"The Future of Capitalism" - Capitalism Could Fail

President Obama: Neo-Marxist The topic: "The Future of Capitalism." Time magazine, to discuss this, assembled a "stellar cast." One such "honoree" works as a Public Broadcasting Service/National Public Radio host. The tax dollars produced by the capitalism he criticizes help pay his salary. (The irony was apparently lost.) At least other "business roundtable" panelists -- commentator/publisher/author Arianna Huffington and singer John Legend -- make their money the old-fashioned way, by enticing consumers to buy what they sell. "I don't think that left to its own devices," the taxpayer-supported broadcaster/pundit said, "capitalism moves along smoothly and everyone gets treated fairly in the process. Capitalism is like a child: If you want the child to grow up free and productive, somebody's got to look over the shoulder of that child." Good grief. Every dollar spent by government is one less dollar spent by taxpayers. Money comes from somewhere -- taxes, borrowing (taxes on layaway) or printing, which, if not offset by productivity, causes inflation, a stealth tax on everyone. Who can spend, save or invest more efficiently and humanely, you or some tenured bureaucrat in D.C. who's never run so much as a hot dog stand or lent himself out as a United Way volunteer? Private enterprise is the most proficient job- and wealth-creating "system" ever designed. But many, if not most, Americans think only government can and should build and run "infrastructure" and that government "investment" creates jobs of which the private sector is incapable of creating. Really? People point to President Dwight D. Eisenhower's construction of the interstate highway system. It is, they say, an example of both an appropriate and productive federal government expenditure and an obviously legal role of the federal government necessary to spark economic growth. In the early 1900s, a businessman, Carl Fisher, owned the Prest-O-Lite headlight company. He organized an association to finance coast-to-coast paved roads so that motorists could drive both day and night, ideally using his headlights. The association soon disbanded, when Congress passed the Federal Road Aid Act of 1916. What would have happened had government not built an interstate highway system? A consortium of truckers/gas stations/hotels/motels/roadside restaurants would likely have built one with their own money in order to make more money. They would have charged tolls for maintenance. Motorists actually using the roads would bear their costs. Private business built the first leg of the New York subway system. And it made money -- at least before local government used taxpayer money to build competing systems and undercut the fare charged by the private operator. Tax dollars hid the true cost, allowing the city-owned service to charge less. Ultimately, the private operators sold out to the city. Did Eisenhower have the constitutional authority to build the interstate highway system? Yes, but not to improve economic development -- and he knew it. In fact, the official name of the interstate highways is the Dwight D. Eisenhower National System of Interstate and DefenseHighways. Ike argued that the country needed paved highways to move missiles around to protect the country. From a military standpoint, the argument was dubious. Missiles could be launched from fixed positions, as technology continually increased range, speed, accuracy and power. The Founding Fathers identified a handful of allowable federal duties, not least of which is national security. But what about economic development? President James Monroe cast his only veto when Congress appropriated money to expand the Cumberland Road -- even though the road went through and would have helped his home state of Virginia. The Constitution, said Monroe, prohibits spending money for this purpose. Rather than expanding "entitlements," they must be dealt with -- and eventually ended. What about selling land (the fed is by far the largest landholder) and using the proceeds to pay for current and near-term obligations to Social Security and Medicare -- with a view toward complete eventual privatization? What about private charity instead of Medicaid? What about a free market approach to making health care more accessible and affordable? This means IRA-type accounts; cutting health care insurance regulation; allowing nonlicensed practitioners to perform tasks now done only by government-licensed doctors and other medical practitioners -- which shuts out competition and keeps prices high; allowing health care plans to be purchased out of state; allowing individuals to deduct their health care premiums as businesses do now; and adopting an English-style "loser-pays" legal system, which would likely minimize the incentive for doctors to practice expensive "defensive" medicine. Even if all of this makes sense, the toothpaste is out of the tube, right? So let's just try to stop things from getting worse. Unraveling the welfare state can be done. Indiana, for example, just leased one of its highways to a private consortium that charges tolls for maintenance and profit. Obama's anti-capitalist, Big Government, command-and-control economic vision exceeds mere "childishness." It is dangerous. After 100-plus days, the jury reached its verdict. Obama is a neo-Marxist. By Larry Elder

Investment guru Marc Faber says the financial system must be cleansed to save capitalism.

"I think the final low in markets will occur when the system is cleaned out," Faber told CNBC.

Unless that happens, "the way communism collapsed, capitalism will collapse," he says. "The best way to deal with any economic problem is to let the market work it through."

He sees the Federal Reserve and other central banks continuing to print piles of money. And the outcome won’t be pretty.

"The U.S. government for sure will go bust,” Faber says. “That I guarantee you. Not tomorrow, but it will go bust."

He isn’t optimistic for the fate of the global economy either.

“I don’t think that the global economy will recover anytime soon,” he says. “And we have to define what a recovery is.”

If economic output drops far enough, a mere revival of inventories can push growth up a bit, creating a mild rebound, Faber says.

“I take 2006 and early 2007 as the peak of prosperity in this long cycle, and I don’t think we’re going back there anytime soon.”

Many other experts share Faber’s bearish view of the global economy.

“The debate will continue on whether it’s going to be a V, U or L-shaped recession,” former World Bank president James Wolfensohn said at a recent conference.

“My own judgment is that it’s more likely the latter. I don’t believe we’ll get a quick fix any time soon.”

By: Dan Weil – NewsMax

Here Come the Commies

A quote ascribed to Karl Marx has been popping up a lot lately:

“Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the State will have to take the road which will eventually lead to communism.”

— Karl Marx, 1867, Das Kapital

That quote is almost assuredly bogus. We haven’t tormented ourselves by re-reading sections of Capital (Das Kapital). Once in college was enough. This quote, though, has been making the rounds on the Internet, as if Marx and his minions somehow knew all this was coming.

Whether the analysis is accurate is a separate question from whether Marx ever wrote it. German is a torturous language to read in translation, full of compound sentences and words. And it’s highly unlikely, writing in the late 19th century, that Marx would have referred to the working class buying houses and technology. The horseless carriage hadn’t even been invented yet, much less the iPod, the BlueRay, or the George Foreman grill.

Nope. This is a clever bit of revisionism by some unemployed Marxist student or tenured professor trying to discredit the free market while rehabilitating the Marxist playbook. Marx did indeed say capitalism would eventually evolve into socialism and finally communism. He claimed it was riddled by contradictions which made the system inherently unstable.

But his theory was evolutionary, based on his views of human nature and a rational “homo economicus.” Like Adam Smith, Marx was a materialist who defined wealth in terms of physical goods. Thus, his view of human nature is rather material too, which explains his atheism.

In any event, the Austrians (especially Rothbard) would point out that the boom-bust feature of capitalist economies is not inherent in the system, but is actually a product of the government’s manipulation of interest rates. This changes the price of money and causes risk-taking entrepreneurs to miscalculate the underlying demand for their production.

Thus, you get a massive, credit-induced production bubble, global in scale with resources devoted to supplying a fictional demand. It happened with residential real estate in the U.S. and Europe. It’s happened with commercial real estate in China. And it probably happened all along the commodity supply chain, as raw material demand increased for the production of finished goods made in China for Americans who bought on credit.

That isn’t to say you wouldn’t have normal cycles of growth and recession in an economy with natural interest rates. But in an economy with natural interest rates, the cost of capital would go up during a recession. Bankers would get more prudent with their lending as the market place sorted out which lending resulted in productive new enterprise and which businesses failed.

The bad investments would be written down and eventually new demand for capital from entrepreneurs would resume. At least, that’s how the Austrians drew it up. Today, of course, we are engaged in the great global project of trying to prop up investments gone bad, whether they be in residential American real estate or the collateralised bonds based on that real estate that currently reside like dead weight on balance sheets all over the globe.

No amount of rearranging is going to improve the quality of those debts. But that won’t keep political busy bodies from trying — and wasting even more time and capital.

Stocks in the U.S. were up overnight. Here in Australia, the blind are following where the deaf boldly lead. But is anyone listening? Or is everyone too busy hoping?

What we’re talking about are Ben Bernanke’s comments. The news headlines read that he predicted the recession will end later this year and the American economy will recover in 2010. But that’s not exactly what he said.

Here exactly is what he said, “If actions taken by the Administration, the Congress, and the Federal Reserve are successful in restoring some measure of financial stabilityand only if that is the case, in my viewthere is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery.”

If you wanted to put it another way, it might go like this: If our plan is successful to solve all the problems, then all the problems will have been successfully solved according to the plan.

How inspiring is that? Does it give you confidence that these guys have any idea what they’re doing?

What the system needs is more instability, not less. That is, prices and asset values need to fall to their real level to restore confidence. In this sense, a proper recession is the cure for uncertainty and instability.

Yes, we know this is in direct contradiction to what elected officials are telling you. But think for a moment of a man who’s done nothing but eat greasy and fatty foods for a year. He’s on his deathbed. His arteries are clogged with fat and cholesterol.

Now you couldn’t improve the man’s health by telling him to feel better about himself. “C’mon big fella. Buck up! Have another cheeseburger. With bacon. And avocado. This whole being morbidly obese and killing yourself thing is all in your head. You gotta get your mind right!”

You could tell him all that. But it would be bad medical advice. In the same way, our financial mal-practitioners have mis-diagnosed the economy. Confidence is not the problem. Bad credits and loans are the problem.

You restore confidence when you directly address the problem. Investors get out of cash and back into shares or property when they have demonstrable proof that the banks aren’t hiding/lying any longer.

Or, as Murray Rothbard puts it in America’s Great Depression, “The completion of liquidation removes the uncertainties of impending bankruptcy and ends the borrowers’ scramble for cash. A rapid unhampered fall in prices, both in general, and particularly in goods of higher orders (adjusting to the mal-investments of the boom) will speedily end the realignment processes and remove expectations of further declines.”

But instead of realigning with economic reality, our policy makers are acting as if it is possible to sustain all the bad investments made during the credit boom. They want to save homeowners, shareholders, bondholders, and pretty much anyone who stands to lose from the risks gone bad.

That is not possible. Someone has to pay for the bad bets made in subprime loans, Eastern Europe, or the developing world. That someone is probably a) the guy who took out the mortgage he can’t repay, b) the bank who made the loan to the guy who took out the mortgage he can’t repay, c) the investor who bought the bond sold by the bank who made the loan to the guy who took out the mortgage he can’t repay.

Evading responsibility for one’s actions doesn’t solve anything. Making other people pay for them doesn’t help much either. Of course we’re all going to pay for it one way or another, through more bailouts or the general contraction in credit and growth that has to come during the “realignment process.”

But those appear to be the two choices: allow failure, which allocates resources from the bad debts and losers to those who can produce real wealth. Or, try to “stabilize” any inherently unstable situation (perpetuating asset values after the credit spigot has been turned off).

Source:  Whiskey and Gunpowder