. There is no greatness in multinational corporations.

Posted by: phx8 at March 13, 2011 5:23 PM
Comment #320107

C&J-
If taxpayers are liable for the systemic risks of a given industry, government should be able to act to reduce the risk of that eventuality, to minimize what the Taxpayers end up on the hook for. Any other system is an unfair burden on the people. If they can’t police themselves, we’re not going to subsidize their recklessness if they expect us to step in.

Posted by: Stephen Daugherty at March 13, 2011 9:35 PM
Comment #320111

RE C&J’s comment #101:

I’m glad you see the logic in the Wisconsin HSR boondoggle, C&J.

The following is a letter-to-the-editor from my local newspaper:

“Our current high speed rail system cost billions to build and we provide millions annually to keep it financially afloat. To say we are a good candidate for additional high speed rail is ridiculous. Japan is a good example of what it takes to make high speed rail successful.

First, let’s look at population and size. Japan’s population is about 127 million people. The U.S. population is 310 million. Japan is about 145,000 square miles, and the U.S. is 3,794,000 square miles.


So Japan has a population density that is 12 times greater than the United States. If we moved one-half of the U.S. population into California, we could see somewhat the same density experienced in Japan.


When will the Joe Bidens of our country acknowledge that high speed rail must always be subsidized in our country?”

Posted by: Kevin L. Lagola at March 14, 2011 12:57 AM
Comment #320114


I wonder how well government subsidies for high speed rail would compare to subsidies for the airline industry.?

How many taxpayers never fly or how many only fly once or twice in their lives? Are government subsidies for air travel fair to those taxpayers?

In all fairness to taxpayers we should eliminate all subsidies for air travel. Let those who use the service pay for the air traffic controllers and equipment, the training of personnel, as well as the many other subsidies like fuel subsidies; and of course, we should let the industry self-regulate itself.

Posted by: jlw at March 14, 2011 3:08 AM
Comment #320116

“I have changed my mind re high speed rail. I used to think it was a good idea. Now I do not, except in some very narrow corridors.”

C&J are you using corporate short term thinking to make this determination? Will you say the same when gas is $10/gal.? Currently we need jobs in this country to stop our slide into a third world nation. Good paying construction jobs that would result in long term gain for the American taxpayer, unless of course the innovation of high speed rail is managed by the Chinese using Chinese labor.

Posted by: j2t2 at March 14, 2011 9:48 AM
Comment #320119

Kevin L. Lagola-
How much do we subsidize the oil and gas industry? How much are we helping Wall Street to keep afloat?

The opposition here is not to something impractical, it’s to something that represents a threat to those who don’t want liberal policy to have a chance to prove its worth, or create new jobs.

The Republicans need America to remain in its troubles so it can exploit them to oust an otherwise popular leader.

The problem is, your party ran on jobs, too. The problem is, as you break it down, your policies, even if correct can only produce jobs if all the secondary consequences you hope for come to pass. On tax cuts to the rich alone, that hasn’t been so successful, and current austerity measures constitute one of the biggest drags on the economy.

So, really, your ideology keeps your people from fulfilling their promises in a visible, creditable way. You can promise a better economy, but your track record for leaving one behind is grim.

Posted by: Stephen Daugherty at March 14, 2011 10:18 AM
Comment #320134


We used to have a high speed rail system all over America. The trains were very high speed for the times and the electric trolley tracks are still embedded in the brick road under the asphalt road that runs in front of my house.

Corporations were convicted for conspiring to destroy it.

Ultimately it was replaced by fantastically more expensive and extremely more profitable alternatives. It was just a matter of choice.

In the future, predicated on the current policy being promoted by our two political parties and their support mechanism, many Americans may have a great need for public transportation and it won’t be by choice.

Posted by: jlw at March 14, 2011 5:25 PM
Comment #320149

SD writes: “The problem is, your party ran on jobs, too. The problem is, as you break it down, your policies, even if correct can only produce jobs if all the secondary consequences you hope for come to pass. On tax cuts to the rich alone, that hasn’t been so successful, and current austerity measures constitute one of the biggest drags on the economy.”

“So, really, your ideology keeps your people from fulfilling their promises in a visible, creditable way. You can promise a better economy, but your track record for leaving one behind is grim.”

It’s sad how after the BP oil spill, and now the situation with the nuclear plants in Japan, that Dems, especially elected officials, try to use it as some kind of wedge issue or ‘crisis’ ideology to fight against energy exploration/expansion and job creation.

Even Bill Clinton was recently quoted as saying how backward and harmful it was for Obama, his energy czar and the EPA to basically halt all oil drilling in the name of safety and/or environmental concerns during a recession with a jobless recovery.

What a job killer. Now the nuclear event in Japan (btw, it was a once-in-one-hundred year 9.0 earthquake, with an enormous tsunami and capped off with major explosions at the plants). Japan is in part of the world called the ‘Ring of Fire.’ And even with all of the aforementioned havoc, these plants are still holding their own, albeit barely.

Chernobyl was caused by human error and incompetence.

Moreover, even Sen. Claire McCaskill (D-MO)(today) is calling on Obama and the EPA to ‘stop creating unecessary regulations that hurt the working person.’ And to ‘use common sense’ with respect to hampering private industry from its ability to create jobs in a myriad of energy concerns.

It all reminds me of how liberals acted in the hours after the Arizona shooting (assigning blame during a tragic and fluid situation) of Rep. Giffords, et al. And it also reminds me of how Obama, during an address to the nation from the Oval Office on the BP oil disaster, tried to use the crisis to push cap & trade.

I still recall his speech and how he went from threatening BP in one instance and then pivoted to the importance of not letting a good crisis go to waste by pushing the ‘Green’ movement along with various environmental legislation.

To be sure, the awful tragedy in Japan has shocked the world - and rightly so. But it is far, far, too early for people to once again, politicize such an event when the situation is still ongoing and fluid.

All of a sudden, many political cable commentaters are now nuclear fission and fusion experts. Leave the radiation, fuel rods, meltdown and containment science up to the experts first.

Also, it must be noted that the Japanese are some of the best problem solvers in the world and it’s a testament that in the wake of such an enormous and powerful natural disaster, the affected nuclear facilities have held up as well as they have thus far.


Posted by: Kevin L. Lagola at March 14, 2011 9:10 PM
Comment #320150

“:And even with all of the aforementioned havoc, these plants are still holding their own, albeit barely. “…the affected nuclear facilities have held up as well as they have thus far.”

Sure! There has been a third explosion at the #2 reactor and it is being reported by Japanese officials that the containment vessels at #2 may have been compromised and radioactive material is being released. It is further being reported that they are having problems controlling the valves and that they cannot maintain water levels in the reactor, exposing the core to meltdown conditions. Almost all personnel have been evacuated from the plant. This is a very serious situation.

Posted by: Rich at March 14, 2011 9:40 PM
Comment #320165


The latest report I read said that one plant had been completely evacuated and that many people have been told to stay in their homes.

Try telling the people of New Madrid that nuclear plants built there won’t be a problem because it’s not on the ring of fire and 8.9 earthquakes only occur every 100 years.

Posted by: jlw at March 15, 2011 3:38 AM
Comment #320166


“btw, it was a once-in-one hundred year 9.0 earthquake.

1960 Chile 9.5

1964 Alaska 9.2

2004 Sumatra 9.1

1952 Kamchatka 9.0

2011 Japan 8.9

The Sumatra quake in 2004 is probably responsible for saving possibly thousands in Japan.

A 7.5 could trash a nuclear power plant if it were close enough to the epicenter.

Posted by: jlw at March 15, 2011 4:01 AM
Comment #320181

“Chernobyl was caused by human error and incompetence.”

This nuclear disaster will turn out to be similarly caused by human error and hubris. The design of the reactor (GE Mark I boiling water reactor) has been known for decades to be an unsafe design. The containment system is susceptible to failure at an alarming rate upon a meltdown. http://www.nirs.org/factsheets/bwrfact.htm Placing this type of reactor in an earthquake prone region and repeatedly re-commissioning the reactors is not human error?

In addition, the absence of a venting process for hydrogen gas produced during meltdown is not human error? How about storing spent fuel rods on top of a reactor? How about using plutonium mixed fuel (MOX) in a reactor which has suspect safety features?

Posted by: Rich at March 15, 2011 10:48 AM
Comment #320185

Rich wrote: “This nuclear disaster will turn out to be similarly caused by human error and hubris.”

Really?

A 9.0 earthquake, a massive 30-foot tsunami and numerous explosions is a human error and hubris?

Newsflash, mother nature’s power exceed’s nearly all human endeavors to build or create a disaster-proof structure or building.

Thus, I guess we should all cease creating anything of value because at some point in time, mother nature is going to tell us who’s boss and knock us off of our feet.

The Daiichi plant is over 40 years old and was designed to withstand an 8.4 earthquake.

The two biggest risks for anything in the world is natural disaster and terrorism. Everything else pales in comparison, save for a dictator who believes genocide is o.k.

I can’t believe anyone with any sense would try to compare Chernobyl with the Daiichi plant in Japan.

Posted by: Kevin L. Lagola at March 15, 2011 11:36 AM
Comment #320210

Kevin,

The IEAE final report on the causes of the Chernobyl disaster placed blame primarily on the design of the reactor and to a lesser extent operator error. A design error is a human error.

The Mark I reactor involved in the current emergency has long been known to have potential safety problems with its containment systems in the event of a disruption to its cooling systems. It doesn’t have the robust containment vessel like Three Mile Island had. A human design error. “Questions about the G.E. reactor design escalated in the mid-1980s, when Harold Denton, an official with the N.R.C., asserted that Mark 1 reactors had a 90 percent probability of bursting should the fuel rods overheat and melt in an accident. A follow-up report from a study group convened by the commission concluded that “Mark 1 failure within the first few hours following core melt would appear rather likely.” http://www.nytimes.com/2011/03/16/world/asia/16contain.html?pagewanted=1

Maintaining a type of reactor with known meltdown containment weaknesses in a high risk earthquake area and repeatedly re-commissioning it is human error.

Whether it is Chernobyl or Japan, in both instances there was human error involved. I both instances there were safety risks taken by the nuclear authorities.


Posted by: Rich at March 15, 2011 7:24 PM
Comment #320277


When Chernobyl happened, the overall impression that was promoted by the U.S. nuclear industry, recently deregulated by the Reagan Administration, and presented to the people through the media was that this was something that could happen in the socialist Soviet Union, but not in America.

This time the presentation will be that this is something that happened in Japan because it had poorly designed plants and Japan is prone to earthquakes and Tsunamis. It can’t happen here! Oh, but it can!

We won’t build in high risk areas. We already have.

The Japanese were managing the risk until they weren’t.

Manageable risk? You here that a lot coming from corporations. British Petroleum is big on managable risk.

Risk by nuclear authorities is inevitable. There will always be the pressure of recouping investments and making profit.

Risk and denial for the sake of oil profits and convenience has placed our countries future on shaky ground.

Posted by: jlw at March 16, 2011 10:49 PM
Comment #320340

What’s happened over the last thirty years as more third world countries adopted a more capitalist model is nothing short of a miracle. However, we only need look to the last century to see where unfettered capitalism leads: to extreme wealth disparity and an erosion of basic rights. Without some rules, capitalism will always chase the dollar at any price.

If tomorrow we were to abolish the minimum wage, or basic regulation of food safety, you would immediately see companies pay the lowest wage possible. In a global marketplace, that wage would be almost nothing. This wasn’t good for America in the 1800’s and wouldn’t be good policy now.

One of the biggest reasons for our economic downturn is that without rules companies had to sell CDO’s. It’s where the business was, and even if you knew they were a sham you had to be involved in the market or risk going out of business.

Also, some markets fare better under government supervision. By any objective measure, single payer healthcare delivers higher quality care at a lower price. One would think such a deal would be hard to pass up, but this wasn’t even considered.

All of which is to say that capitalism is great, but like anything else must be tempered by some basic rules to function well. What’s troubling to me is these rules are seemingly minor and commonsense (let’s have a rule that a bank cannot get so big its failure poses a risk to the entire economy…), yet are considered so invasive and corrupting as to make the whole economy socialist.

Posted by: Max at March 18, 2011 9:12 AM
Comment #321918

Here’s my “free market capitalism” solution to the high unemployment problem:

I’ve written a proposal that uses entrepreneurship on a massive scale to tackle the ongoing high unemployment problem, which has left millions and millions of Americans grasping at the last vestiges of the American Dream. Long-term unemployment is at record levels and the pace of the tepid “recovery” from the Great Recession will require years to return the country to full employment. In the mean time, government coffers are depleted while straining to address the extreme hardship, and tax revenues are greatly diminished because so many jobless folks cannot pay taxes.

My proposal describes an entrepreneurial mechanism through which we can fund a massive number of new business ventures (to create a massive number of new jobs) by tapping the financial power of Wall Street. It is a private-sector proactive approach to remedy the high unemployment problem. Titled “A Modest Proposal to Save the American Economy: Entrepreneurial Blitzkrieg as Job Creation Vehicle,” the proposal has been published online at Salem-News.com (and various other places):

http://salem-news.com/articles/march232011/solving-unemployment-jpb.php

The “Modest Proposal” is perhaps a bit cynical, proposing to hand a new form of financial nitroglycerin to the same folks who crashed the economy in 2008, or perhaps a bit Robin Hood, with its ideal of empowering the American proletariat via new business creation. Nonetheless, the approach described in the proposal uses existing financial industry architecture to transfer enormous sums of funding from those who have it (Wall Street) to those who need it (Main Street) – without requiring government tax incentives or subsidies. This is an entrepreneurial mechanism that perhaps even Ayn Rand (gasp!) would embrace.

Joseph Patrick Bulko, MBA

Posted by: Joseph Patrick Bulko, MBA at April 20, 2011 6:53 AM
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