Quit picking on capitalism

Posted by admin on Jan 20, 2009 in Issues & Ideas | 0 comments

What if what we truly need is more capitalism? Will this solve our current financial crisis?

In the previous issue, the article “Hello Economy” appeared with the following statement: “We must bail out free-market Capitalism from its tyrannical nature or face worse tyranny still.”

The author of this article claims capitalism is something to be “fixed.” I argue the cause of our present economic crisis is due not to a fault in capitalism, but to capitalism interrupted by government and the socialist consumer.

The financial crisis was caused by the mismanagement of risk. Understanding this simple statement has deep implications that require a change in the way one thinks about work, big business and employee responsibility.

If we are going to argue that the financial crisis was caused by the mismanagement of risk we must define who is mismanaging risk and who is responsible for its management.

The media is quick to assume Wall Street is responsible for the decisions made on Main Street. No one on Wall Street forced consumers to take out second and third mortgages they couldn’t afford. No one on Wall Street forced consumers to leverage themselves to the gills. The responsibility lies – and must lie – with the consumer alone.

We cannot truly believe the consumer is just a victim of “tyrannical free-market Capitalism” or we would have to also believe the consumer is too ignorant to make rational decisions and therefore should not be held responsible. Hitler, Stalin and Castro all held this belief.

Interestingly, six of the eight G-8 nations are deeply capitalist. They effectively support the rest of the world by purchasing the goods foreign countries produce.

According to the CIA World Factbook, the G-8 comprises 58 percent of the world’s production by GDP. Fully 25 percent of the world’s production comes from the U.S. alone. The U.S. supports foreign economies by running a trade deficit larger than the total GDP of the lowest 30 countries combined.
The answer to this problem is not bailout money but rather encouraging people to spend the money they have. Two factors that determine an economy’s success are the amount of money in an economy and how fast that money changes hands within the economy. The economic answer is an increase in the latter.

Capitalism will live to see another day. By its very nature this is true. It doesn’t need bailout money, and it doesn’t need government. Its recovery may be painful and slow, but it is not to be “fixed” by the hands that broke it.