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Capitalism's Fundamental Flaw

forbes.com

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Re: Capitalism's Fundamental Flaw

#51

Post by dantheman »

KirinDave wrote: post #43
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…

I wouldn't say that was the main thrust of the article, by any means. You take one sub-point amongst a set of much larger and more important points and mine it out and claim that yet again, government intervention has proven useless. Her main points, for those who will tl;dr the article and take your post for granted: 1. People do not always act in ways that are inherently good, either in an ethical sense or in a sen…

Inventing something by itself does not create value, to create value it must solve a problem. If you invent something,self funded it, and then take it to market you will be incredibly rich.

Re: Capitalism's Fundamental Flaw

#52

Post by dantheman »

gaius wrote: post #40
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 ha…

Goldman may have repaid their TARP payment, but they received a crazy amount of money through the AIG bailout. The amount of government flowing into these institutions is astronomical, and almost all of them should have entered bankruptcy -- had their assets sold to firms that were responsible.

Re: Capitalism's Fundamental Flaw

#53

Post by sethg »

moron4hire wrote: post #36
Xichekolas wrote: post #29

Earlier quoted context omitted.

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!

Expansion of the money supply is not "counterfeit" money, although there are circumstances where it is a bad idea. Counterfeiting is when a private citizen decides to, as it were, expand the money supply with his or her own printing press.

Re: Capitalism's Fundamental Flaw

#54

Post by lutorm »

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.

It seems the trouble with this idea is roughly the same reason that it makes economic sense for poor people to not have car insurance. You're playing with other people's money, and it's an asymmetric risk situation: when your bet doesn't pay off you do not have to pay the entire price, because you don't have it. So it makes economic sense to subject yourself to long-term risk for short-term profit because if/when the crash happens you're not able to pay for the damage you did even if you were liable for it. (As opposed to now when money made is safe, at worst you can be fired.)

Re: Capitalism's Fundamental Flaw

#55

Post by dantheman »

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'll say we haven't reached maximal liberty, all one has to do is look at the drug war, education, and medicine. You'll quickly see limitation on your liberty.

The way things are better is when people are free to choose what they want through voluntary interaction without force. If I want certain standards for a school or a doctor, I seek those out -- If I want to go to witch doctor that's ok too.

I'd highly recommend Nozick's Anarchy, State, and Utopia if you're interested in this question.

Re: Capitalism's Fundamental Flaw

#57

Post by sethg »

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…

Banks, more so than most enterprises, are stepchildren of the state. You can't charter a bank without "government intervention", because a bank's stability, and hence its ability to attract depositors, depends on things like access to credit from the government (the Federal Reserve, in the US). The question is not "government intervention" vs. "no government intervention", but rather what kind of intervention is in the best interest of the public.

Re: Capitalism's Fundamental Flaw

#58

Post by dantheman »

fnid wrote: post #14
jamesbressi wrote: post #3

Earlier quoted context omitted.

If you don't mind me chiming in, I think the lesson is that there really is nothing that can be done to curb it. Why? Two reasons. First, every time we create legislation, laws and other governing to something, the problem either gets worse or creates a whole new set of issues. The problem becomes a snowball -- you can look at the examples there to see some of this. Second, the saying that goes something like "locks…

I would suggest that it was an elimination of a lot of laws regarding financial transactions and regulation that enabled the recent decline. The removal of these laws enacted to prevent a recurrence of an historical collapse, did in fact bring another collapse, so pragmatically, I would say laws help.

We are more regulated now than we've ever been before. All this talk about deregulation, though real in some cases, often just meant a decline in the rate of new regulation.

When there are less regulations people take interest and make sure things work correctly. For instance, when opening a bank account most people don't do much research because they're all FDIC insured -- who cares what the bank does with your money. Without that insurance you would care.

If we removed financial regulations, the markets would radically reform and lots of small individual investors would get out -- either into mutual funds or some other managed investment.

Re: Capitalism's Fundamental Flaw

#59

Post by danteembermage »

yummyfajitas wrote: post #33
danteembermage wrote: post #28

Earlier quoted context omitted.

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

From the articles: "Front running is the illegal practice of a stock broker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers."

"Flash trading is [when] certain customers are allowed to see incoming orders [30 milliseconds earlier] than general market participants, ... in exchange for a fee. ... Traders ... can conduct rapid statistical analysis of the changing market state and trade ahead of the public market."

So this is not front running, there are no brokers involved for one, and the trades in question already occurred. However if NYSE takes X milliseconds to execute a trade and BATS can fill my order in Y "Automatic programs began issuing and canceling tiny orders within milliseconds to determine how much the slower traders were willing to pay."

http://www.nytimes.com/2009/07/24/business/24trading.html

Re: Capitalism's Fundamental Flaw

#60

Post by chrischen »

I though it was quite obvious captialism provides only incentive to increase profits, and that it does not necessarily correspond with an incentive to make better profits.

Consider communism, ideally no one will worry about financial gain and everyone focuses on self actualization and innovation (because there's no monetary incentive, so only the truly altruistic thrive). However there's yet to be an implementation this ideal.

It's probably impossible to achieve a perfect system, so I think the answer lies in a more perfect balance of capitalism and communism.

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