Anonymous
Anonymous asked in Politics & GovernmentOther - Politics & Government · 1 decade ago

Is it Really True that The Market Will Take Care of Everything?

Did Any Flaws Appear in Capitalism in September of 2008?

A person at Lonely Answers Club recently told me that I should take a course in Economics. She said:

If true capitalism were in place, nothing would be illegal. Instead, it [overpayment of executives] would be driven out by the market itself. Pure supply and demand would rule.

Our problem according to her is that our capitalism isn't pure enough -- it's not the complete capitalism -- the full capitalism -- it has been diluted to some degree and meddled with.

But I remember September of 2008. There was Henry Paulson down on his knee in front of Nanacy Pelosi, in the Oval Office. Maybe I'm the only one that remembers, but he told her that unless she came through with about a trillion dollars in TARP money there was going to be a compete and total collapse of the US economy -- another Great Depression.

I have no doubt that what Henry Paulson said was true. I'm not sure TARP was the ideal way to handle the crisis. I would have gone for government takeover and liquidation combined with strong prosecution of about 2000 senior executives at Big Banks and Hedge Funds on Wall Street. I would have added two more wings on Allenwood, and filled them with cellmates for Bernie Madoff. But instead we taxpayers recapitalized the banks with money they never loaned out, and now it time for reload, they are doing the same con all over again because we cannot admit we got scammed.

In this context the Econ 101 graduates are here to tell me that capitalism is not pure enough. We would all be better off if there were less regulation. If everything were legal, like in Heinlein's Hong Kong Luna. The market would take care of everything.

So why didn't Pelosi just tell Henry Paulson -- "Don't come to me, the market will take care of everything Paul."

Some flaws may have appeared, or become apparent to rational observers, of which there may be few or none in USA because too many people have taken Econ 101 and learned the Efficient Markets Hypothesis from Milton Friedman and Burton Malkiel.

Here's what I want to know -- are markets truly efficient? Did Moody's and Standard and Poor's give honest ratings on the Mortgage Backed securities they rated? Did everyone who dealt with Goldman Sachs get a square deal, or know that they weren't getting a square deal? Did AIG get $380 Billion in taxpayer bailout money because Goldman Sachs was a major counterparty, and Goldman had a lot of friends in high places -- like Paulson, and Geithner.

Did the big Wall Street investment houses and banks pay out $700 million in bonuses for the same years performance in which they caused the totaly destruction and almost collapse of the entire US economy -- was that the wonderful and excellent work that they bonused themselves for -- using TARP money -- your money -- taxpayers tax money? Would that be a flaw in capitalism -- or maybe a sign that we don't have pure enough capitalism -- with the really pure stuff those guys could have taken $20 Billion in bonuses, oh heck $50 billion, why not? The average working guy gets what $45,000 per year total pay.

The Econ 101 people can't see anything wrong with that system. No flaws. It's almost perfect. Could be perfect if we just got rid of the remaining rules and made everything legal.

I was reading Heinlein before my interlocutor ever took Econ 101. When she's taken 10% as many courses in economics as I have, she can come and teach me Economics. In the meantime, do you think there are any flaws in American Capitalism?

Update:

How can anarchy possibly be the only moral economic code?

Is it not true that the students of Ayn Rand and Milton Friedman are whackos, plain and simple. Are they not barbarians and revolutionaries who seek to roll back the New Deal and the Federal Reserve System? In what possible way could these people be called "conservative". All they want to do is tear up the rulebook and throw out the entire basis of our economy for the past 100 years. They want Hoover back, and the Great Depression back. They feel they somehow got gypped by FDR and the New Deal. Something was taken from them.

Where did they grow up? In Atlantis? How did they learn about this "No Rules" paradise, from Heinlein?

They are not seeking to "conserve" the country that you and I grew up in. They are seeking to replace it with a very different country that has never existed anywhere -- as Ayn Rand and Emma Goldberg would agree. It's a Pie in the Sky Land of Milton Friedman and his Zealous Lunies. Not USA ever!

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  • 1 decade ago
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    No informed person ever said "the Market will take care of everything" -- perfection is not achievable in the real world no matter what type of economic / political system is used. What economists have been saying since Adam Smith is that the free market is the fairest and most efficient system known, and the only one that is compatible with the ideals of individual freedom and liberty first articulated during the Age of Enlightenment. It has the added benefit of bringing the greatest good to the greatest amount of people, but this is of secondary importance to the moral aspect.

    The problems that came to a head in 2008 had nothing to do with Capitalism or the free market -- they were caused by government interference in the market. In the "mixed" economy that has been developing in this country since the turn of the 20th century, this type of economic crises / collapse was inevitable. Two axioms: 1) if the opportunity for corruption exists, it will occur. 2) if politicians and bureaucrats are making economic decisions, those decisions will be based on how many votes / how much additional power will be gained, not on sound economic principles. These axioms are the chief pragmatic reasons for the free market and against government "regulation" and "control of corporations".

    As for how much money the bankers and investment bankers might pay themselves in a "pure" system -- that is none of your business. An individuals (and hence a corporation's) money is as much a part of them as their physical body, and no person or group of people has any claim on it whatsoever. As for the TARP bailout money, it should never have been paid -- the financial companies should have had to fend for themselves, and the economy and dollar allowed to deflate to its real level. If that had been allowed to happen, we would by now be in an actual recovery stage instead of this illusion created with borrowed and printed money that Barry and his Marxist brethren are calling a recovery. US Treasury Bills and Bonds, once considered the safest investment in the world, are becoming difficult to sell. A fact not known by most Americans is that the Federal Reserve System is holding $3 trillion in securities purchased almost 2 years ago. $1.2 trillion in mortgage backed securities, and $800 billion in Treasury instruments. They cannot hold these forever, and they are certainly worth less than what they were purchased for (how much less is not known). Wonder what will happen to the dollar when they are sold?

    Don't know what economics you have studied, but must have been J.M. Keynes and J.K. Galbraith. It surprised me that you have read Robert Heinlein, because it does not seem you learned anything from him.

    Response to additional details: -- You are correct in saying Rand and Friedman are not "conservative" in today's USA. They and many others (including me) want to get rid of the Federal Reserve System, and every aspect of the New Deal. But we are not whackos or barbarians -- all we want is a return to the Constitution of the United States as written and amended.

  • American Capitalism died the day Fascism started to rule this country...say about 1913 with the creation of the Federal Reserve System.

    When a private bank like the Federal Reserve (Federal Reserve is not a government organization) dictates the cost of money and controls all aspects of a country's currency/ economy-at the request of the government, you have a government that serves corporate interests, not the interest of the people-which is the true definition of fascism.

    The current system of the USA is a global movement to make the rich richer and enslave the general population to debt and indenture them to the power elite who control the worlds wealth.

  • 1 decade ago

    This country has never been fully capitalist. In fact capitalism, a fully free and therefore ungoverned market, has never existed anywhere. Not ever. Never on this planet.

    A free market, one free from all government controls, interruptions, manipulations and all together harassment, would Truly take care of it self. (The market will own it's failures and successes). But as long as Congress has control of commerce, power to levy, tax and harass, we will never get to realize how a free market is the only moral economic code.

    Post Script: Yes, it is true that we are all wackos. Plain and simple,as you have noted. Thank you for reminding me that we wackos have no business on this dignified and well adjusted format :-')

  • 1 decade ago

    That was and continues to be a lie perpetrated by rich republicans to ignore impending threats to our economy and civilization. You would think we should have learned our lesson from the most recent recession and near depression but nope... we're still at it!!

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  • 1 decade ago

    the view that the market will take care of everything is fantasy.....

    The market must have rules and be regulated and the market while being a good thing it must serve society in general. You cannot let crooks run rampant in the market..you cannot let thieves run things, you cannot let the market be monopolized, you cannot let the market be dangerous to citizens' health etc.

    So...what we really want is free market that makes sense and serves society's ideals.

  • 1 decade ago

    Not when every one in authority is a thief. They are thick

    Source(s): Financial Reform wasn't
  • I think we have seen the result of unfettered capitalism. The powerful will take from the powerless until we have a small number of ultra rich and the rest lives in poverty.

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