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Capitalism's Fundamental Flaw

forbes.com

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Re: Capitalism's Fundamental Flaw

#31

Post by danteembermage »

yafujifide wrote: post #15
pjkundert wrote: post #4

Perhaps a better title would be "Mercantilism's fundamental flaw". Rand makes few assumptions regarding the inherent integrity of "leaders"; in fact, she assumes no such integrity, and argues for liberty. While we trip over ourselves (as a society) to give up our freedoms and grant ever more sweeping power to "leaders" to save us, we will reap what we deserve -- ever greater examples of waste, bungling, abuse, malinv…

I hate to bring this to a general discussion of capitalism/Rand etc., but I have a question: How is Rand's "liberty" supposed to be provided? It seems to me we already live in a universe where people have as much free will as we ever will. Some people use this free will to restrict the free will of others. Sometimes this is a government, sometimes it's a corporation, or sometimes it's a kidnapper. But what hypothetic…

I think this whole argument implies an interesting normative method for evaluating government policy. Your implication seems to be that restricting some freedoms for some people ends up producing an overall increase in freedom relative to no restriction. The obvious crimes come to mind first but the framework could be applied elsewhere. Take copyright for example, do I have the freedom the control my own creative work however I like, or does the freedom not to have to constantly worry about the source of media outweigh the freedom to control my creations. More succinctly, in a world without copyright are we more or less free? It's not obvious to me.

Singapore is a case in point, freedom not to be caned for minor infractions vs. freedom to walk around relatively safely in a high density metropolis. Again who is more free is not clear.

I think you are wise to suggest there might be "maximal" achievable liberty. Does the culture of society affect the attainable liberty opportunity set? It seems like it must.

Re: Capitalism's Fundamental Flaw

#32

Post by ironsam »

Xichekolas wrote: post #29
pjkundert wrote: post #19

Earlier quoted context omitted.

Central bank money, created and debased at will, vs. Wealth-backed money, intrinsically valued by the wealth that backs it. Freedom to choose money that doesn't inflate allows multigenerational wealth transfer, etc.

I guess I'm curious what "wealth-backed money" is. All money is only a medium of exchange, and is only worth what people collectively agree it is worth. I'm going to take a guess and assume you mean gold, but if that isn't the case, I'm really curious to know. The fact that people collectively agreed that gold was a good form of money has nothing to do with any intrinsic (or god given) value of gold. It had everythin…

There shouldn't be a central bank in the first place. The government should not be a "lender of last resort," nor should it be allowed create a fiat currency and require people to accept it.

Re: Capitalism's Fundamental Flaw

#33

Post by yummyfajitas »

danteembermage wrote: post #28
richcollins wrote: post #21

"Integrity, justice, fairness, work-ethic, excellence--all have fallen prey to greed." Greed is tempered by risk when the government can't save you.

Counterpoint: flash trading. If I can peek at the orders the little guys put in through scott trade and execute a trade before theirs clears, then I can benefit from the upward price pressure that their orders induce. Little risk, no government, hardly "fair". In an ideal world new stock markets would pop up without flash trading and the little guys would flock to those instead but there are huge network effects to g…

You are confusing front running with flash trading. What you describe is front running, and is illegal.

Flash trading is simply trades based on receiving market data with lower than normal latency (usually by having colocated servers).

http://en.wikipedia.org/wiki/Front_running

http://en.wikipedia.org/wiki/Flash_trading

Re: Capitalism's Fundamental Flaw

#34

Post by moron4hire »

"The government has intervened to save many of them, and now, these bailed out banks want to hand out billions in bonuses to their non-performing employees"

So presumes the author that the people who are ostensibly receiving "billions" in bonuses are the same people who pushed this over-leveraging scam. All bankers are equal, none managed wisely.

"And thus, we lose Berkeley Ph.Ds in nuclear physics to hedge funds and MIT computer scientists capable of delivering computing to 6 billion people to derivative manipulation on Wall Street."

So presumes the author that nuclear physics and democratization of computing are more noble pursuits than finance. What he forgets is that mortgage-backed derivatives really did reduce risk for really bad mortgages. This was a phenomenal development, we could get more people into houses while not losing our shirts in the deals. Unfortunately, those same mathematicians weren't the ones employing this great tool that they created. "When the only tool you have is a hammer, every problem looks like a nail." It's not that mortgage-backed derivatives were wrong or evil or bad, it's that they were grossly overused. They reduce risk, they don't eliminate it, so when the scenario in which that risk turned to losses came true, the losses were too much to handle.

But, few people saw the risk for what it was because the Fed suppressed the price of money to lower-than-market rates, explicitly encouraging this sort of speculation. Price floors lead to shortages, this is a basic tenet of Capitalism. Is it any wonder that the entire nation is over-leveraged? Without the manipulation of the Fed, the price of money (interest rates) would have been much higher and this sort of speculation would not have happened.

Re: Capitalism's Fundamental Flaw

#35

Post by AndrewDucker »

darjen wrote: post #26

A fundamental flaw in the article: "The banks, however, are another matter altogether, and this is where I think capitalism has hit a roadblock. The government has intervened to save many of them, and now, these bailed out banks want to hand out billions in bonuses to their non-performing employees. Capitalism gave way to welfare economics, and now the government has to intervene further to limit these looters from b…

Do you have any idea what the current financial situation would have looked like if the government had just let the banks collapse?

Hint: a lot like a jenga tower does just after you take away a vital piece.

Letting the entire financial system collapse might _possibly_ have led to better behaving banks in the long term(although I doubt it, people don't learn). But in the short term it would have cascaded through the entire economy and left the economy entirely non-functional.

Re: Capitalism's Fundamental Flaw

#36

Post by moron4hire »

Xichekolas wrote: post #29
pjkundert wrote: post #19

Earlier quoted context omitted.

Central bank money, created and debased at will, vs. Wealth-backed money, intrinsically valued by the wealth that backs it. Freedom to choose money that doesn't inflate allows multigenerational wealth transfer, etc.

I guess I'm curious what "wealth-backed money" is. All money is only a medium of exchange, and is only worth what people collectively agree it is worth. I'm going to take a guess and assume you mean gold, but if that isn't the case, I'm really curious to know. The fact that people collectively agreed that gold was a good form of money has nothing to do with any intrinsic (or god given) value of gold. It had everythin…

"Hard to counterfeit" is the key point there. The difference between gold and dollars is that dollars are very, very easy to counterfeit. Just get Congress to order more from the Treasury!

Re: Capitalism's Fundamental Flaw

#37

Post by kansando »

darjen wrote: post #26

A fundamental flaw in the article: "The banks, however, are another matter altogether, and this is where I think capitalism has hit a roadblock. The government has intervened to save many of them, and now, these bailed out banks want to hand out billions in bonuses to their non-performing employees. Capitalism gave way to welfare economics, and now the government has to intervene further to limit these looters from b…

Right. And allow the economy to go into a long-term depression with 25%+ unemployment. A government "for the people" does not have a choice in this matter. The real problem is that bankers/speculators have so much power on the outcome for people who are not at all related to the industry.

Re: Capitalism's Fundamental Flaw

#38

Post by billswift »

AndrewDucker wrote: post #35
darjen wrote: post #26

A fundamental flaw in the article: "The banks, however, are another matter altogether, and this is where I think capitalism has hit a roadblock. The government has intervened to save many of them, and now, these bailed out banks want to hand out billions in bonuses to their non-performing employees. Capitalism gave way to welfare economics, and now the government has to intervene further to limit these looters from b…

Do you have any idea what the current financial situation would have looked like if the government had just let the banks collapse? Hint: a lot like a jenga tower does just after you take away a vital piece. Letting the entire financial system collapse might _possibly_ have led to better behaving banks in the long term(although I doubt it, people don't learn). But in the short term it would have cascaded through the…

It could have, but I have seen no evidence to support this. In fact, that is why the econo-blogger Megan McArdle at The Atlantic supported the bank bailouts, because she feared that would happen. But despite reading her blog regularly, she has presented evidence only her (and others) fears about what could have happened.

Re: Capitalism's Fundamental Flaw

#39

Post by moron4hire »

kansando wrote: post #37
darjen wrote: post #26

A fundamental flaw in the article: "The banks, however, are another matter altogether, and this is where I think capitalism has hit a roadblock. The government has intervened to save many of them, and now, these bailed out banks want to hand out billions in bonuses to their non-performing employees. Capitalism gave way to welfare economics, and now the government has to intervene further to limit these looters from b…

Right. And allow the economy to go into a long-term depression with 25%+ unemployment. A government "for the people" does not have a choice in this matter. The real problem is that bankers/speculators have so much power on the outcome for people who are not at all related to the industry.

You write like you have a crystal ball and can see the future. There is no telling what "letting the banks fail" will do for the long term. However, we do know that increasing national debt to the degree that has been done is not good.

Re: Capitalism's Fundamental Flaw

#40

Post by gaius »

darjen wrote: post #26

A fundamental flaw in the article: "The banks, however, are another matter altogether, and this is where I think capitalism has hit a roadblock. The government has intervened to save many of them, and now, these bailed out banks want to hand out billions in bonuses to their non-performing employees. Capitalism gave way to welfare economics, and now the government has to intervene further to limit these looters from b…

these bailed out banks want to hand out billions in bonuses to their non-performing employees

If I worked for a bank, and I had nothing whatsoever to do with its subprime business, and had made a trading profit (or was in an unrelated function like IT and had fulfilled all my targets) then damn right I'd expect a bonus, and I'd deserve it too.

It's interesting to note here in the UK that the 70% taxpayer-owned RBS has just posted record losses, where as Goldman Sachs who repaid their TARP money to the US government, plus interest, as soon as they could is doing good business and paying their employees decent bonuses this year.

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