Capitalism Still A Pretty Good Idea

by James & Miel on October 13, 2008 · 0 comments

All,

From 1877 Websters: Capitalism: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.

There has been a lot of discussion in the news about various rescue plans proposed by the US Federal Government to help prop up the sagging economy. Critics of many of these plans are concerned that some of them may undermine the operating of free markets via intrusion of the Treasury department or other federal agencies. Before arguing for this kind of interventionism, its important to consider what society looses by moving away from capitalism.

1) Capitalism Increases Individual freedom. Economics and politics are essentially intertwined. Its an unfortunately tendency in human society that political and economic power tend to concentrate. Historically this has been the case in Europe, Asia, Russia, and even in the US. Conversely, political decentralization tends to be associated with economic freedom. What this suggests is that, all things being equal, under a capitalist society average individuals are freer to both contribute to society as well as pursue their own interests. In short, capitalism means freedom.

2) It’s efficient. Capitalism makes it simply easier to distribute goods and services. Take for example, a massive city like Los Angeles or New York. Millions of people are able to eat, work and move around largely without direction from anyone. These actions are largely coordinated via markets, that is demand for labor, cars, and leisure activity. The result is an orderly movement of goods and services which both maximizes the contribution that everyone makes and naturally eliminates goods or services that do not serve a useful purpose.

3) It’s self correcting. Capitalist based economic systems have a way of self correcting. One upside to the recent market downturn is that it’s certain many questionable banking practices – zero downpayment loans, highly leveraged borrowing, etc. – will likely be avoided in the years to come. The housing market has also corrected, which suggests that prices may come down to the level that many working families may be able to once again afford a home. While painful, capitalist systems tend to self correct.

4) What about when it doesn’t work? Even when capitalism doesn’t work, it still kinda does. There have been some very serious examples of the failure of capitalist systems to provide for the good of all. African Americans in particular have not consistently benefited from American capitalism. However, there are some signs this is changing. Barack Obama is poised to win the White House, if so, he will be the first African American to be president. Also, there are signs that the African American middle class is increasing. This would not have been possible without capitalism particular breed of economic and social freedoms.

So, the main point here is that with the federal intervention in capital markets, many people are concerned that the actions taken by congress and the Bush Administration will represent a long term shift policy shift away from free markets. Such a shift would indeed be a shame. Despite their problems, capitalist economic and social systems are not without their virtues.

Best,

James

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