Theory of Capitalism collapses

[_CaliforniaKid]

A budget deficit could also be reduced by cutting spending.

Yes, the authors note that most deficit-related tax increases were accompanied by spending cuts. What's striking about this is that, like tax increases, spending cuts should also have a contractionary effect on production. Yet we observe the opposite effect! Apparently balancing the budget is pretty winning.

[_MadMonk]

If the government's policies suck, you have to wait until the next election. In the meantime, the politicians have free reign to do things people don't like (the healthcare overhaul is a good example).

Actually I like it just fine. Enacting it is why I voted them into office in the first place. The people who don't like it are the insurance company executives who will be required to spend more of their company's income on actual health care, instead of on bigger bonuses.

There is nothing wrong with the profit motive. Everyone acts in his or her self-interest.

The problem lies in structuring the system so that it is long-term self-interest that is considered, instead of short-term. The Koch brothers hate the EPA because it restrains them from making larger short-term profits in order to promote longer-term goals, such as breathable air and potable water for society at large. At what point does my right to exploit our common heritage of natural resources become interference with your right to have your children lead a healthy life? Someone needs to adjudicate such claims, since the market is not capable of doing so.

Remember that Adam Smith, Locke, and Hume were all assuming that capital would be restrained by a moral system to which capitalists today pay no attention. If such internal restraints as morality, ethics, and a sense of social responsibility are lacking, where else can the necessary restraint come from, if not the power of government? To say that unrestrained capitalism is a moral good is absurd; the inability to reach a point of satiety is a hallmark of mental illness. American economic history over the last thirty years seems to indicate that capitalism is incapable of restraining its own excesses. There seems to be no sense of what is enough.

But they can't just hire people to make stuff that no one will buy.

And unfortunately, the unemployed can't buy it, even if they want to.

The way to solve this problem is through expansionary monetary policy. . .

Which is exactly what Rand Paul, Glenn Beck, Rush Limbaugh, and Sean Hannity have been inveighing against for the past twelve months. According to Rand Paul, in fact, the Federal Reserve's "quantitative easing" (or in Paul's terms, "printing money like crazy") is producing runaway inflation and setting us up for a Hitler-type dictatorship.

Personally, since prices in the shops around me are still going down, I think the current risk is deflation, not inflation, but surely Messrs. Paul, Beck, Limbaugh, and Hannity wouldn't be saying what they're saying if it weren't so. :-)

. . .What it means is that a huge chunk of our labor force is free to pursue other things besides growing food. They can turn their efforts to making computers, cars, houses, etc. . . .

If there were any of those jobs still to be had in this country. Most of them were shipped overseas a while ago, and they ain't coming back anytime soon--unless you know something the rest of us don't (O dear God, I hope so!). And with the current mania in Congress for cutting the budget, there won't be any spending on upgrading our infrastructure to provide new jobs, either.

Oh, well, if my dad is right, the Rapture is coming on May 21, so we won't have to worry about it much longer.

MadMonk

[_CaliforniaKid]

Oh, well, if my dad is right, the Rapture is coming on May 21, so we won't have to worry about it much longer.

lol. Seriously? He's one of those?

[_Fifth Columnist]

A budget deficit could also be reduced by cutting spending.

Yes, the authors note that most deficit-related tax increases were accompanied by spending cuts. What's striking about this is that, like tax increases, spending cuts should also have a contractionary effect on production. Yet we observe the opposite effect! Apparently balancing the budget is pretty winning.

The most important factor affecting economic growth is monetary policy. The Federal Reserve can and will compensate for changes in government spending with monetary policy (they should, but the Federal Reserve dropped the ball big time back in late 2008). So, if the government cuts spending, the federal reserve can increase the money supply to offset any contractionary effect. The same is true when the government increases spending. For example, I think one of the biggest mistakes we made in the current recession was to pass the stimulus bill. The Federal Reserve anticipated the stimulus provided by deficit spending and reduced the amount of monetary stimulus accordingly. The sad thing is that monetary stimulus is essentially free, but fiscal stimulus incurs huge amounts of debt.

[_Fifth Columnist]

If the government's policies suck, you have to wait until the next election. In the meantime, the politicians have free reign to do things people don't like (the healthcare overhaul is a good example).

Actually I like it just fine. Enacting it is why I voted them into office in the first place. The people who don't like it are the insurance company executives who will be required to spend more of their company's income on actual health care, instead of on bigger bonuses.

The insurance market is broken, but it isn't because someone isn't there to force them to pay more on health care instead of profits. It's because competition has been stifled by too much government regulation. Each state regulates the insurance industry so differently that it makes it extremely difficult for new firms to enter and increases the overall cost.

There is nothing wrong with the profit motive. Everyone acts in his or her self-interest.

The problem lies in structuring the system so that it is long-term self-interest that is considered, instead of short-term. The Koch brothers hate the EPA because it restrains them from making larger short-term profits in order to promote longer-term goals, such as breathable air and potable water for society at large. At what point does my right to exploit our common heritage of natural resources become interference with your right to have your children lead a healthy life? Someone needs to adjudicate such claims, since the market is not capable of doing so.

Environmental damage is a widely recognized market failure that requires government regulation. The inefficiencies of government regulation are tolerated because the alternative is worse. The problem is that too many liberals view the vast majority of markets as being subject to market failures if left to themselves. I don't think that is true.

Remember that Adam Smith, Locke, and Hume were all assuming that capital would be restrained by a moral system to which capitalists today pay no attention. If such internal restraints as morality, ethics, and a sense of social responsibility are lacking, where else can the necessary restraint come from, if not the power of government? To say that unrestrained capitalism is a moral good is absurd; the inability to reach a point of satiety is a hallmark of mental illness. American economic history over the last thirty years seems to indicate that capitalism is incapable of restraining its own excesses. There seems to be no sense of what is enough.

The government does not have a claim to superior moral authority than people trading in free markets. There is a proper role for government, but I think it should be smaller than it is now. I think people and businesses should be given more economic freedom. There are some very good ideas out there that I would like to see us adopt (for example, replace Social Security with a savings system like Singapore's; replace our school systems with the voucher based system used in Sweden, etc.).

But they can't just hire people to make stuff that no one will buy.

And unfortunately, the unemployed can't buy it, even if they want to.

Exactly. We can stimulate the economy through an expansionary monetary policy and take care of both problems.

The way to solve this problem is through expansionary monetary policy. . .

Which is exactly what Rand Paul, Glenn Beck, Rush Limbaugh, and Sean Hannity have been inveighing against for the past twelve months. According to Rand Paul, in fact, the Federal Reserve's "quantitative easing" (or in Paul's terms, "printing money like crazy") is producing runaway inflation and setting us up for a Hitler-type dictatorship.

So true. I wish these guys understood monetary policy at all. If they did, they would be begging Bernanke for more QE. In fairness, most of the lefties are out to lunch on this too. They view monetary policy as ineffective at the zero interest rate bound and instead demand gigantic, deficit funded spending programs.

Personally, since prices in the shops around me are still going down, I think the current risk is deflation, not inflation, but surely Messrs. Paul, Beck, Limbaugh, and Hannity wouldn't be saying what they're saying if it weren't so. :-)

The Tips spreads tell us everything we need to know about inflation . . . and there isn't any significant inflation in sight. These guys want us to repeat the Japanese experience (please God, no).

. . .What it means is that a huge chunk of our labor force is free to pursue other things besides growing food. They can turn their efforts to making computers, cars, houses, etc. . . .

If there were any of those jobs still to be had in this country. Most of them were shipped overseas a while ago, and they ain't coming back anytime soon--unless you know something the rest of us don't (O dear God, I hope so!).

The jobs have been shipped out for the past 30 years, yet in late 2007, the unemployment rate was at record lows. The high unemployment rate is a product of the Federal Reserve failing to prevent NGDP from dropping in late 2008 (through monetary policy). It has nothing to do with jobs being shipped overseas.

Oh, well, if my dad is right, the Rapture is coming on May 21, so we won't have to worry about it much longer.
MadMonk

Have your dad put his money where his mouth is by having him irrevocably give you all his stuff on May 20.

[_Kevin Graham]

I think one of the biggest mistakes we made in the current recession was to pass the stimulus bill

Virtually everyone in the field of economics disagrees, except for a minority who generally hail from the Right/Center-Right.

The Federal Reserve anticipated the stimulus provided by deficit spending and reduced the amount of monetary stimulus accordingly. The sad thing is that monetary stimulus is essentially free, but fiscal stimulus incurs huge amounts of debt.

Monetary stimulus was tried, and failed. Once interest rates have been dropped to zero, you can't lower them further. Further, the fiscal stimuls was not designed to boost the economy so much as it was intended to save the economy from what was predicted by many to be an imminent collapse.

Folks on the Right will point out the negatives of our current economy and conclude the fiscal stimuls didn't work at all. But they refuse to see the larger picture in that the economy was in a complete free-fall at the time the Presidency was being handed over to Obama, and since the fiscal stimulus was enacted, the economy has essentially leveled off. Unemployment had increased at a staggering rated during the last 24 months of the Bush administration, and that trend continued until December of 2009. It is still a problem of course, but you cannot say monetary stimuls has not been tried. Interest rates were lowered, and that didn't help. The degree to which the economy was suffering required something much more aggressive, and the fiscal stimulus was imminent. At the time economists from both sides of the playing field supported it, but now that two years have passed and people feel it is OK to start blaming Obama, the economists on the Right are starting to pretend like they never agreed with it to begin with. You sure as hell didn't hear of FOX News complaining about it when it was first introduced by George W. Bush. Bailing out the auto industry wasn't a concern of anyone on the RIght, until Obama actually tried to hold the auto industry accountable. Suddenly they said this was proof of a "government takeover" and signs of his socialistic tendencies!! In reality, the government only "overtook" the industry in the sense that it saved it. If it had stayed out of it, the auto industry would have collapsed and then the Right could blame Obama for letting that happen. It is a no win situation for this guy. He cannot compete with the well-funded propaganda machine that is working overtime to spin everything he says and does in the worst possible way.

The Keynesque fiscal stimulus is designed to put money into the hands of those who spend. The reason is because consumer spending if the lifeline of any economy, and they wanted to kick-start the economy again. The wealthy and the Right attacked this as nothing more than a welfare state seeking to give the lazy folks "entitlements." Instead they felt it was more important to give more tax breaks to the Rich. But the problem with this is that this has proved to be detrimental to federal revenues, and the wealthy generally do not spend their money, they save it. The first thing apoor person is going to do with a stimulus check is spend it, and it has a more immediate effect on the economy. So the answer of tax breaks for the Rich would mean nothing, but the folks on the Right continue to propagate the myth that more tax cuts for the wealthy = more jobs and prosperity for everyone.

Anyone who knows anything about running a business knows that a silly tax cut doesn't mean you're going to use that extra money to hire more people. That has rarely ever been the case, if ever. Businesses are likely to save that money, especially during a recession. Businesses only hire more people when business picks up or if they have a reasonable basis for anticipating increased business (i.e. just prior to holiday season). If a retail store can get by with only three employees working part-time, a tax break isn't going to encourage the owner to hire more people. In reality, a business owner hires employees according to the level of business that is taking place during any given time. Tax breaks for businesses and the Rich do not correlate with increased consumer spending. However, a fiscal stimulus does have the effect of immediately increasing sales transactions because it places the money into the hands of those who spend.

The sad fact is that for every dollar spent on tax cuts for the rich, you get only 30 cents back to the economy. That's not responsible policy, but that is what George Bush and the Right did for us. The Bush Tax cuts have cost the government around a trillion in revenue, the Bush wars cost us another trillion, and his special interest serving Medication Prescription Bill costs us roughly another trillion through 2015. Luckily for the Right, Americans are generally short-sighted, which means they blame the guy who is currently in office and expect miracles immediately. If he tries to point out that he is only trying to clean up the mess of his predecessor, well that's when the KOCH funded groups, including FOX News step in front of the cameras and radio microphones with the "stop blaming Bush" rhetoric. I mean hell, it has been two full years right? Surely that is long enough to turn around an economy that was on the brink of destruction.

Just look at how Ronald Reagan turned it around in two years...

Oh wait, he didn't. Unemployment skyrocketed during Reagan's first two years, along with the deficit.

Oooops?

[_Brackite]

When americans wake up to the fact that they live in a dictatorship of the Bourgeoisie, or the capitalist class we can then begin to move on to better pastures. I see no freedom in america since it is a two party state with both parties supporting capitalism.

Here is what beastie wrote on another thread around here:

Of course. Lots of exmormons are republicans, and I don't recall them getting any grief over it.

As I said, I really don't expect or want to persuade republicans to become democrats. I think a two party system is important. I don't even particularly mind that bcspace is a tea-bagger, at least in spirit (Obama is an undocumented worker...lol). What I do mind is when they insist that one cannot be a good Mormon and be a democrat. They're full of it. In fact, I know several apologists or defenders of the faith who are democrat. Kerry Shirts and Bob crocket come to mind, as well as, of course, my parents - and most of my LDS family. I have three sisters, and two are still active in church along with their families. With the exception of one nephew, they're all democrats.

viewtopic.php?p=308691#p308691

[_Droopy]

We are not playing Monopoly here, the winner take all capitalism path that the U.S. is on will force you to sell your Baltic Avenue and you or your children are going to lose this game.

What does this term mean?

[Guest]

As to how policymakers could help out, I don't know.

Curriculum design, for one thing. We could make innovation a more central part of secondary public education-- perhaps even making it a capstone requirement for all students to go through all the steps of formulating a business plan and starting a small business.

Those that have the aptitude, desire, and skill sets to do so will, without doubt, do so regardless. I see no reason for force or "track" all students into such a channel. I think what American public and secondary education really lack are required courses in basic free market/microeconomics and economic history, not business.

This would make successful business innovation more thinkable and more prototypical for young Americans. It might also be interesting to see if an effective advertising campaign could be developed to encourage young people to get involved in product and business innovation.

In a business friendly economic and political environment, which we have moved away from precipitously over some decades, this will happen anyway within the ranks of those members of the population with the appropriate aptitudes and psychology.

Perhaps more importantly, the government might want to tap ethnic and religious organizations to encourage their youth to get involved in vocational programs.

Why does government need to do any such thing? I'm not sure I'm at all following just why the state needs to be involved in "priming the pump" in this manner, when a dynamic, competitive, growth oriented free market will attract the talent it needs simply by existing. After all, it always has.

Anyway, the point is that if we start thinking outside the box, we may discover that taxes and interest rates are neither the only nor the most effective variables we can manipulate to stimulate the economy. There are a whole range of other options available to us that don't require further exacerbating the growing problem of economic inequality.

While ignoring the begging of a very real question at the end of this paragraph, there is still the very real possibility that the manipulation of money and credit has been, over roughly the last two thirds of the 20th century, the primary problem to be solved in "stimulating the economy" and preventing or deeply moderating the kinds of monetary, tax, and regulation induced recessions, or depressions, large and small, that have characterized the West during the ascension of Keynesianism, progressivism, and etatism in the 20th century.

http://mises.org/books/causes.pdf

[_Droopy]

it's a categorical mistake to speak of rational and irrational preferences. Rationality refers not to the preferences themselves, but to the way those preferences guide decisionmaking. To cite a very simple example, rational choice theory says that if you prefer outcome A to outcome B, then when presented with a choice between them you will choose outcome A.

Which only means that the choice itself, while "rational" in some sense known perhaps only to the chooser, is only rational in that sense. Che Guevara wanted to use the nuclear missiles stationed in Cuba during the Cuban Missile Crisis and launch a first strike against the U.S., precipitating a nuclear conflagration from which he believed, despite the calamitous damage, socialism would rise triumphant from the nuclear ashes.

This was a "rational" choice, given his own apocalyptic vision of a communist eschaton and its logical implications, but not at all any more rational, in a broader philosophical sense, than Hitler's gas chambers or a gang member killing a passerby as proof of his "street cred."

and are in a constant state of flux and change among many millions of individual economic actors.

Yes, but much of this flux and change factors out in the aggregate. There are also a number of preferences which are fairly basic to human nature, and therefore fairly stable over time.[/quote]

Aggregates don't make economic or any other kinds of choices. It is the systemic dynamics and properties of the free market as the manifestation of countless, varied, changing, calculated individual economic or other kinds of decisions that actually matter, not the abstraction of the aggregate - one of the central fallacies of Keynsian economics.