The Failure of Capitalism!

Published on July 12, 2008 By Artysim In Politics

Capitalism only works when society keeps it in check through government. The truth of this statement is illustrated by the pandemonium we see unfolding in the market today. This chaos is thanks to decades of deregulation which has allowed a small number of rich folks to get richer while the majority of society has suffered. It has allowed corporations and businesses to operate without impartial oversight thanks to the 'honor system' belief that they would police themselves and act in the best interest of the greater good. What has happened is instead the exact opposite. With much of the government regulation and oversight relaxed and pulled from many sectors of the economy we have seen business after business make decisions that harm the common good in order to increase their profits. It's an age old maxim that is at the core of human nature; if we know that no one is looking and we won't get caught, the temptation to break the law in order to benefit ourselves becomes overwhelming.

A very simple example of this is the reasoning many folks run through when boarding a public transit train in a big city. Many cities public transit systems work on the honor system. You're supposed to buy a ticket for 1 or 2 dollars at the platform and you're good to ride for a set time (a few hours, the whole day, whatever) While you're supposed to buy a ticket by law, there is no person or machine that checks you every time you board the train. Chances are pretty good that more often than not you can ride this train without ever buying a ticket and you probably won't get caught. Of course there are transit police that periodically check people for tickets and if you don't have one, you get a fine. But you notice that on average you maybe only happen to run into a transit cop once a month. If you only find yourself riding the train once in a blue moon, you realize your chances of not getting caught get even better. The next part of the equation then becomes what the consequences of getting caught without a ticket are. If it's only a 20 dollar fine, most folks will realize that they're better off not buying tickets on a regular basis and paying the odd fine once every month or two. If it's a 200 dollar fine and you find transit cops checking you at least once a week, it becomes a much different story. While this is a very simple example, it pretty much applies across the board in how people run a risk/benefit analysis. Major auto companies use this exact same thinking when calculating whether or not to run a recall. Same goes for food producers, toy manufacturers, the list goes on and on.

So what does this have to do with anything? Well, our present situation has gotten so bad that now captains of industry, the very folks who championed deregulation for years are now changing their tune and calling for the government to step in again. Over the last two decades government oversight has been wittled away to almost nothing in many areas; the transit cops now only board the train once every couple of months. Because of this, gangs and bullies have moved in and set up shop. While everyone used to rejoice in getting a 'free ride' they now realize that this lack of enforcement has allowed thugs with muscle to bully everyone else, even charging their own rates to anyone who wants to board. If the transit cops do happen to catch one of these gangs, they either look the other way or take a cut of the gangs income. What this has led to is an unsafe train which is now running barely maintained since the coffers that provide the upkeep costs have been near empty for a long time. Anyone who wants to ride this unsafe train does so at their own risk and has to pay usurious rates to thugs that have hijacked it. If you happen to catch a bad day when it jumps the tracks, tough luck pal!

This goes back to another maxim that has proven itself true down throughout the ages; if you break the rules, you break the system.

Running our economy on the honor system has allowed many folks to break the rules many, many times with little or no repercussions. We've made our bed, and now it's time to sleep in it!

If you don't believe this shift of thinking, just look at the letter being distributed by major U.S Airline Companies;

An Open letter to All Airline Customers:

Our country is facing a possible sharp economic downturn because of skyrocketing oil and fuel prices, but by pulling together, we can all do something to help now.

For airlines, ultra-expensive fuel means thousands of lost jobs and severe reductions in air service to both large and small communities. To the broader economy, oil prices mean slower activity and widespread economic pain. This pain can be alleviated, and that is why we are taking the extraordinary step of writing this joint letter to our customers. Since high oil prices are partly a response to normal market forces, the nation needs to focus on increased energy supplies and conservation. However, there is another side to this story because normal market forces are being dangerously amplified by poorly regulated market speculation.

Twenty years ago, 21 percent of oil contracts were purchased by speculators who trade oil on paper with no intention of ever taking delivery. Today, oil speculators purchase 66 percent of all oil futures contracts, and that reflects just the transactions that are known. Speculators buy up large amounts of oil and then sell it to each other again and again. A barrel of oil may trade 20-plus times before it is delivered and used; the price goes up with each trade and consumers pick up the final tab. Some market experts estimate that current prices reflect as much as $30 to $60 per barrel in unnecessary speculative costs.

Over seventy years ago, Congress established regulations to control excessive, largely unchecked market speculation and manipulation. However, over the past two decades, these regulatory limits have been weakened or removed. We believe that restoring and enforcing these limits, along with several other modest measures, will provide more disclosure, transparency and sound market oversight. Together, these reforms will help cool the over-heated oil market and permit the economy to prosper.

The nation needs to pull together to reform the oil markets and solve this growing problem.

We need your help. Get more information and contact Congress by visiting www.StopOilSpeculationNow.com

Signed:
Robert Fornaro, Chairman, President and CEO; AirTran Airways
Bill Ayer, Chairman, President and CEO; Alaska Airlines, Inc.
Gerard J. Arpey, Chairman, President and CEO; American Airlines, Inc.
Lawrence W. Kellner, Chairman and CEO; Continental Airlines, Inc
Richard Anderson, CEO; Delta Air Lines, Inc.
Mark B. Dunkerley, President and CEO; Hawaiian Airlines, Inc.
Dave Barger, CEO; JetBlue Airways Corporation
Timothy E. Hoeksema, Chairman,Pres.and CEO; Midwest Airlines
Douglas M. Steenland, President and CEO; Northwest Airlines, Inc.
Gary Kelly, Chairman and CEO; Southwest Airlines Co.
Glenn F. Tilton, Chairman, Pres. and CEO; United Airlines, Inc.
Douglas Parker, Chairman and CEO; US Airways Group, Inc.

In a nutshell what this says is "lack of government oversight has allowed other people to game the system to their favour and now our industry is facing collapse!" This leads to another universal truth- folks will always gripe about the authorities until they are the victim of a crime. It is only when this happens that the same folks will turn around and demand the authorities intervene on their behalf.

Don't think of this as another liberal vs conservative battle. Please kindly flush that rubbish out of your head when you consider the current state of the economy. Folks from both sides of the aisle are equally to blame for what is happening now. It's time to put aside the hologram illusion of democrat vs republican pissing contests (which are mostly just show to distract you, in case you didn't know) The first step is restoring accountability and transparency. The way to do that is to re-enact many of the government regulations that were stripped in the last few decades in the name of free-markets and globalization. And enforce those regulations! Once accountability and transparency exist in the market again (they sure don't exist now as illustrated by the smoke and mirror show called 'structural investment vehicles' and 'exotic debt instruments' which are fancy words for creating fake money)

It's time for the transit cops to board the train again and start checking for tickets. And charge back fees to the thugs who have been running it for their own profit these last few years!

Comments (Page 1)

ThinkAloud

on Jul 13, 2008

Have you noticed that there is no one commenting !!!!!

I am sure you know why. If you dont know ... read more of what the people on this site say .... they live in their own vertual universe hypnotized by the site's gurus about how bad the government regulations are and great Reagan and his revolution were. If you are old enough ... you will remeber that he, reagan is the one who started this deregualtion business ... and of course when people say this is not good idea ... they tell you you "really dont understand how the economy works"... they, and only they "underestand" and "know" and "informed".

And when the shit hits the fan .... and it atkes time for that to happen ... as you can see they run and hide and pretend that this normal market working ... and in the process of its workings ... millions and millions lose ... but who cares ... the constitution doesnt guarantee anyone anything except speech and guns .....

The sad fact is ... millions and millions ... the same millions who lose are the ones who are suckers for the nonesense they hear about "the government is the problem not the solution", about "get the government off you back" ... about "you know how to spend your money better than the government" ... etc etc etc ... you know the drill. And if you notice closely ... it is still going on even NOW ... listen to McSame and Gramm and weep.

Cikomyr

on Jul 13, 2008

Wait, I have a good idea... Let's use an example they will understand..

ThinkAloud

on Jul 13, 2008

Let's use an example they will understand..

That won't work either ... no amount of logic or reality would penetrate those brains. The truth is they know it all and they know what they are doing and they are very clever in decieving. They are great conniving people ... i have to give them credit for that. Great lies, superb fabrication, unlimited arrogance, shamelessness without boundries. How else can you achieve that much damage to a very large country in so little time .... and get elected again to do it a second time....

Cikomyr

on Jul 13, 2008

The truth is they know it all and they know what they are doing and they are very clever in decieving

I am not so sure. I think they all want something good for their countries, but it's just that they don't see things the same way we do. They may see some arguments as personnal attacks on their beliefs/way of thinking, which is why they sometime close like oysters to any argumental logic.

but I do not think there is deception on their parts (at least, the vast majority of them. I still doubt about one or 2 of them). They are simply.. stubborn.

I have seen a really interesting article in the F.T. recently, about the regional polarisation of America. The thing is, the more someone has money, the more flexibility he has over where he will live. And people tend to associate with other people who think alike, which creates ideological-specialised urban groups. And when you are only sorrounded by the kin of people who think like you, you never hear the other side of the medal, and you think the people who are different are simply dangerous ideologists, but a very small minority.

But don't lay the blame on them, Liberals are just as likely to have that kind of behavior.

Dr Guy

on Jul 13, 2008

I reject your premise. Capitalism is not broken. There are a few that think that no government is best, and they are called anarchist. Most believe in the rule of law, and that is why laws are passed (by the representative democracy). And these laws must be enforced. And hence the police are hired to enforce them (along with the courts and judges and lawyers - the latter being a very sad after affect, but necessary).

You are flawed in thinking that the chaos in the markets is being created by fat cat rich people as well. Oh, it is not natural, and is a symptom of 2 forces, allied at this point for different reasons, but with a common goal. OPEC and Greens. They have contrived to limit the supply, and have done so successfully. The ones you rail against are not manipulating the market, but profiting from the manipulation of the market. In other words, they are just smart investors.

To condemn them would be to condemn capitalism itself (which you are attempting to do). And the only solution is communism. Why should we allow a doctor to profit from the market? He should be paid the same as a ditch digger after all, right? Yet because the supply of the market for doctors is a lot smaller than the supply of the market for ditch diggers, these people profit from the manipulation of the market by others.

Capitalism is not broken, but it is not perfect either. It has its flaws. But since it is the most popular and most effective system in existance today, it is easier to see those flaws and rail against them. But that does not mean throwing the baby out with the bath water.

Artysim

on Jul 14, 2008

Dr Guy-

I reject your premise. Capitalism is not broken

With that said, at present, I do not believe the system is broken. It is however dammaged and if actions are not taken to correct it, the train will indeed "jump the tracks"

You are flawed in thinking that the chaos in the markets is being created by fat cat rich people as well. Oh, it is not natural, and is a symptom of 2 forces, allied at this point for different reasons, but with a common goal. OPEC and Greens. They have contrived to limit the supply, and have done so successfully

That is a very interesting theory. I would counter that OPEC and the "Greens" (who are those... evil suburbanites who recycle?) have very little to do with the current situation. It's a well known fact that the supply of oil vs demand is such that oil SHOULD be easily 60 dollars per barrel cheaper than it is today. It is also a well-known fact that hundreds of billions of dollars in assets and funds have vaporized from the largest banks books in the last year. In order to attempt to recoup their losses, they have turned to massive speculation in the oil and food markets, artificially driving the prices up unnecessarily AND imperilling millions of folks across the globe!

Artysim

on Jul 14, 2008

Cikomyr-

Have you read "Confessions of an Economic Hit Man", by John Perkins? If not, I recommend it. Also another great read is "The Shock Doctrine" by Naomi Klein.

Artysim

on Jul 14, 2008

Thinkaloud-

The truth is they know it all and they know what they are doing and they are very clever in decieving. They are great conniving people ... i have to give them credit for that. Great lies, superb fabrication, unlimited arrogance, shamelessness without boundries

I like to call this group the "pie-gangers" - this is the group that seem to think our planet and everything on it are one giant pie and they're trying to get as much of it as they can for themselves. As the amount of pie left shrinks, they become more vicious to get as much as they can!

Dr Guy

on Jul 14, 2008

I would counter that capitalism and the economy, are both man-made constructs. Anything that is built by man can be broken and destroyed by man. To say that we have created a system that is un-brakeable would be to ignore reality.
With that said, at present, I do not believe the system is broken. It is however dammaged and if actions are not taken to correct it, the train will indeed "jump the tracks"

I never said it cannot be broken. We see it happen every day in socialistic countries. And I stand corrected that you said it was broken. But I will then turn it around on you and say yes it is damaged as it is devised and implemented by man, and therefore cannot be pure, but only a damaged imitation. A working one, but yes flawed.

I would counter that OPEC and the "Greens" (who are those... evil suburbanites who recycle?) have very little to do with the current situation. It's a well known fact that the supply of oil vs demand is such that oil SHOULD be easily 60 dollars per barrel cheaper than it is today.

First the "greens". They are not your average recyclers, but the lobby (that evil thing that others talk about getting rid of) that has conspired to arbitrarily constrict supply. This takes 2 forms. one is banning drilling (that cannot be denied) and the other is in making the cost of drilling arbitrarily high (Windfall profit taxes that do nothing for the problem except exacerbate it). By putting onerous restrictions in the first case, and by making the drilling of the oil unprofitable with punative taxes in the second case, they are doing what OPEC wants done. Restrict supply (OPEC exists for no other reason than to restrict the supply - it is an oligopoly) and what happens? You drive up the price.

As for the funds "disappearing" that really has nothing to do with the oil issue, but is an issue on itself that can be debated on its own. It touches on the Oil issue as all markets touch on all other markets in some ways too. But there is not a causality between the 2 that indicates a law of "if A then B". Only that when a market goes out of kilter, it will affect other markets as well.

Island Dog

on Jul 14, 2008

Sure, go ahead and regulate everything, even have the government really step in and just run it. Let us know how that works out.....

CharlesCS

on Jul 14, 2008

Capitalism only works when society keeps it in check through government. The truth of this statement is illustrated by the pandemonium we see unfolding in the market today.

I am curious, based on that assessment you agree that capitalism is good, so long as it's done properly? If so then the problem is not capitalism, it's the people who are not making sure the Gov't is in check and these same people are the ones making businesses money by purchasing their outrageous and usually unnecessary products such as xbox 360s, PS3, iPhones, iPod Touch, Nintendo Wii, etc.

This chaos is thanks to decades of deregulation which has allowed a small number of rich folks to get richer while the majority of society has suffered.

I always wonder why people use words such as "suffering" when describing those who are not rich. What do you mean by suffering? If you are referring to the poor or the homeless (cause it would see these are 2 different people) the poor in this country are richer than the poor of many other countries combined and the homeless have better opportunities than the poor in other nations, so tell me again, who exactly is suffering in this country? Last time I saw a picture of someone suffering on US TV it was pictures from Africa or Asia.

CharlesCS

on Jul 14, 2008

Sure, go ahead and regulate everything, even have the government really step in and just run it. Let us know how that works out.....

Here's my curiosity. They ask for "change" in the way things are done, but this "change" is never simple. They don't believe capitalism works so we should try having the Gov't control things to make sure everyone plays fair. Now, would they still be saying the same if Bush was the one to do all the controlling? Or would they want him changed as well? Then in the end capitalism would still not be the problem.

Adventure-Dude

on Jul 17, 2008

Can anyone name one Government program that has been long term successful yet alone fiscally sound?

Medicare?
Medicaid?
SCHIP?
Fannie Mae or Freddie Mac?
Social Security?

I agree with your initial statement Artysim.

Capitalism only works when society keeps it in check through government.

The key word here is 'check' not RUN or CONTROL.

Deregulation may lead to chaos (Sub prime lending?) but over regulation will choke it out (as we see with oil right now).

The problem I see is when gov't steps in singing..... Anything you can do I can do better. I can do anything better than you (companies).

Yet the one's singing that tune the loudest seem to have the least experience running anything successfully.

Artysim

on Jul 17, 2008

Adventure-dude

The key word here is 'check' not RUN or CONTROL. Deregulation may lead to chaos (Sub prime lending?) but over regulation will choke it out (as we see with oil right now). The problem I see is when gov't steps in singing..... Anything you can do I can do better. I can do anything better than you (companies). Yet the one's singing that tune the loudest seem to have the least experience running anything successfully

And I agree with you entirely. I never said the government should run the entire economy lock stock and barrel. I believe in a mixed economy, in which free enterprise can innovate and compete but at the same time government needs to be there to ensure that everyone plays fair.

With that said, I believe in the present conditions that government has largely reneged on it's responsibility to the people and allowed much of the economy to run roughshod with far too little oversight or regulation!

And as an aside, there are plenty of government businesses that run well... the fire department, police department, libraries, water and sewer (well in some places anyway) Yes, you are absolutely correct that various government agencies can sometimes hurt more than help and become billion dollar boondoggles.

I believe that much of the discussion comes down to public vs private ownership.... like roads, sewers, electrical grids, should they be in public or private hands? Imagine if the fire department was run by a private company that was completely unregulated (answerable to no one but it's owners) Imagine that one day a fire breaks out and threatens your community. Does the fire department rush out to save everyone's homes? Nope! They send most of their guys first to the homes of those who bought the 'Gold' package to make sure they won't even be touched by the flames. Then they send some guys to look after the 'Silver' package houses and then whoever is left to sprinkle some water on the 'Bronze' or best-effort package homes.

Forgot to pay your bill or couldn't pay the rates that this company was asking? Sorry, guess your house goes to the flames!

Dr Guy

on Jul 17, 2008

And as an aside, there are plenty of government businesses that run well... the fire department, police department, libraries, water and sewer

What do they all have in common?

Give up? They are run at a local level where citizens can have a more active and proactive voice, not on a federal level where the only thing that is heard are bureaucrats. And that is where the stranglehold of capitalism (not the regulation as we have the laws in place) is and will be done.

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