08 November 2010

"Saving" capitalism

[I wrote the following in response to a friend who posted this article on his Facebook page. I apologize for the lack of annotated links in this post.]

The article starts by blaming Bush for a declining market. That's not really fair. Obama is doing exactly what Bush was doing when he left office (stimulus/bailouts). That is, if Bush had been President for two more years, the economy would likely be in the exact same place it is today. 9/11, coupled with the bursting tech bubble, is what originally sank the economy. Greenspan then held interest rates down, and the Dow Jones was back up to around 14,000 in late 2007. (How's that for one-sided reporting on the author's part... only pointing to the Dow at 8,500 on Bush's last day.) Greenspan's plan backfired, though. The low interest rates created a bubble in the housing market leading to all kinds of crazy gimmicks on the banks' parts. These fell apart in late 2007, and the market tanked again.

In response, the government began bailing out banks, the auto industry, anyone who could get get their hands into the proverbial cookie jar. Bush and Obama both did it, and it was a bad idea both times. Neither of them "saved" capitalism. The problem is that neither of them (or anyone in the government) has the backbone to let capitalism do its job. Capitalism means failure for those who can't compete and for those who do it fraudulently. The bailed out auto companies fall into the first category; the banks and insurance companies subsidizing their schemes fall into the second. Of course GM and Chrysler are making cars again! The government gave them the money to do it, and the government did it because it was politically better to try to save jobs (or at least that was the thinking at the time). Nothing about that investment other than the perceived political upside was a good thing at the time. To argue now that the fact that the government made (or possibly will make) money means the investment was a good one is to argue that the ends justify the means. That is the last argument anyone should apply to the state in any of its dealings.

The problem with the economy now is that Bernanke is making the same mistake(s) that Greenspan made. He's holding interest rates down at zero. (Remember the housing bubble? Why does no one see that Bernanke's cure is actually more of the poison?) Bernanke's got huge problem, though. The low interest rates aren't working. Banks are hoarding the cash because they still have more toxic assets on their books. What's his solution? He's turned on the printing presses and is using the new money to buy U.S. Treasuries in the hopes of bringing down long term interest rates. He claims he can do this because inflation is tame. That's because banks are hording the cash he's printing. Gold is continuing to rise in price, though; the market knows what is going on. Look also at other commodities like cotton, oil, etc. They're fairly stable now, but that's because producers hedge their bets by buying futures. Come Spring/Summer of next year, prices of those items are going to skyrocket (the same effect could probably be achieved by banks finally beginning to lend again all at once), and Bernanke won't be able to stop it. He can't raise interest rates like Volcker did, because unemployment is already high. (Volcker had the luxury of being able to drive unemployment up with interest rates so he could tame inflation.) The other alternative is that China stops buying up U.S. Treasuries (it's already making noises about doing that very thing) or the entire market just loses faith in the entire system (i.e. the government's ability or intention to repay its debt). When, not if, one of those things happens, the economy is going to collapse, not just tank. Think hyperinflation like in Chile in the 70's.

Yes, it would have been bad if the government had not intervened in the economy, but the government's "saving" of capitalism makes each attempt by the market to flush out the bad stuff even worse than the previous one because it (the government) won't actually let the bad stuff be flushed out. The government isn't saving capitalism. It is destroying it by making everyone think that what we have is capitalism.

[Here are some other witticisms that I sprinkled later on in the thread.]

In response to a comment that Democrats lost the midterms because Obama/they failed to get the message out:
Getting the message out is not leadership. It's politics. And we don't need either.
And in response to a comment that Americans "got it right" in this most recent election:
Americans never get it right in any election. The government keeps getting elected.


  1. your writing is brilliant - good luck on your new life.

  2. I live in Michigan, and trust me, the auto bailout was a JOB SAVER.

    We have been in a recession here since 2006. We ALREADY took our lumps for the folly of the auto companies in the form of mass layoffs, benefit cuts to retirees, lost jobs due to said mass layoffs, and the whole pipeline of bad that local cities and the MI State government has had to deal with. We have been diversifying our economy in MI for years. We have been making due with less than other states, both in Federal dollars, AND we get "red-lined" by Wall Street banks, who were SUPPOSED to LEND OUT the "tarp" money.

    American cars in the 2010 and 2011 model years are the safest, cleanest, most advanced vehicles in the world. A $40,000 Ford Taurus SHO is faster and more fuel efficient than a BMW that costs $55,000 or $60,000. GM and Chrysler FINALLY have good products that are getting high ratings in JD Power.

    Most importantly, we are getting jobs. Ford, of course doing the best, but GM just announced 600 new jobs in Lansing, and we are seeing other growth from "stimulus" money. We are getting high-tech battery factories, high-speed rail money, and (hopefully) a mass transit system for Detroit and nearby suburbs.

    Since Obama is in office, things are FINALLY turning around. People have been desperate here in MI, but we have already braced for this disaster YEARS before the rest of the country even saw it coming. Now that jobs are coming back, it's like putting a half-dead fish back in the water. We are just happy some one cared enough about our state to actually send help!

    Tighten your belts, folks. "capitalism" has outsourced most of our jobs to other countries. Foreign Currency, Overseas companies, and Stock buy-backs are ALL more profitable to the rich than actually HIRING Americans. We would be HAPPY with 9% unemployment in MI, we are glad that we are heading to less than 13 percent!

    I hope you learned your lesson about the TSA - The Neocons who CREATED that monstrosity are to blame. If Obama would have cut the program, we might have had a terrorist attack and all the right wing bloggers would be bashing him for being "soft on terror." There are NO good solutions to national security, just a bloated bureaucracy that takes away the rights of Americans.

  3. Notice that this previous "anonymous" commenter simply focuses on his special interest (Michigan auto-industry) and misses your entire point on identifying what Capitalism actually is.

    For the most part, I agree with this post, however right at the end you inject the small "Yes, it would have been bad if the government had not intervened in the economy" to which you kind of end up being a hypocrite.

    Capitalism is antithetical to government intervention, so if we follow your logic before you say that, it actually would NOT have been worse. Misallocation of resources would have been even more efficiently corrected if the government had not stepped in. Things would be better.

  4. Americans never get it right in any election. The government keeps getting elected.

    Agreed ...

    When the result is exactly the same for A or B, how can one hope for "change"? It's all an elaborately staged "play" for the children to believe in.

  5. I think it's amazing how you and other bloggers like you know more about what's really going on, and how to fix things then the thousands of highly educated officials that are in the position to do something.

    Your a Monday morning QB at best. You like to whine and complain and decry how this singular government is somehow oppressing you. I know many many like you. Lots of hot air.

  6. "The problem is that neither of them (or anyone in the government) has the backbone to let capitalism do its job. Capitalism means failure for those who can't compete and for those who do it fraudulently."

    Eep. Letting Capitalism do its thing without any opposition leads to things like company-store wage slavery, toxic materials, and essentially every crappy thing you've heard about stuff being made in China right now or the lifestyles of the working poor from 1790-1910. Capitalism is concerned only with profits and generally with immediate profits, with all other considerations secondary, and letting it run loose in the expectation that the "Invisible Hand" will produce beneficial results is like responding to a vampire with a shrug and a comment like, "Ah, he'll fill up eventually." The collapse of that thing that was calling itself Communism in the Soviet Union only proves that Capitalism with a certain amount of Government oversight is a less stupid system, not that it's a good or even really functional one.

  7. everybody, with only common intelligence, who is paying attention comes to the same conclusion as johnnyedge. it's not that elected officials are dumb -they're corrupt! highly educated -not necessatily. in bed with wallstreet? for sure.

  8. Johnny Edge needs to research the 'Community Reinvestment Act' which repealled the Glass Steagal Act and created the financial banking incest which was illegal - until ACORN convinced Clinton's cronies that traditional lending to people who have proven credit was racist, and everyone (even subprime roach credit) deserves a home loan with stated income loans, which used to be reserved for the best credit self employed.

    Capitalism is as simple as investing a hundred bucks of 'capital' to buy lemons and sell lemonade. Free market entreprenuerialism belongs to the individual, and should not be confused with banking incest, or union failed corporations. Any individual can be an honest profit making owner/operator in the USA.

    GM was bailed out because if it failed, the AFLCIO's autoworker pensions would end overnight. Union pensions going broke would have proven that socialism does not create wealth, and can't be sustained.

    I remember the early to mid 90s very clearly and I voted. I can't remember anyone else (besides me) caring if GATT and NAFTA passed, and when it did, people were happy to buy cheaper at Walmart, instead of supporting their own USA domestic manufacturing work force. It took about 15 years for Global trade to incurably infect the dollar. The USA can still compete globally if its work force is willing to work for $1.75 an hour.

  9. Sounds a lot like Peter Schiff. :)



  10. Your piece demonstrates independent thinking and use of good judgement. There are a couple issues I'm surprised you didn't mention as being catalysts in the overall financial crisis: Fannie/Freddie/Ginny and the government's refusal to control these agencies in the interest of "affordable housing." The corrupt nature of the auto bailout, the fact that the US gov't will not make money on this (even after GM's IPO it is estimated that the US Govt will still own close to 50% of GM. The bailouts pandering to UAW, demonization of US franchise dealers and the effect their closings had on local economies and unemployment. The Chrysler bond issue, whereas bondholders were labeled as "speculators" and said to be greedy when the govt forced a deal that required them to accept less value than creditor rights would normally grant them. And finally, the govt's refusal to address GM's unfunded pension liabilities ($500bn) is a legitimate cause for concern after what we saw with UAW and the Chrysler bondholders.

    While these simply elaborate on your piece, they further validate the consequences of government's failure to allow capitalism do it's job. What may have been good intentions have resulted in mistrust and a framework for a very slow economic recovery.

  11. The Michigan author defending the bailouts should look deeper into the root of the issues faced by the state, and particularly Detroit. Why is it, that after decades of democratic government, social welfare, stimulus spending, etc. has all of this failed to save Michigan from itself? Looked at with an open mind, one can see many of the failures are the result of years of democratic government and a greatly reduced belief in any sense of personal accountability.

  12. The MI author stated: "Overseas companies, and Stock buy-backs are ALL more profitable to the rich than actually HIRING Americans."

    This kind of thinking is the problem. A company and its owners are in business to make a profit. They are NOT in business to provide jobs to workers, offer health insurance, paid vacations, union benefits, retirement programs, ans other so-called benefits that are looked at by many as entitlements. Without profits, the organization will cease to exist.

  13. Hey man, I was glad to see you stand up to Big Stupid in the airport there, and I'm even more glad, upon finding your blog that we see eye to eye on a lot of other stuff too!

    You deserve the title of "Punk Patriot" more than I do!

  14. Bravo. Well Done. I am SO proud of what you have done. You are a treasure to your generation! You have my support 100%. Now if we can get EVERYONE to record their encouters! Iphone user's unite!!!

    Computer Engineer

  15. Dear Mr. Tyner, I heard of your bravery after I was subjected to the intrusive TSA exam. I froze, but felt humiliated. Thank you so much for reporting on this invasion of our personal privacy and our American rights. Keep on fighting. Linda Mehren mehrenoak@aol.com


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