A recent Reuters article suggests that capitalism is to blame for the financial crisis. That capitalism is on its deathbed. However the current system in the United States is not pure capitalism.
Pure Capitalism is the voluntary and free exchange of goods and services, a free market so to speak. There is a misconception that, taken as a whole, the type of economic system we have in the United States is capitalism. However, sticking strictly to the definition, the United States, although leaning towards free exchanging of goods and services (and apparently drifting the other direction), does not have a completely free and voluntary market.
We never had Pure Capitalism. The type of economy we have is a mixed market, where business and government collude/collaborate, whether with good intention or ill, meddle in the voluntary and free exchange of individuals, creating a forced monopoly in an industry. A centralized entity has created a forced monopoly, in several industries, for example, education, health insurance, and banking (of which I will detail in further posts.) This is known as state capitalism.
Socialism takes the idea of the mixed economy further, rather than just regulating and/or restricting voluntary and free exchange in the market, it attempts to take matters one step further creating centralized control of the market, for example nationalizing (bailing out) banks. Socialism attempts to plan not only the means and ends of production, but also the means and ends of exchange, namely through control of money. It looks as though the United States is getting closer and closer to Socialism, unfortunately.
Saturday, October 18, 2008
Tuesday, October 14, 2008
Nobel but not Noble
A recent letter from past Nobel Prize winners advocates Americans choose Barack Obama as the next president of the United States. Their rational is that the Bush Administration via the Federal Government diminished funds for scientific research. While I do not agree with the policies of the Bush Administration, it is unconstitutional for federal funds to be used in scientific research. Where in the constitution does it say that the federal government is supposed to fund research? Matters of funding research is left up to the States, Individuals, and Organizations, NOT the Federal Government.
The assumption is that these "smart" Nobel Prize winners, the intellectual elite so to speak, are also smart enough to know who to put in power as President of United States. However, just skimming their credentials shows the bias the Nobel Prize winners have, Physics, Chemistry, and Medicine. None from Literature, Peace, or even Economics. Of course these Nobel Prize winners want someone who will pay their salary.
Ideally, all research funds would be garnered via the free market, where businesses, organizations, and individuals will contribute to further research. The Noble thing to do would be to stop all Federally Funds towards Science, and let the market decide which research is worthy of further development.
The assumption is that these "smart" Nobel Prize winners, the intellectual elite so to speak, are also smart enough to know who to put in power as President of United States. However, just skimming their credentials shows the bias the Nobel Prize winners have, Physics, Chemistry, and Medicine. None from Literature, Peace, or even Economics. Of course these Nobel Prize winners want someone who will pay their salary.
Ideally, all research funds would be garnered via the free market, where businesses, organizations, and individuals will contribute to further research. The Noble thing to do would be to stop all Federally Funds towards Science, and let the market decide which research is worthy of further development.
Friday, October 10, 2008
Wednesday, October 8, 2008
The Boom was the Financial Crisis
The actual financial crisis occurred during the so-called boom years. Artificially low interest rates set by the Federal Reserve stimulated borrowing from the central bank itself. This expansion of credit in turn creates an expansion of the money supply. More money created means more money for banks to lend, more money for banks to lend, means more money for individuals to borrow. More individuals with access to cheap money, means that home prices will go up, because sellers want to get the most profit. Although individuals and banks may have appeared prosperous, both were in the midst of a financial crisis.
The caveat is, that since borrowing was stimulated by artificially low interest rates, borrowed investment was malinvested. Capital resources were misallocated into areas which would not normally garner investment if the money supply was stable. Houses are expensive things to be, and got even more expensive with easy money available. Money was used to purchase overpriced houses. In a market driven economy house prices and interest rates would by the market itself, rather than a central bank inducing artificially low interest rates, hence distorting home prices. House price and interest rates would fluctuate regionally, and locally, according to what the market can handle.
Now, how do we end the financial crisis? End the Federal Reserves monopoly control over money and interest rates. Otherwise we are doomed to repeat it again, assuming we can get out of the current mess.
The caveat is, that since borrowing was stimulated by artificially low interest rates, borrowed investment was malinvested. Capital resources were misallocated into areas which would not normally garner investment if the money supply was stable. Houses are expensive things to be, and got even more expensive with easy money available. Money was used to purchase overpriced houses. In a market driven economy house prices and interest rates would by the market itself, rather than a central bank inducing artificially low interest rates, hence distorting home prices. House price and interest rates would fluctuate regionally, and locally, according to what the market can handle.
Now, how do we end the financial crisis? End the Federal Reserves monopoly control over money and interest rates. Otherwise we are doomed to repeat it again, assuming we can get out of the current mess.
Monday, October 6, 2008
Newly Created Position - OFS: Office of Fascism and Socialism
Good bye free market, hello fascism and socialism.
The US Treasury created a new office today via the Bailout Legislation passed last Friday. This new office is the OFS, Office of Financial Stability, otherwise known as the Office of Fascism and Socialism.
The legislation attempts to meddle with the free market, in forcing stipulations on how companies run their businesses, and bailing out companies that are not profitable. Fascism is a political philosophy that exalts nation above the individual, standing for autocratic government with sever economic and social regimentation. Socialism is the governmental ownership and administration of the means of production and distribution of goods. The new office is fascism and socialism rolled into one. Companies are told how to run their business. Companies are given taxpayer money to remain in business, even when their business is failing. It is the epitome of government intervention.
In a free market, no government intervention would be necessary. Companies would have to be smart with their actions and their money, as to remain running and profitable without a bailout. Government bailouts and intervention in the marketplace encourage stupidity with money and actions. In the governments eyes, the failures were caused because of lack of regulation and oversight, hence calling for more more intervention, ie Office of Fascism and Socialism. In reality it is caused by more and more regulation and intervention, and is best solved by laxing the regulation and letting the market solve the problems government has created.
The US Treasury created a new office today via the Bailout Legislation passed last Friday. This new office is the OFS, Office of Financial Stability, otherwise known as the Office of Fascism and Socialism.
The legislation attempts to meddle with the free market, in forcing stipulations on how companies run their businesses, and bailing out companies that are not profitable. Fascism is a political philosophy that exalts nation above the individual, standing for autocratic government with sever economic and social regimentation. Socialism is the governmental ownership and administration of the means of production and distribution of goods. The new office is fascism and socialism rolled into one. Companies are told how to run their business. Companies are given taxpayer money to remain in business, even when their business is failing. It is the epitome of government intervention.
In a free market, no government intervention would be necessary. Companies would have to be smart with their actions and their money, as to remain running and profitable without a bailout. Government bailouts and intervention in the marketplace encourage stupidity with money and actions. In the governments eyes, the failures were caused because of lack of regulation and oversight, hence calling for more more intervention, ie Office of Fascism and Socialism. In reality it is caused by more and more regulation and intervention, and is best solved by laxing the regulation and letting the market solve the problems government has created.
Thursday, October 2, 2008
The Prearranged, Preplanned, and Premeditated Bailout
It is one thing to grant a bailout during a so called financial crisis, but its another thing to prearrange a bailout a year in advanced when markets are soaring. There are two bills that are the "bailout" bills, HR 3997 and HR 1424.
HR 3997 is known as the "Emergency Economic Stabilization Act", however, its original title is "An Act to amend the Internal Revenue Code of 1986 to provide tax relief and protection for military personnel, and for other purposes." HR 3997 was introduced on 10/30/2007, that is right, 2007, that is no typo. Perhaps congress just amended HR 3997 to use as a vehicle for Emergency Economic Stabilization? Let's give them the benefit of the doubt on this one.
Now, let's take a look at HR 1424, which recently passed the Senate. HR 1424 is titled, "A bill to provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes." (emphasis added) That was a mouthful.
The title is concurrent with the bailout theme, however, the timeframe of HR 1424 introduction to congress is NOT current at all. HR 1424 was introduced in 3/9/2007. That is right, 2007, NOT 2008. Nearly a year and half ago! Nearly a year and half before the so called financial crisis. The Dow was at 12,114 and rising. It peaked on 10/12/2007 at 14,093.
This so called bailout has been in the works for a year and half. HR 1424 is not only a vehicle for "Emergency Economic Stabilization", it was prearranged, preplanned, and premeditated even before a financial crisis came to fruition.
Sources:
HR 3997 All Congressional Action:
http://thomas.loc.gov/cgi-bin/bdquery/z?d110:HR03997:@@@X
HR 1424 All Congressional Action:
http://thomas.loc.gov/cgi-bin/bdquery/z?d110:HR01424:@@@X
HR 3997 is known as the "Emergency Economic Stabilization Act", however, its original title is "An Act to amend the Internal Revenue Code of 1986 to provide tax relief and protection for military personnel, and for other purposes." HR 3997 was introduced on 10/30/2007, that is right, 2007, that is no typo. Perhaps congress just amended HR 3997 to use as a vehicle for Emergency Economic Stabilization? Let's give them the benefit of the doubt on this one.
Now, let's take a look at HR 1424, which recently passed the Senate. HR 1424 is titled, "A bill to provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes." (emphasis added) That was a mouthful.
The title is concurrent with the bailout theme, however, the timeframe of HR 1424 introduction to congress is NOT current at all. HR 1424 was introduced in 3/9/2007. That is right, 2007, NOT 2008. Nearly a year and half ago! Nearly a year and half before the so called financial crisis. The Dow was at 12,114 and rising. It peaked on 10/12/2007 at 14,093.
This so called bailout has been in the works for a year and half. HR 1424 is not only a vehicle for "Emergency Economic Stabilization", it was prearranged, preplanned, and premeditated even before a financial crisis came to fruition.
Sources:
HR 3997 All Congressional Action:
http://thomas.loc.gov/cgi-bin/bdquery/z?d110:HR03997:@@@X
HR 1424 All Congressional Action:
http://thomas.loc.gov/cgi-bin/bdquery/z?d110:HR01424:@@@X
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