A major new series
The credit crunch has destroyed faith in the free market ideology that has dominated Western economic thinking for a generation. But what can – and should – replace it? Over the coming weeks we will conduct a wide-ranging debate on this dominant political issue of the day.
Analysis: A need to reconnect
The Future of Capitalism: With lavish executive pay, inadequate boardroom expertise and a short-term shareholder focus all blamed for bringing about the crisis, Anglo-Saxon business approaches are likely to face wrenching changes.
Interactive feature: Tackling the credit crisis is a daunting challenge. It will require impressive political leadership as well as concerted international cooperation. In this graphic we explore what connects the 50 people likely to be most influential in shaping the debate about the future of capitalism
The consequence of bad economics
The crash is testimony to the failure of leaders in affected countries. Most fundamentally to blame is their unwillingness to see what markets need in order to produce good outcomes for society.
Astronuc said:The Financial Times has started a new series - The Future of Capitalism - which should provoke a lively discussion.
http://www.ft.com/indepth/capitalism-future
There is also another independent discussion on "Rethinking the Wealth of Nations".
JakeA said:>>>or perhaps it's just more awareness that a 'free market' simply does not exist.<<<
I think this is the case. We don't have a free market system. We have a corporate welfare system, at least in the US. Is there any doubt considering what's taken place in the last few years in the US?
I don't think capitalism is dead. I think from the US perspective, we need to either become more like European social democracies or else go to a truly free market system.
It's the appalling lack of ethics/morality that has undermined the markets/economies, more so than government intervention. Of course, corruption of the government and political process undermine democracy.JakeA said:>>>or perhaps it's just more awareness that a 'free market' simply does not exist.<<<
I think this is the case. We don't have a free market system. We have a corporate welfare system, at least in the US. Is there any doubt considering what's taken place in the last few years in the US?
I don't think capitalism is dead. I think from the US perspective, we need to either become more like European social democracies or else go to a truly free market system. The special interest driven madness we have in the US is definitely not sustainable. Print money and give it to big banks and huge multi-national conglomerates? Yeah, that's working really well.
By who?Astronuc said:I.. What has happened in US and global economies during the last 6 months was expected..
Where in Asia does 'this', no link between capitalism and democracy, happen?misgfool said:... In Asia this works somehow, but the corruption is at atrocious levels.
Hi Jake, please use the quote button at the bottom right of the post(s) you wish to quote, thanks.JakeA said:>>>The link between private/public money and politicians has to be severed, so that they can make independent decisions.<<<
I think there are ways of doing this. We need to start demanding that politicians are accessible to their constituents, not lobbyists. We need to start asking political candidates to take accessibility pledges where they agree to interact with public message board sites and attend public meetings in their districts at least once a month. We should absolutely demand this of elected officials. If they don't agree, vote them out. They should be meeting openly with the public, not privately in their offices with lobbyists.
>>>True, what we have in the West is better than a totalitarian state like the former Soviet Union and Warsaw pact nations, or Peoples' Republic of China under Mao, or Deng, but I think we can and must do better.<<<
I'm much more cynical about this. I've talked to people who lived in the former USSR, and they have way less animosity towards their government than people do right now in the US. Remember, people who post on the internet are not the entire country. Certain segments of the country face a veritable Gulag, with the US maintaining the highest incarceration rates for any nation in history.
We have material wealth, yes at least for the present. But that's not the only way of measuring the success of a nation. Don't get me started on this. I was arguing with a friend of mine how in certain ways Afghanistan under the Taliban was less oppressive than we have now in our techno driven police state. I don't want to live under Taliban rule, but I was using it as an example of certain types of freedoms and liberties that Americans overlook when deciding that we're absolutely free.
By those paying attention.mheslep said:By who?
That's pretty slippery, which would be fine over on PWA, but not here. You made a point blank statement that what happened in US and global economies during the last 6 months was expected.Astronuc said:By those paying attention.
There is no such thing as a "corporate welfare system", that's just a buzzword that people like to throw around for political reasons. People describe any law that benefits a corporation as "corporate welfare", but usually, those laws are just about not taxing a corporation for certain things. Except for certain very specific industries, the government doesn't actually hand corporations any money. And most of those are to benefit individuals, such as with farm subsidies.JakeA said:I think this is the case. We don't have a free market system. We have a corporate welfare system, at least in the US. Is there any doubt considering what's taken place in the last few years in the US?
What an odd thing to say! We should do one of two things, both complete oppopsites? IMO, the extremes have been shown not to work, so we should be looking for something in the middle.I think from the US perspective, we need to either become more like European social democracies or else go to a truly free market system.
Money isn't given to banks either - it is sold to banks. The second part I already addressed.Print money and give it to big banks and huge multi-national conglomerates? Yeah, that's working really well.
russ_watters said:There is no such thing as a "corporate welfare system", that's just a buzzword that people like to throw around for political reasons. People describe any law that benefits a corporation as "corporate welfare", but usually, those laws are just about not taxing a corporation for certain things. Except for certain very specific industries, the government doesn't actually hand corporations any money. And most of those are to benefit individuals, such as with farm subsidies.
The various bailouts of the past year, for example - none of them are just handing corporations free money. Some are loans and some are purchases of company equity. What an odd thing to say! We should do one of two things, both complete oppopsites? IMO, the extremes have been shown not to work, so we should be looking for something in the middle. Money isn't given to banks either - it is sold to banks. The second part I already addressed.
mheslep said:Where in Asia does 'this', no link between capitalism and democracy, happen?
russ_watters said:The various bailouts of the past year, for example - none of them are just handing corporations free money. Some are loans and some are purchases of company equity.
russ_watters said:What an odd thing to say! We should do one of two things, both complete oppopsites? IMO, the extremes have been shown not to work, so we should be looking for something in the middle. Money isn't given to banks either - it is sold to banks. The second part I already addressed.
pentazoid said:Well I think we should have an economy where there aren't that many regulations and not many papers to fill out and it would be easy to open up a business . Our economy should be modeled after Hong Kong's economy. Obviously , an even mixed economy is the product of an economy with a 12.3 trillion dollar deficit like we have currently. What do you mean the federal government only hands out subsidies to farms? According to Cato Institute, in 2006 alone the federal government spent 92 billion dollars handing subsidies to corporations like IBM, Motorola, Xerox, General electric and many other corporations.
Taxpayers are forced to pay the bailout of a failing business and I think that is wrong even if taxpayers are paid back, it is still stealing.
If you will go the the beginning of the "what is wrong with the US economy" thread and start reading posts, you will see that some people (including Astronuc and myself) could see what was coming (or already underway) in terms of recession, over-valued assets, etc, in our country's economic house of cards. Of course, we were routinely ridiculed and nay-sayed by people who believed that the "free market" was working just fine.mheslep said:That's pretty slippery, which would be fine over on PWA, but not here. You made a point blank statement that what happened in US and global economies during the last 6 months was expected.
No, if you want to be technical about it the economic term of art for welfare is 'transfer payment', essentially a check in the mail for which the government expects nothing in return. Transfer payments specifically do not count towards GDP. You can decry specialized tax breaks and over payment brought on buy special interest pleading (I do), but they are not transfer payments.JakeA said:Russ, any below market transaction by the government with private parties is a subsidy according to basic finance theory. That's corporate welfare, and that's what these bailouts are. If you want to call it a buzzword, go ahead. There are plenty of other corporate welfare policies in our government, for instance subsidizing medicare drug purchases instead of letting them trade at market rates. Military spending in its present state is a form of corporate welfare as well. The list is actually quite large.
That echos something Friedman and Kuttner agreed on in a debate about health care some time back, implying that we are in a sorry middle, between a free market system and completely government run one:JakeA said:...
Pentazoid, I agree with you. It would be good to move to a more free market system. It would also be better than what we have to move to a more socialist system like in Europe. What we have right now in America is madness, though. Our "free market" system drove our economy off a cliff and took the rest of the world down with it. It's definitely not working.
http://www.prospect.org/cs/articles?articleId=10764MF: I think in the market system, if people were paying for it themselves, the salaries of doctors would not be what they are today.
...
MF: We have the worst of all of all worlds on that score
RK: I couldn't agree with you more. We have the worst mix of government and private, I could not agree with you more.
MF: We ought to have much more private or much more government.
misgfool said:Hong Kong was special, because trade to China flowed through it. After UK gave it back to China, all that was lost. Hong Kong is a declining city. But this isn't about running a few million people in a special privileged location. It's about running nations populated by several hundred million, geographically spanning thousands of miles, having ethnic colorfulness, strong economical diversity and a strong political divide, which they get from their breast milk.
mheslep said:Nor is carrying that kind of hand waving over outside of PWA acceptable, to my mind.
mheslep said:A lot of broad swipes about how Bush and the neocons were destroying the economy, or how the little guy was falling behind, or claiming crisis and catastrophe again and again without a coherent argument - none of that equates to an identification of the current credit problems and recession set off by flawed risk analysis of mortgage backed securities, $5 trillion of them held by government sponsored agencies. There were some informed observers that pointed out in detail some parts of this problem: the WSJ editorial pages for years attacked massive portfolios of Fannie/Freddie, Greenspan and Bernanke also warned about them; Nouriel Rubini and Nassim Taleb warned in general about leveraging and debt risk; notably Peter Schiffer warned about housing and MBSs. None of these people saw the extent of the linkage between these problems (nor do they claim to now).
JakeA said:>>>The link between private/public money and politicians has to be severed, so that they can make independent decisions.<<<
I think there are ways of doing this. We need to start demanding that politicians are accessible to their constituents, not lobbyists. We need to start asking political candidates to take accessibility pledges where they agree to interact with public message board sites and attend public meetings in their districts at least once a month. We should absolutely demand this of elected officials. If they don't agree, vote them out. They should be meeting openly with the public, not privately in their offices with lobbyists.
What regulations would be abolished, or what regulations are appropriate. Certainly a case can be made, as Reagan did, of simplying the body of regulations, removing unnecessary ones, simplying the paper work, removing conflicts, removing overlapping or conflicting jurisdictions, . . . .pentazoid said:Well I think we should have an economy where there aren't that many regulations and not many papers to fill out and it would be easy to open up a business.
Not sure what your point is with that, but yes, that's true...misgfool said:Maybe, but not all banks are getting it. Only the chosen few.
Yes:Are they really the complete opposites?
http://www.bbc.co.uk/dna/h2g2/A4541041It is generally accepted that there is a bipolar economic spectrum, and it is up to any economy where on this spectrum they wish to fall.
At one end of this scale there is the concept of socialism - largely based on the 19th Century views of Karl Marx. Socialism/Marxism decrees that all resources and welfare are owned and distributed by the state to the basis of who needs them receives them. Socialist economies can also be known as command economies.
The other end of the scale is the economics of British economist Adam Smith (1723 - 1790), that of the free market economy, where the allocation of resources is determined by the 'invisible hand' of the price mechanism. Free market economics is now commonly termed as capitalism, although its true theory is rarely appreciated by those who talk of it.
By "below market transaction", you mean buying a security for a fraction of its book value? Could you cite where you got that definition, because that's not what the word "subsidy" means:JakeA said:Russ, any below market transaction by the government with private parties is a subsidy according to basic finance theory. That's corporate welfare, and that's what these bailouts are.
http://dictionary.reference.com/browse/subsidydictionary said:subsidy:
1. a direct pecuniary aid furnished by a government to a private industrial undertaking, a charity organization, or the like.
I'm not clear on what you mean there - are you talking about the price fixing the government does? That's not a subsidy, that's just a bad decision caused by lobbyist power.There are plenty of other corporate welfare policies in our government, for instance subsidizing medicare drug purchases instead of letting them trade at market rates.
You seem to be defining a "subsidy" as any time the government gives money to any corporation for any reason. That's excessively broad - that isn't what the definition means. A subsidy is free money. Money spent for nothing (direct) in return. When the government buys an airplane (or the stapler on Obama's desk), they pay money for a product. That's not a subsidy.Military spending in its present state is a form of corporate welfare as well. The list is actually quite large.
Yes, things like price fixing and well-targeted tax cuts are special interest favors, but they are not subsidies.I would say our system is "special interest driven."
Turbo-1, we're nowhere near the doom-and-gloom predicted by you and Astronuc and since recessions happen about once every 8 years or so, you can predict a recession for several years and eventually call yourself right when it happens. Of course, when we climb out of it in 6 months or a year and there are no major changes to the structure of the economy, you'll conveniently forget that you were predicting essentially the end of the US economy as we know it.turbo-1 said:If you will go the the beginning of the "what is wrong with the US economy" thread and start reading posts, you will see that some people (including Astronuc and myself) could see what was coming (or already underway) in terms of recession, over-valued assets, etc, in our country's economic house of cards. Of course, we were routinely ridiculed and nay-sayed by people who believed that the "free market" was working just fine.
Fair enough...Astronuc said:I'd like to look forward - as in the 'Future of Capitalism'.
I think blowing trillions to buy up toxic assets and prop up failed banks is pretty bad, especially since all the spending entails debt. If you will look at that thread, you will see some very specific observations that "somehow" just managed to be true.russ_watters said:Turbo-1, we're nowhere near the doom-and-gloom predicted by you and Astronuc and since recessions happen about once every 8 years or so, you can predict a recession for several years and eventually call yourself right when it happens. Of course, when we climb out of it in 6 months or a year and there are no major changes to the structure of the economy, you'll conveniently forget that you were predicting essentially the end of the US economy as we know it.
I don't think its the job of the government to set minimum wages laws or how long a person should work . Those kinds of decisions should be made exclusively between the employee and the employer. An incompetent worker and compotent work should not be paid the same wage simply because they might been working at an entry level job or some fast food joint. I also believe that the federal government has been mainly responsibly for the high surge in food prices lately since many food products are corn based and the government has diverted all the ethanol from food production and has mainly invested the ethanol into financing the production of biofuels , which isn't really good investment since many economists are saying biofuel will cost more than gasoline since it the energy for ethanol based corn is expensive. I don't think we should be handing out loans, grants and subsidies to businesses and businesses that are failing. I think we should let the businesses fail, because they will continue to used the same business models that initially cost there business to fail in the first place. There should also be absolutely no protectionist policies. No government body should prevent a trader within the US not to trade with a trader outside the US , nor should they replace restrictions on certain goods mainly to supposedly " protect" the companies in the united states. That act would be immoral.Astronuc said:I'd like to look forward - as in the 'Future of Capitalism'.
What regulations would be abolished, or what regulations are appropriate. Certainly a case can be made, as Reagan did, of simplying the body of regulations, removing unnecessary ones, simplying the paper work, removing conflicts, removing overlapping or conflicting jurisdictions, . . . .
But what regulations, in general, are appropriate or inappropriate.
What about product liability. Should consumers be protected against harm or industry if a company is negligent in producing a product or misrepresenting a product that ultimately harms consumers? If so, what should be the penalty?
Comparing the Hong Kong economy to the US or EU economy seems inappropriate given the difference in magnitude. Hong Kong (and Taiwan) work because the are set between other much larger economies. HK is an intermediary, and they benefit from low cost inputs and high revenue (compared with input) from exports.
The poverty was there in those countries before government intervention. SA and India used to be colonies, and Ethiopia has limited resources.pentazoid said:Countries where there is a considerable amount of government intervention in the economy, like South Africa , India , and Ethiopia have populations that are in poverty.
After the fact doesn't help the injured. If one causes injury to someone via negligence, shouldn't one expect to be penalized?The public would stop buying the product if it causes harm to its consumers or sue the company if they brought a deadly product.
Astronuc said:The poverty was there in those countries before government intervention. SA and India used to be colonies, and Ethiopia has limited resources.
russ_watters said:The immediate future for the US includes fixing the relatively small structural problem with the banking system that contributed (note: I did not say "caused") the current recession and it's depth. Then sly investors will go back to looking for ways to game the system, finding loopholes to push the next bubble. That's just the nature of the game and the pattern of the last 100 years. Other than that, it'll largely be business as usual.
russ_watters said:I mean for real disastrous. A return to a great depression type economy with no way to recover.
russ_watters said:Along with that is a steady increase in income inequality - let's say 5% a year. Socialist policies are designed to decrease income inequality by slicing off part of that 5% growth rate, giving cash to people who produce nothing, therefore getting nothing in return
russ_watters said:No western countries, afaik, have crossed the line yet, but one that is close is Sweden. The expansion of socialism there has put a severe strain on the economy.
Wiki said:In 2006, Sweden had the world's ninth highest GDP per capita in nominal terms and was in 14th place in PPP terms (2005 figures)[3].
World Economic Forum 2008 competitiveness index ranks Sweden 4th most competitive, behind Denmark.[12] The Index of Economic Freedom 2008 ranks Sweden the 27th most free out of 162 countries, or 14th out of 41 European countries.
russ_watters said:Not sure what your point is with that, but yes, that's true...
russ_watters said:Yes
Astronuc said:I've been meaning to dig up Adam Smith's "Wealth of Nations" and read it so that I know what he wrote, as opposed to what people these days claim he wrote or meant.
I'm waiting for the 'impressive' leadership in the US and various nations and/or markets.
There has definitely been a blow to some peoples' perceptions of 'free market' ideology, or perhaps it's just more awareness that a 'free market' simply does not exist. What has happened in US and global economies during the last 6 months was expected.
Economies of the western or industrialized nations may drift somewhat toward the left politically, but I waiting to see.
I've been making notes on "Rethinking the Wealth of Nations", but that's taking time. I plan to attend a lecture by MIT Professor and Economist Daron Acemoglu on the subject next month when he visits a local university.
Astronuc said:I'd like to look forward - as in the 'Future of Capitalism'.
We have power of our decisions - even if it is not extraordinary power.Phrak said:I don't understand your motive, here. Me, you, and the rest have no power in this game.
That is about all we can expect. We live in an Oligarchy, like it or not, in which the wealthy make the rules and are heavily insulated from the consequences of their decisions. About all we can do is try to conduct ourselves as conservatively as possible and hang on for the ride.Astronuc said:We have power of our decisions - even if it is not extraordinary power.
The current recession does not coincide with the collapse of the financial sector, it is said to have started in late 2007, almost a year before the financial sector collapsed. What caused it was the normal boom-bust cycle in housing prices being worse than normal due to prices that were inflated worse than normal. This is the last remnant of the 1990s "irrational exhuberance". It was a bad housing crash, but the stock market crash of 2000 was big too, but led to only a mild recession. If the mortgage regulations hadn't been too lax and packaging of the bad mortgages into bad investments hadn't happened, instead of a big recession, we'd have a small one.misgfool said:Current recession is significantly deepened by the banking system. That is because they are not lending anymore. But if that was not the case, what did cause the current recession on all sectors and why did it coincide with the collapse of the financial sector?
I suppose that's meant to imply that that can be done again? FDR had a lot of room to raise taxes that doesn't exist today. And besides which, his particular scam (social security) was a pyramid scheme that took a long time to be exposed as such. Now everyone is aware of how big the problem is.Great depression ended because of socialist policies.
It is, because Sweden is one of the more socialist countries in the west and as such is often incorrectly trumpeted as a socialist success by liberals.Is Sweden a common debate topic in the US conservative circles?
That thread started in Sept of 2006, so you're saying you saw the bubble in the beginning of 2005. That's great that you did, congrats. Back in 1999 I bought AMD at 17.5 and sold at 85 in the beginning of 2000. People can see bubbles because the economy is an endless cycle of bubbles and busts. This last one was more pronounced than most. Yes, the housing bubble was a housing bubble. No, it wasn't a fluke that you saw it - lots of people saw it (and who better to see it than an experienced real estate agent?).tubo-1 said:BTW, my wife and I not only saw systemic economic problems coming - we got prepared for them. A year and a half before the "What is wrong with the US economy" thread was started my wife and I were watching real-estate soar to ridiculous levels...
Is it just a fluke that we happened to be right, and that the timing of our moves was right? I don't think so.
russ_watters said:In other words, if the mortgages and mortgage backed securities hadn't been an issue, there still would have been a housing bubble bursting and there still would have been a recession.
