One would think we would have learned the lesson in 1929. Or perhaps during the savings and loan scandals of the ’80s. Or maybe as late as the Enron debacle. But nope, here we are again: we let the capitalistic system go largely unchecked by regulators (what else can one expect under the Bush administration?), and the Feds (i.e., the taxpayers) eventually have to come in and rescue the supposedly omniscient markets from disaster.
It has happened this past weekend, when the Federal Reserve bailed out (they are not using the term, but that’s what it is) the failing investment bank Bear Stearns, ironically one of the most aggressive on Wall Street. An article in the New York Times by Paul Krugman gives an idea of the cost to the public of this sort of move: $450 billion for the savings and loan bailout of the ‘80s, $3 trillion (yup, with a “t”) for Japan’s post-bubble implosion, and who knows how much this time around (while our economy is not helped, of course, by the tens of billions regularly spent in Iraq).
According to Krugman, however, the prophets of the free market economy are still at it, completely impervious to the facts (most prophets are). Take Alan Greenspan, former chairman of the Federal Reserve and devout follower of Ayn I’m-absolutely-right Rand, the founder of so-called “objectivism.” Despite the financial disaster unfolding in real time, due in large part to predatory (and unregulated) lending practices by unscrupulous operators on Wall Street, Greenspan insists: “market flexibility and open competition [are the] most reliable safeguards against cumulative economic failure.” Really? If those are the most reliable safeguards, I don’t want to find out what the worst ones are!
The bottom line is that free markets work much like natural selection (as was clear to Darwin, and even to Adam Smith, the originator of the idea of the “invisible hand”): they maximize only one quantity (profit in the case of economies, fitness in the case of evolution), and they do so by mercilessly eliminating the competition (“nature red in tooth and claw”). The problem is that we do not want a society where profit is the only criterion: we want stability, quality of life, protection from faulty products, job security, housing. We also don’t want the ruin of countless lives just so that a few robber barons (such as the current CEO of Bear Sterns, who was playing bridge while his company went down the drain) can thrive on our backs.
It is disingenuous, while not downright immoral, to yell to the government to stay out of one’s business when things are good, only to come begging on one’s knees for government help when things turn sour. Wall Street cannot and should not have it both ways. Unbridled capitalism doesn’t work, and we know it. It’s time to stop paying attention to people who claim otherwise because of ideological commitment or because they profit shamelessly on others’ misfortune.
Rationally Speaking: an archived blog about science & philosophy, by Massimo Pigliucci
"The problem is that we do not want a society where profit is the only criterion: we want stability, quality of life, protection from faulty products, job security, housing."
ReplyDelete"Profit" , in the context of how you are viewing it, obviously implies the concepts revolving around Natural Selection, Massimo. If something is profitable it works. That is how it is often explained to me anyway. So essentially unchecked capitalism is NOT THE RESULT of the literal beliefs of the right, it is more so the product of the "kill or be killed" natural selectively interested left. The other things you claim to hope for are long term values which would never rate, (tho they like the effects of them in society) in the world-view of (most) Darwinists.
Profit or benefits of certain actions and decisions should not be determined by what we see right here and right now. That is what gets us (both right and left)into trouble.
America and other European countries that do not value family (most and especially the elderly and children) deserve to go down. They deserve to go down because we they don't understand the link between this: "stability, quality of life, protection from faulty products, job security, housing." and the ultimate kind of protection of the most vulnerable of our citizens.
If the right concedes to any actions that make persons who 'produce less' in our society less valuable, then both the right and left are guilty.
If you are legitimately concerned about this, M, it is time to rethink your values and where they come from.
cal
Former Labor Secretary Robert Reich wrote about the danger of decoupling captitalism from democracy in Supercapitalism. I highly recommend it.
ReplyDeleteI wrote a review of it recently, for those interested. (Actually, I wrote a draft, got tired and posted it without further revision.)
Reich's blog is a good source of info on this stuff, too. What's more, he's also chosen the same layout that we have!
Maybe I didn't miss cal as much as I thought I did.
ReplyDelete"Profit" , in the context of how you are viewing it, obviously implies the concepts revolving around Natural Selection, Massimo......"
ReplyDeleteCal,
I think you are missing some essential ideas in what Massimo is writing here. First, when one takes the position of "Darwinism" as a framework for understanding biological evolution, one is not neccessarily taking the position that these processes are desirable and beneficial for organizing a society. Just the opposite in fact. Which is exactly what Massimo is arguing here.
Natural selection in nature is a brutal fact. It is up to us as thinking and acting human beings to let analagous processes corrupt our society.
So before you start pontificating about Massimo re-examining his values, maybe you should attempt to really understad what he is saying.
"America and other European countries that do not value family (most and especially the elderly and children)...."
And how can you be so confident that this is actually the case?
Cal just doesn't have a problem with making stuff up. That's basically all that it comes down to.
ReplyDeleteCal said:
ReplyDelete"So essentially unchecked capitalism is NOT THE RESULT of the literal beliefs of the right, it is more so the product of the "kill or be killed" natural selectively interested left."
You can't be serious! This sentence illustrates clearly how you don't understand Darwinian evolution, or Social Darwinism (it's different!), or natural selection, or the political left. Why exactly should we listen to your uninformed opinion?
The only problem with libertarian/lassaiz-faire capitalism enthusiasts personfied by Ayn Rand followers is that, in order for the system to work, EVERYONE has to have absolute integrity coupled with enlightened self-interest (as opposed to narrow-minded greed) and long-term vision (as opposed to short-term gratification). Maybe such people exist in Miss Rand's novels, but her (and her followers) mistake is to think such men exist in the real world.
ReplyDelete--gary l. day
MP, you are either woefully unaware of current libertarian thinking or you are deliberately misleading your readers. Under Libertarian policies there would be no government bail-out of these companies. The mere fact that we have the kind of government that exists with the 'Fed' to print as much money as they want makes it possible for these companies to become either careless or ruthless knowing that they can turn to Uncle Sugar for that bail-out. A Libertarian government would hold the fat-cat executives responsible for the "damage" to the investors. There would be no wealthy CEO's walking away with their golden parachute... they would be responsible for repaying losses incurred by their cupidity. And there would be no taxpayer money going to any of those companies at any time.
ReplyDeleteRemember:
"A government that is big enough to give you all you want is
big enough to take it all away." - - Senator Barry Goldwater
I would argue that it is the Federal Reserve's manipulation of the economy that leads to the boom/bust cycle, which they manipulate for the benefit of themselves and their rich cronies.
ReplyDeleteScott, you can argue that, bu I suspect you would be wrong. A "natural" economy would probably go through even more extreme cycles, just like natural populations do (to continue the albeit imperfect analogy with natural selection).
ReplyDeleteDie Anyway, it doesn't matter what the word would be like in an ideal libertarian universe (whatever that may be), what I'm talking about is people who scream "get the government off my back, I want a free market" and then turn around and beg the government for bailouts because they can't handle it. Those are the facts, as we are seeing now.
Yeah, that's what I call the socialist capitalism (or would that be capitalist socialism?): the profits are private, the losses are everybody's...
ReplyDelete"also don’t want the ruin of countless lives just so that a few robber barons (such as the current CEO of Bear Sterns, who was playing bridge while his company went down the drain) can thrive on our backs."
ReplyDeleteI hear he was most distressed that his team lost in Detroit... no mention made af the debacle to come. It could not have happened to a more miserable guy!
What are some good accounting, finance and economics books?
ReplyDeleteRegarding the exchange between Die Anyway and Massimo.
ReplyDeleteDie Anyway refers to the philosophical-ideological Libertarians, some of who are members of the Libertarian Party. They believe in this model of unregulated capitalism, and letting the free market take its course. They believe it will just work out fine, but it will actually lead to countless disasters.
Then there are the sunny day libertarians, pragmatists who inhabit the business class and work primarily through the Republican Party. They are all for the free market and anti-regulation when it is in their interests, but are all for regulations and bailouts when it serves their interests.
Sheldon: "Die Anyway refers to the philosophical-ideological Libertarians, some of who are members of the Libertarian Party. They believe in this model of unregulated capitalism, and letting the free market take its course. They believe it will just work out fine, but it will actually lead to countless disasters."
ReplyDeleteI don't know if that's necessarily true. Massimo is certainly correct to castigate the "pragmatist libertarians" (to use your terminology) but the reality is that these people are *not* ideological libertarians, even if they may mislabel themselves as such. The notion of begging the government for bailouts is simply outside libertarianism.
And I believe that there are few if any libertarians who actually promote truly unregulated capitalism. Most libertarians (of my acquaintance, anyway) believe that one of the legitimate purposes of government is to ensure that trade between individuals is open and fair (that's a basic assumption of capitalism). You cannot achieve that sort of infrastructure without some level of government regulation. The debate is over what *types* of regulation and other such specifics, not whether we should have regulation at all.
Bill,
ReplyDelete" Most libertarians believe that one of the legitimate purposes of government is to ensure that trade between individuals is open and fair. You cannot achieve that sort of infrastructure without some level of government regulation."
But that seems to me to seriously undermine libertarianism as a distinct position. I agree with you, however: there is a continuum between libertarianism and social democracy, and where one falls on that continuum is largely a function of how much intervention the government can make in social lives, and in what areas. It isn't a matter if yes or no, which means that any shouting of "get the government out of my life" is sheer nonsense. One might as well live in the jungle then.
MP: "But that seems to me to seriously undermine libertarianism as a distinct position."
ReplyDeleteThere is a sense in which I agree. I think that libertarian ideals can be compatible with a variety of viewpoints and I'm not wholly convinced that "libertarian" represents any more of a coherent position than "atheist" does. IOW, libertarians seem to agree on some basic principles, but there appear to be many variations.
MP: "I agree with you, however: there is a continuum between libertarianism and social democracy, and where one falls on that continuum is largely a function of how much intervention the government can make in social lives, and in what areas. It isn't a matter if yes or no, which means that any shouting of "get the government out of my life" is sheer nonsense. One might as well live in the jungle then."
Well, in my experience when people shout, "get the government out of my life" they're usually referring to what they regard as unjustified government interference (such as nanny-state laws regulating personal behavior) rather than desiring an end to all government, but yes, I'd agree with your evaluation of anyone who actually means ALL government. One of the core principles of libertarianism (if it can be called an "ism") is that there is a legitimate purpose for government: to protect individual rights. That necessarily involves some level of government regulation and intervention; the question isn't "yes or no", but "when and how much" and libertarians should be on the side of "infrequently and as little as possible", but to argue "never" is just loony (IMHO). As Thomas Paine put it, "That government is best which governs least."
It is ironic that the article now following this one is about Chaney's incompetence.
ReplyDeleteWhenever some problems happens it the markets (as stochastic processes, problems WILL indeed happen) the kneejerk reaction is 'we need more regulation'. If the regulation could be the product of an (alas mythical) all knowing and all wise deity, that would be true. But governments, alas, are far from that description, and are even less to be trusted because they manage to maintain their monopoly by violent control.
In a real free market (which US conservatives don't want) there would be no bail outs, no tax breaks, no government involvement of any sort, other than legitimate enforcement of contract law. Inept companies cannot stand for long in such an environment.
Market's aren't perfect. They are not truly optimum, since they rely on local optimization. However they far exceed the performance of the alternative, management through (partially corrupt) bureaucracy.
It sounds good in theory, but in practice we have actually seen totally unregulated capitalism. In 1892. July 5. Homestead strike. Involving capitalists Andrew Carnegie and Henry Frick. Who claimed to be pro-union, and would negotiate with the workers as equals... privately they sought to destroy the union and workers.
DeleteRam wage reductions down their throats. Hired the national pinkerton defense agency aka the free market police to terrorize and oppress the workers. We saw the mafia-styled justice of unregulated robber baron capitalism, as the pinkertons did not care that Frick and Carnegie broke their contract with the amalgamated association of iron and steel workers. They were paid by Carnegie to enforce his unaccountable private tyranny, that's what they did.
Totally the free, unregulated market. No way to blame the gubburnmint, or socialism, or statism for any of that. To me, that doesn't exceed alternatives. That's obviously the worst alternative there is.
"Market's aren't perfect. ... However they far exceed the performance of the alternative, management through (partially corrupt) bureaucracy."
ReplyDeleteReally? I wonder how you know that, considering that there hasn't been any such experiment in the history of human kind. Could it be faith?
"That government is best which governs least."
ReplyDeleteCarrying this to its logical conclusion, the very best government would be no government at all.
But I don't think that's what Paine (Jefferson? Thoreau?) had in mind.
Massimo, I guess that when the anonymous said that "markets (perform better than) management through bureaucracy" (s)he was not referring to anarcho-capitalism. There are many examples in the book "Against Intellectual Monopoly" by Boldrin and Levine in the context of patent/copyright regulation, where we see cases of decrease in innovation (e.g., as measured by the Total Factor Productivity) after government control.
ReplyDeleteWe also have many examples (closer to what you ask, I assume) of dictatorial regimes, where the bureaucracy prevents (among other things) economic growth.
I don't know anything about politics (or economics), but I doubt that the political parties have any authority over the ideals they should defend. In other words, the Austrian economic school goes beyond what some American party may claim, in the same sense as the democracy and the res publica are not constrained to their homonymous American political parties.
Left extremists in South America [1] claim that the "true socialism" was never experienced, and for that it should be tried. The same excuse can be used to any political platform, without endorsing or refuting it.
In my personal opinion, faith is exactly what policians ask of you, with larger governments demanding more faith.
[1] you can google them as "bolivarianismo do siglo 21" or "foro de sao paulo"
A market economy is only going to work if bad business decisions actually lead to losses. Have you considered that the problem is with the bailouts -- not the markets?
ReplyDeleteOf course not. Establishment liberals like Krugman fancy themselves as the all-wise planners of the economy. Why, if smart guys like Krugman ran the show there would never be business cycles again. Pfft!
I'm with Massimo on this. I think we need capitalism because humans are evolved such that pure utopian socialism cannot possibly work. I also do not think that government should own all industry.
ReplyDeleteHowever, corporations must be regulated within an inch of their so-called lives. Corporations are tools, like hammers. They are not actually lives. They should not influence our politics and be exempt from our laws, as they currently are.
They should have to follow laws even more strictly than humans precisely because they are tools to serve humans. We have given them rights to pollute and kill in ways that no human is allowed to do. And yet, corporate executives who take horrific actions that affect the lives of millions are not held accountable at all.
We do not have a free market. Corporations whine to the government for an ever increasing piece of the pie at any cost to real human lives and livelihood. They get corporate welfare, including from government agencies including the likes of the Export/Import Bank whose sole charter is corporate welfare.
It is time we accept that free market capitalism is a fallacy, and a dangerous one at that.
Corporations require regulation to stay healthy for themselves and to serve humans rather than enslaving us.