naked capitalism

Anonymous says:

COMMUNIST!!!!!

Daniel says:

I think this is ridiculous.

Why not ask those that have lived under a socialist state to see whether they prefer socialism to capitalism?

Americans don’t know what they’re giving up.

Why do the masses want come to America? Obviously because their socialist run countries were so wonderful.

IF says:

While I believe the US has its peciluar form of socialism (favoring home owners and bankers), I doubt many Americans know what socialism is. A rather ill defined question, after all. At the current stage socialism is an utopia, colored by the individual. For this reason it might still make sense to measure left leaning tendencies. Is a redistribution from the rich to the poor via taxation already socialism? How about middle class to the poor – Peronism?

The ruling class wants to continue on its path given by Reagan. I think they will only be able to do so if they can deliver the goods, e.g. prosperity; or if they use authoritarian measures. Prosperity seems unlikely at this point. But there is not enough pain in the US to cause radicalism. At least I don’t see it.

Now that the powers are measuring left leaning tendencies, how are they going to influence them?

Leo Kolivakis says:

By the way, I forgot another famous quote:

“Under capitalism, man exploits man. Under communism, it’s just the opposite.”

— John Kenneth Galbraith

Anonymous says:

The one thing I’ve never understood is why the libertarian crowd never seems to understand that a sufficiently powerful private aggregation of power could just buy the government. Empirically, that’s just what happens. I understand that folks like David Friedman call themselves minarchists– my question has always been, exactly where has that worked?

To paraphrase Jack Nicholson in the Departed: When the boot is on your throat, does it really matter if it is owned by the state or by a PMC hired by an oligarch?

IF says:

Hey Leo,

lets not confuse communism and socialism. I don’t even know what communism is. Something in a commune? On an island? In Cambodia?

Of course, in the US all the labels are shifted. A liberal is a socialist. A libertarian is wicked. France is socialist and Russia communist? Very confusing.

Marlowe says:

In 1973 I conducted a man-on-the-street survey with video, asking people “What is capitalism?” About half said they didn’t know and another 35% gave some pretty off the wall explanations (dictatorship, something you hear about overseas, controlling everybody). Only 15% said anything about free markets, competition.

K Ackermann says:

free market” is easily defined: It’s the absence of aggressive coercion of any market participants

Oh, thank you for that one. I’m still drying my eyes from laughing.

And to think the IMF actually claims to be promoting “free market” principles when it witholds the aid it is mandated to offer countries in crisis unless they take actions which often lead to the destruction of social safety nets at exactly the worst time to do so.

Anything that impedes the transfer of wealth out of that country has to go in the name of the free market.

The massive increase in domestic surveilance, fueled by taxpayer funds that flow into the new Department of Homeland Security and out to no-bid contractors who just took off their civil servant hat and walked through the string-bead doorway to their shiny new civilian company shaped like a mouth on a tit.

The free market at its finest. It’s a secret that the public is being surveiled, and there is no legal avenue for the public to know how much it takes place, but rest assured, most of these companies fail to deliver anything that works well, so they simply have to keep trying harder with new no-bid contracts. The public simply has no choice in the matter of supporting it all.

Joseph says:

Yippie, about bloody time

I strongly advise people to read “Spirit Level – why equal societies almost always do better”. The main conclusions, supported by empirical evidence are:

Egalitarian societies are happier, healthier, less anxious, longer lived, less environmentally destructive and have more fun in bed.

Capitalism is structurally incapable of moving from a society based on consumption to one based on sustainable stewardship.

The economic crisis is the disaster we needed to begin making the changes that are required to avoid environmental catastrophe, like Rosa Luxembourg wrote the choice we face is “socialism or barbarism”

Russ says:

I agree that polls like this are almost always tendentious and rationally worthless, unless there’s a stable, meaningful definition of terms like “capitalism” and “socialism”.

1. Most Americans have little idea what these terms are supposed to mean, but just experience them in a pavlovian emotional stimulus-response way.
2. Most Americans have little idea how either term relates to what we actually have in America, where the best term would be corporatism or neo-feudalism.

Leo correctly emphasized that any term like “free market” or “free trade” or “the economy” is a terminological lie until you first ask, cui bono?

Unfortunately Americans are indoctrinated into denial regarding the facts of class struggle. Like Yves said, Americans are brainwashed into the theology of “upward mobility”.

Historically that’s the socioeconomic base for fascism: those who are in fact downwardly mobile but who cling to the upwardly-mobile middle-class religion, who regard any kind of proletarian consciousness with fear and loathing, and who must exist in a state of cognitive dissonance in order to maintain their self-image in the face of the facts. (This is part of the answer to Frank’s question What’s the Matter With Kansas?)

As long as we’re seeking terminological precision, I must dissent from Yves’ taking up the street definition of “freedom” as the absence of rules. The great philosophers have never defined it that way. In Nietzsche’s characterisic formulation, true freedom is where, through the right combination of internal drives (rules) and “rules” imposed by the environment, you find the habitat where you can most fully realize your potential, feeling the greatest inner freedom, which is close to a feeling of necessity.

The modern gutter political concept of freedom, defined as consumer freedom and reckless individual pseudo-”rights”, is more like “license”, “promiscuity”.

Anon 1:19 AM said:
“free market” is easily defined: It’s the absence of aggressive coercion of any market participants.

Yes, the aggressive coercion is all externalized against the non-voluntary participants and the environment.

I would turn this around and be counter-aggressive vs. the aggressors.

Mikey says:

We’re already socialist… The primary beneficiary is the government… more power to it… Nothing you can do about it. Here’s a list of the largest employers in Los Angeles:

Largest employers Number of employees
Los Angeles County 93,354
Los Angeles Unified School District 78,085
U.S. Government 56,100
University of California 36,354
City of Los Angeles 35,895
State of California (noneducation) 32,300
Kaiser Permanente 27,635
The Boeing Company 23,468
Ralph’s Grocery Co. 17,211

Source: http://www.city-data.com/us-cities/The-West/Los-Angeles-Economy.html

The top 6 are the government. Kaiser is a hospital; a beneficiary of government. Boeing for Los Angeles is mostly defense work, also a government beneficiary. Ralph’s is a supermarket chain.

What a basket case.

Anonymous says:

87.5% of all statistics are invented on the spot.

Richard Kline says:

So jbmoore: “I am not sure when corporations coopted government . . . .” If you were John Barrington Moore speaking, you could educate us all here, but since it would appear not, here’s something to chew on: In democracies, great wealth and a powerful state typically _grow each other_. Now, we don’t see it that way in the US because we stress the numerous purportedly self-made men. And in the US this is indeed a bit more possible then elsewhere. However, the state is always the buyer of greatest resource, and frequently of last resort. State contracts and speculation in government debt is always intrinsic to the growth and maintenance of the wealth class. Other opportunities wax and wane, but the state is always taxing. A contract to suppply X to the government was often the ace in the hole for many the malefactor of great wealth because when other plays turn sour Uncle Sugar is always buying still. In the US, the Guvmint controlled land sales furthermore, something now erased from political memory. The great fortunes of the 19th century were largely created as a function of preferential access to land sales and the credit volumes resulting. The point I am making is that corporations in democracy have a deeply symbiotic relationship with a strong central state, not least in the creation of a ‘regulatory’ framework which favors certain and existing stakeholders. Of course we n-e-v-e-r hear about this in American political discourse, but that’s another story.

Yves Smith says:

Anon of 2:28 AM,

Australia is also de facto social democratic, and while they are technically a constitutional monarchy (they haven’t officially cut their ties with the Queen), they don’t have any of the royalty/nobility baggage that the UK or the Continent has.

Anonymous says:

And I hate to tell you, small government is not a viable construct in modern industrial/post industrial society. The scale and scope of commercial activity is too large and complex for that to be a viable model.

But Yves, that’s when limited government is most viable… and necessary.

As noted by Hayek and Mises, the more complex a society the less likely that political decision-makers can make competent decisions. Simulataneously, the more likely that their incompetence will have ill effects on large numbers of people.

Better to allow individuals the freedom to make decisions on their own. Competent individuals will reap rewards, whereas incompetent individuals will suffer consequences.

Your view allows political decision-makers, through their incompetent decision-making, to destroy the lives and property of hundreds of millions of people.

Yves Smith says:

Anon of 3:39 AM,

No, I believe in balance of power, which unfortunately is impossible in the US thanks to the fact that we permit paid political advertising on TV (as LeeAnn pointed out), which in turn means that the amount of costly TV advertising correlates strongly with election success, which creates the need for big election warchests, which makes it eminently possible for big corp interests to buy government.

If we do not exercise some control over private interests, they can assume every bit as much power over our lives as government and we have no way to claw it back. We’ve been fighting that battle since Teddy Roosevelt. Eisenhower, in his parting speech as president, warned of the dangers of the military industrial complex. Go read it.

In a republic, there is some hope of having government as being a contervailing force against concentrated private interests, but in the US, we have lost that battle.

Anonymous says:

The AIG bonus “uproar” was a demonstration of exactly what the american people are left with. A veto, if they get angry enough.

This creates the exact same dynamic as a 5 year old versus his parents, tantrum loud enough and you will get some attention. Then you can go back to sitting in your own filth and eating whatever you are given.

Swedish Lex says:

All modern states are obviously ”socialist” to some degree, relying on markets to provide the juice that then can be taxed and distributed.

A simple way to assess to what degree states are “socialist” is to simply look at the level of taxation and the level of on and off balance sheet commitments states have.

It is by now common knowledge that the U.S., given the current level of taxation, plus the country’s off balance sheet commitments will force tax increases up to a level that will make the country as “socialist” as the average European country, at least. Add to that the cost of maintaining the U.S. empire, if that is what the U.S. elite wants, and Uncle Sam looks fiscally more like the British or French empires before they imploded financially.

The self image that states have of themselves is another story. Most Brits would probably dislike the idea of them being labelled as “socialists” although the size of the British Government in relation to the country’s overall economy is not much smaller than e.g. “socialist” Belgium. Most French would completely reject the idea that France is a socialist state but rather a bastion of “republican” (not in the U.S. sense of the word) values that transcend the left-right ping-pong discussion match.

Commentators on the European extreme left and right both argue that the EU is a monster of the extreme opposite that must be fought. The EU Treaty has as purpose to create well fare for its citizens through economic activities that should be as “free” as circumstances, e.g. environmental considerations, permit. The EU is thus more about smart, as opposed to dumb, governance rather than about left/right swings that most of the political propaganda (branding) in Europe still would like citizens to think. This is at least what I would like to think that Europe has evolved towards after a few millennia of tribal and ethnic wars.

K Ackermann says:

Those poll numbers are amazing when you consider the word Socialism is one of the reflex words the public has been conditioned to despise.

What does it even mean?

Is a library a socialist construct?
Is the VA a socialist construct?
A 401K?

How much science is conducted in government labs or universities that receive public grants vs. corporate labs?

The fact is, there is a lot of stuff that does not want to be done for profit. In fact, the instances where the government has saved money by privatizing services is a lot less than we are led to believe.

Having Haliburton serve meals to the soldiers does not makes sense on any level, and it certainly showed.

How many times have you heard of a Secret Service agent shoot someone in the face at a Christmas party, or shoot a bunch of people at a traffic circle? Blackwater was/is an abomination and the PR about them being professional was just more embarassment. I noticed Bush never talked about outsourcing the SS.

I could go on all day and night about the wretched track record at the public/private interface, but I’d to hear some examples of where privatization has saved taxpayer dollars, and provided better service.

Having skin in the game does not always mean a more efficient service.

Anonymous says:

“I could go on all day and night about the wretched track record at the public/private interface, but I’d to hear some examples of where privatization has saved taxpayer dollars, and provided better service.”

As another poster here pointed out, the “savings” are usually based on cash accounting. The only cost considered is the cost now.

An example- Digging a ditch.

The whole point of digging a ditch is usually to move water. There is no money in that at all anymore. Once the work is done, there is no other money to be made.

If you can sell that same person looking to move water a nice big, expensive machine that pumps the water, you can also sell them another pump in a few years. Add to that the cost of operating and maintaining the equipment over the long term.

The most important “capitalist” part is making sure that that ditch never gets dug, to ensure competition.

Plantation Capitalist says:

As with all polls, the framing of the question was duplicitous, designed to stimulate a positive response for the interviewers “objective function”.

Due you prefer capitalism, Mr. Hannity, or socialism. How about you, Mr. Dobbs. Mr. Beck or Mr. Kudlow ?

The Walton family of Arkansa prefer prefer free market capitalism with a side of tax breaks, economic development capital, and generous welfare benefits for their slaves. Speaking of Walmart, how is that DOT pilot project for by-passing American ports through Mexico going ?

Doug says:

Henceforth, Yves, please either replace the phrase ‘free markets’ or at least persistently accompany it with the phrase “markets with no rules”. And, please ask Rasmussen and others to ask folks if they favor “markets with no rules’.

Anonymous says:

Oh, one other thing – there’s a really interesting Cato Unbound issue called ‘When Corporations Hate Markets’ that deals with precisely the relationship between business, markets, and government. Try reading it – it might change your stereotype of libertarians.

http://www.cato-unbound.org/archives/november-2008-when-corporations-hate-markets/

Tom says:

The socialists are really coming out of the woodwork on this one, aren’t they? Because, one presumes, replacing what market competition remains with office politics will solve all our problems, once and for all.

The current problem is, I submit, that government and business are being once again too intertwined, not that they are too separated. Why not read some Mancur Olson, James Buchanan or Gordon Tullock for how those reviled, evil, ludicrous classic liberals think about this?

Dan Duncan says:

If you simply take a snapshot view—then socialism is much more appealing than capitalism.

But put the frame of socialism in a movie, and it’s not so pristine as Aging Demographics, Immigration and The Inability to Defend One’s Self become scene stealing villains.

The Socialist Natives are getting restlessly old. The Immigrants are just getting restless.

The rigidity of Euro-Style socialism is completely incapable of dealing with the escalating problem of its disenfranchised Arab and Persian populace.

I am looking forward, though, to the “Artists Against Apartheid” concert put on by Bono and Springsteen…which of course will be played in the traditional Arab maqamat…with quarter tones in varying pitches for melody without the harmony…

ragnarock says:

Ives, as usual you get it right. Free markets are not free. A “free market” depends on high levels of moral discipline.

The link between markets and morals goes somewhat along these lines: markets depend on law, and law depends on the state. But for the state to be under law – and not itself a lawless entity — there has to a rule of law, that is, an actually observed constitutional framework. But an actually observed constitutional framework does not and cannot exist in a vacuum. It depends upon the morality, vigilance, and vigor of the people.

Capitalism (as Marxist pointed out) is a revolutionary force, by which he meant: it destroys traditional relationships and independent sources of morality and integrity, or what nowadays some people might call “social capital.” This social capital is precisely what has to be in place if people are to be moral, vigilant and vigorous. In other words, capitalism makes weak what has to be strong for there to be a constitutional state (and what such a state makes possible: markets with freedom of choice within a framework of law).

Although a bit humbling, I think that we moderns have to come to accept that the ancients had a better model of the state than we do. They saw it as essentially unstable.

Their paradigm was something like this: aristocracy (rule of the best) leads to plutocracy (rule of the rich), which leads to democracy (rule of the many), which leads to oligarchy (rule of the few), which leads to tyranny (rule of one), which leads to anarchy (no rule at all). In the chaos of anarchy, people become willing to listen to the best among themselves, and the cycle starts over.

Anonymous says:

A market with no rules is a brawl (think of drug dealers, who operate outside the law.

A total misapplication of the concepts, along with an ignorance of history.

Because the law makes the sale illegal, any existing sales would be of a specious nature. If the sales were not illegal we don’t know if there would be a brawl or not, but all the evidence suggests there would be no brawl.

Perhaps you need a refresher course on property rights. One can look at parts of Europe where sales are not illegal and see no brawling. One can look at drug sales in prior to Reagan and see a much reduced “brawling” aspect of drug sales. Once property forfeiture became the de facto standard of enforcement, the sales environment became more brutal.

In other words, once the law became more brutal, the illegal activity became more brutal. And the main reason the law became more brutal is because of governments over-leveraging themselves; they gotta make more things illegal to fund themselves via fines and asset forfeiture.

Anonymous says:

Yves,

The fact that powerful private interest can co-opt government to steal from the many for thier own personal gain is the exact reason we need a weak government. You know why people lobby, because lobbying has a huge ROI. It has a huge ROI because the government has the ability to tax, print, and borrow whatever it wants and spend it anyway it wants. Wouldn’t you want someone like that on your side.

Elections are a poor way to keep such activity in check. The best way is to make it so lobbying government isn’t worth it, and that means taking away the governmental powers that private actors are looking to co-opt. You’ve got no military industrial complex if you have a strong constitution that makes wars difficult to start and limits the governments ability to tax in order to pay for it. If there is no money in the treasury worth looting there will be far less looters in Washington.

If government is so easily co-opted by private interests it seems absolutely absurd to give more power to government, its essentially the same as giving more power to those same private interests.

In a free market you get a choice. If you don’t like Citigroup or Halliburton, then you don’t have to give them your money. Go to a competitor or stop buying thier products/services altogethor. With government there is no choice and no competition. My money is being taxed away and given to Citi or Halliburton whether I like it or not.

What we have in the US now is socialism. Its just not the happy go lucky form of socialism you thought it would be. You thought having democratic elections meant that some super race of intelligent selfless angels would take over the riens of government and create a perfectely ordered society. Sorry, the world doesn’t work like that. Talk about naive.

Mondo says:

Yves,

just watched the first part of the BBC series on the Century of the Self. It is absolutely invaluable – thanks a lot for linking to it.

I doubt that those who are the primary victims of the manipulations described there see them as a problem, and why should they ? Life was good, and it has been much more comfortable to remain complacent.

Bernays was certainly right – most people are prone to manipulation if done properly. At the same time he might be regarded as one of the most dangerous men of the century, since he acted upon his insights in a totally amoral way.

So, for a better society, a few questions need to be answered:

- How do you make humans less receptive to manipulation ?

- How do you prevent people in power to exercise their power without any moral considerations ?

Limiting the size and thereby the power of corporations (including the power to capture government) would certainly be helpful. The debate at Cato posted by Anon @8:30 gives some very good food for thought on that, even if the libertarian world view is itself fraught with some inconsistencies, just like probably every other grand unified world view.

With all that, the contradiction remains that there is an important role for government to play – but who can effectively control government if the constituents have no desire to really exercise their rights, because they are part of a Bernays group ?

Do you think a majority of the people would even have the slightest interest in following, or contributing to, a debate such as this one ?

Mondo

ruetheday says:

Tom – Please don’t confuse classical liberalism with libertarianism. Classical liberals saw markets and trade as a means to an end, that of perfecting the individual, rather than an end unto itself as libertarians do. To understand the natural evolution from classical liberalism to modern liberalism, see TH Green and LT Hobhouse. Libertarians have promulgated a revisionist history of classical liberalism and its supposed corruption into modern liberalism that is complete hogwash.

Anonymous says:

Yup: an american poll on ‘how do you like socialism’ means roughly ‘how happy are you with the workings of the present-day american capitalist system’ .

Unsurprisingly, the demographics of who says AYE and who says NAY to the present state of affairs is exactly what you’d expect: those who’ve largely done well for themselves largely vote AYE in favor of the present-day system, and rest have more-mixed opinions.

And yes, the fact that the AYE-voters not only call everything and anything they don’t like a NAY but seemingly race — scrambling atop each other — to post the most thorough, most vehement defense of the AYE and attack at the NAY does much to change the minds of the NAY-susceptible, but usually not in the AYEs would have it.

DownSouth says:

Yves,

I can’t tell you how much I enjoyed the BBC series. Thank you so much for the link, as it helped to not only crystalize some of my own ideas, but fill in with empiracal infomation areas where before I relied on speculation.

I’d like to take this one comment from the video series and expand upon it:

There are now growing demands that they fulfill a grander vision, that they use the power of government to deal with the problem of growing inequality and the decaying social fabric of the country. But to do this they will have to appeal to the electorate to think outside their own self-interest. And this would mean challenging the now dominant Freudian view of human beings as selfish, instant-driven individuals, which is a concept of human behavior being fostered and encouraged by business because it produces ideal consumers.

Three thoughts:

1) Freud certainly believed in the view of man as being helpless before his primordial drives of lust, greed and selfishness, but that idea was not original to him. It was Darwin who probably did more than anyone else to give the idea ubiquitous acceptance within the scientific community, also providing an explanation as to how man arrived at this condition.

2) This concept of man “red in tooth and claw” is now coming under increased attack within the scientific community. More and more evidence is accumulating that indicates that it is simply not true.

3) The iconic figure who came to symbolize this concept of man as “red in tooth and claw” was the New Atheist, Ayn Rand. Now that she is gone, the most wellknown figures of “fostering and encouraging” the belief are the “four horsemen”–Richard Dawkins, Sam Harris, Christopher Hitchens and Daniel Dennett.

To give an idea as to what their line of argument is, here’s a video of a lecture by Richard Dawkins, which begins at min. 47:00…

http://thesciencenetwork.org/programs/beyond-belief-science-religion-reason-and-survival/session-7-1

As one can see from Dawkin’s presentation, the New Atheists have now been forced to admit that there is an immutabe “good Samaritan” side to human nature. But as one can see, Dawkins surely doesn’t like it. He calls it a “mis-fire” or “mistake” from our ancestral past, from a time when humans lived in smaller family or tribal groups, explaining that it results from the mechanisms of “kinship, recipricocity, reputation and the handicap principal.” The implication is that the good Samaritan gene no longer contributes to our reproductive success or survival success.

Conspicuously missing from Dawkins’ analysis is what Walter Bagehot pointed out in Physics and Politics 150 years ago:

He (Bagehot) begins indeed by showing that “Natural Selection” in the early stages of the march of civilization–the better organized, more cooperative groups conquer the less unified. But then more and more other qualities, initiatives, and ideas–liberty, free discussion, written law, habits of calm reflection, of tolerance and generosity–conduce to survival, because they make for an ever higher degree of cohesion. These virtues are the strength of the national state, whose power a less developed people cannot successfully withstand.

I could go on punching holes in Dawkins’ presentation, but just let me conclude that, despite all his claims as being on the side of science, I get the sense that his is a polemic, not a presentation by a scientist in search of empirical truth. He seems to be much more interested in peddling his version of what human nature ought to be, and not what it is.

Anonymous says:

You betcha socialism is gaining in the USA and it started this time with the banksters.

Socializing the bank/Wall Street losses via bailouts is socialism for the rich. The lower and middle classes only want what they think is their fair share.

Capitalism involves both successes and failures. If you won’t take the failures then you are not a capitalist in my estimation.

You will end up at some form of statism if those responsible for the losses refuse to take the downside and the authorities abet evading the consequences.

Anonymous says:

Dan Duncan said…

“If you simply take a snapshot view—then socialism is much more appealing than capitalism.

But put the frame of socialism in a movie, and it’s not so pristine as Aging Demographics, Immigration and The Inability to Defend One’s Self become scene stealing villains.

The Socialist Natives are getting restlessly old. The Immigrants are just getting restless. …”

Yes, to have a stable socialist system, one must control immigration. If there are benefits, outsiders will show up to benefit from them.

But corporations have been strongly against immigration control. They don’t want strong societies, they want social chaos that they will control and steer their way.

Yet another problem with capitalism, which (by the way, since some have given wrong complicated definitions) means that capital makes the rules.

MyLessThanPrimeBeef says:

I don’t care if Yves censors my post, for what I am about to write is truly ad hominem in that sense that it attacks humans (hominem, accusative form of homo); but I have to get this off my chest. The whole discussion here in this thread is just so typcial of anthropocentric chauvinists. From your point of view, everything is and should be about Homo Idiots Idiots. As a card-carrying member of ‘People Against Unethical Treatment of Vegetables,’ I deny that and instead, urge you all to look beyond your little human world and start looking at the whole world from 3 inches off the ground.

As for the discussion about defining what we mean, perhaps knowing what I am about to say will make you feel a little better. The sad fact is that the quality (a word hard to define, according to the guy who wrote ‘Zen and The Art of Motorcycle Maintenance.’) of communication can be categoried (as much as anything can be differentiated or categoried, a big no no in Zen) as follow, in descending order:

1) Telepathy (no need for physical contact)
2) Vulcan mind meld (needs physical contact)
3) Deeds
4) Sweet spoken words
5) Written symbols

So, if you anthropocentric chauvinists realize that we (including yourself truly) operate at the lowest gutter level, you wouldn’t be so exasperated over a few Americans or Europeans or Chinese, mis-understanding a few words.

For your infomration, most animals and vegetables operate at level 3 or higher.

JR says:

scepticus,

“The worst self-deception is that they assume that under a full reserve system there would still be lending of the kind sufficient to support the kind of capital investment required by modern economies.”

I would suggest the current problem is too much lending, or more specifically too much credit created out of thin air. You know, an unsustainable bubble.

I have no idea why you don’t think there will be sufficient lending on the free market. Perhaps you are confused by what has happened in recent history as Central Banks have pumped money to keep interest rates down.

The interest rate rises when there is a shortage of loanable funds. The higher interest rate incentivizes people to save their money.

People might invest in savings accounts and time deposits so that productive businesses can borrow their money instead of speculating on stock market appreciation.

scepticus says:

JR, all that you say is simply speculation. You have no way of knowing what interest rate would be likely to settle out under full reserve.

The only reason we get interest rates averaging around 7% or whatever under the current banking system is because we have FDIC and central banks as lenders of last resort. Without these ’socialist’ guarantees interest rates would be of necessity be much higher.

How much higher? I suggest that pricing money beyond a certain level makes capitalism untenable.

Thing is, no-one, including the chaps at mise.org has any idea what rates of interest would obtain under full reserve, and even less idea of what rates of interest are actually required to make the capitalist doctrine feasible as a social system.

Francois says:

“markets” which rely on laws (even Friedman would grant that)”

Hear! Hear!

Friedman granted much more than that, although his “disciples” blanch and twitch when I quote their Masta.

“A major source of objection to a free economy is precisely that… it gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.

The existence of a free market does NOT of course eliminate the need for government. *On the contrary*, government is *essential* both as a forum for determining the “rules of the game” and as an umpire to interpret and enforce the rules decided on. What the market does is to reduce greatly the range of issues that must be decided through political means, and thereby to minimize the extent to which government need participate directly in the game.”

There you have it! The balance between State power and Market power. Alas, things get murky and screwy when State and Capital start to use each other for symbiotic growth…which is exactly where were at now.

It could turn truly ugly (read, social unrest) if we get the second leg of the Great Recession is as bad or worse than the first one.

Russ says:

Francois quotes M. Friedman:

“A major source of objection to a free economy is precisely that… it gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.

If he and the Chicago Boys really believed in giving the people what they want, why were they among the worst enemies of democracy in history? Why were they complicit in Allende’s overthrow and assassination and Pinochet’s mass murder? Why did they support every feudalist coup?

The fact is, Friedman’s nightmare vision has never once democratically triumphed anywhere, and never could triumph anywhere in any way other than through Big Lies and mass violence.

(Nor was this a case of uncouth disciples tarnishing the pristine ideals of the master. Friedman personally partied with Pinochet.)

RockyR says:

People reading this blog should know well enough to know that what we have in America isn’t a free-market system. It arguably instantiates some of the tenants of capitalism (private investment, right of property, profit accrual to shareholders, etc.). However, our system is not “free” where “free” is defined as “freedom from government control”.

1. Subsidies to farms, agricultural corporations, and land owners to control the production and price of foodstuffs is not consistent with a free market ideology

2. Bank bail-outs are anti-free market

3. Government-protected monopolies (Asurion, phone companies, cable companies, utilities, etc.) are anti-free market

4. Lobbyists are anti-free markets

5. Fannie/Freddie, FHA loans, and the bulk of the system to finance housing in the US are antithetical to a free market system

6. Our health-care system, with medicare, medicaid, subsidies to hospital administration (see medicare), managed health care corporations (our health “insurance” system is SOCIALIST by virtue if not by management structure – private/public). The very concept of our private/public managed care system is not free-market based – broken and dysfunctional as it may be

7. 401(k) plans, IRAs, 403(b)s, and any other tax policies made to favor one group over another – give one special interest the ability to accumulate wealth at the expense of another – is not a “free market” system

8. Corporate health care plans are antithetical to free markets… ever feel indentured to your HEALTH CARE PLAN? Does that feeling feel very FREE? It doesn’t because it’s not.

9. The act of regulating one part of the economy while deregulating another… sanctioning one behavior while banishing another through a central regulatory body – NOT free market

10. Local government subsidy of sports stadiums, convention centers, office parks… the list goes on and on – NOT free market

11. Any attempt to protect a legacy institution (GM, C, BAC, FNM, etc.) from failure DOES NOT support a free market

I could list more, but you would just get more bored.

What we have in America is NOT a free market system. It may not by definition be socialist. It may be corporatist, or fascist, or “crony capitalist”, but it’s NOT free market.

STOP blaming “free market” ideology for our current problems. Your premise that what we have is a free market system – or that the act of changing the regulatory regime of one part of our managed economy is somehow a defense of “free market” ideology – is wrong. It’s fair enough to argue the virtues of socialism vs. capitalism, but using this crisis to justify the implementation of one system over one that does not currently exist based on the supposed shortcomings of the system that doesn’t exist is specious at best.

Thanks,
Rocky

scepticus says:

John C,

I’m inclined to agree with you on your point (b), although in fairness it is still open to debate.

On (a) you assume that amount of loanable funds will dominate in setting their price, however there are other factors. Specifically, the fact that banking losses are periodically socialised explicitly via bailouts and implicitly through inflation reduces the risk to individual investors and pushes down the interest rate. The bottom tier of the pyramid subsidises interest rates for the capitalist classes at their current level by being taxed and robbed via inflation.

Under full reserve banking interest rates would place the entire risk burden squarely on the investor and I believe real rates would therefore be very considerably higher.

Therefore capitalism only works in my view because the working and middle classes are forced to assume a significant portion of investment risk.

With long term growth rates below say 3%, this form of capitalism is not viable. Full reserve capitalism would require far higher growth rates even than 3% to prevent it degenerating into a steady state stagnation.

Growth rates for the developed world can be expected to be well under 3% for the rest of this century barring unforseen technological miracles.

brushes9 says:

“The Century of the Self” is excellent. It points out how advertisers used people’s existential fears surrounding identity and produced nations of shoppers by elevating “desire” out of the realm of taboo until, now, I can buy my identity, thanks to brands that reflect who I am.

Robert Bly in, “The Sibling Society,” argues that this validation and engorgement of our desires is why our super-ego’s have become pitiless judges and frantic dictators, to balance out our overly validated ids. He adds that this is especially acute in our youth, and explains both their taste for violence and their suicides.

Anonymous says:

What is troubling is how the western intellectual will cogitate on concepts that are so irrelevant as to be laughable.

The ‘isms’ are ideological and yet the bulk of the world fixates on the racial, religious and tribal.

As we create polyglot societies we imagine we are united under some constitution, the rule of law, yet all around us we see constitutional process and the rule of law being eroded.

A savage with an AK-47 is given lawyers and due process yet a military commander ordered to stop he depradations the savage inflicts
can find himself indicted by a ‘international tribunal’

The barbarians are at the gate and they will not much care about your ability to define irrelevant distinctions. He will know you. Will you know him?

Anonymous says:

Sorry, I posted my above message twice by mistake… not because I thought it’s worth reading twice…:)

Vinny GOLDberg

Anonymous says:

Welcome to the new Global Social Darwinism…… Coming to a newly-opened Parisian sweatshop near you…LOL

Vinny GOLDberg

Vinny, I think you mean Muahhahahaha Muahahahaha instead of LOL.

gordon says:

Yves: “…[capitalism's] promoters managed to sell it to libertarians, who somehow bought that this construct would help the little guy..”

I don’t think so. Libertarians are more cunning than that. Neocon capitalism looked like a good way to avoid taxes, something which has always been at the top of the libertarian agenda.

cent21 says:

Thought experient for investors primarily interested in saving for retirement.

Social Security revenues are down about 10% this year. The stock market is down about 50%. Which one is more secure under worst case economic conditions?

Relying on people being employed in the future, even in an environment where unemployment might exceed 10%, still leaves about 90% of Social Security revenues ex trust fund interest intact.

Can any combination of private capital guarantee that fraction of a promised return on (or of) capital some 50 years into the future?

JR says:

john c. halasz,

What is your point? Mine is that we don’t need G printing money to otherwise make up for an inherent shortage in loanable funds. Its my position G printing destroys real wealth and reduces the pool of loanable funds.

More money is not wealth, it just makes the existing money worth less and benefits the early recipients of that money to detriment of others.

“You’re both missing the Kaleckian point that the level of supply of loanable funds is primarily determined by the level of corporate profits,”

Actually, I disagree with it. What about all the money the Government pumps into the banking system?

I agree business profitability plays a key role in expanding the pool of real wealth that can be either saved/invested or consumed, if that is what you mean.

“which result from successful, productivity-improving investments,”

agree about where profits come from

“and which must be re-cycled into further investment,”

Why must they be? Can’t firms pay dividends?

“such that a) it doesn’t entirely depend on a fund of prior savings, since productivity-improving investments generate “savings”,”

Agree existing business can make profits and thus not have to borrow as much money. What about the new business? What about the businesses that want to invest in capital intensive expansion?

“and b) credit is necessary to getting production cycles going and extending them, hence endogenous to large-scale industrial production.”

Agree we need credit to support new businesses and the capital-intensive expansion of existing business.

Anonymous says:

@JR said…Mother Teresa wanted to help people. So she did

….

Sorry JR but,

You mean the old lady that ran the orphanage, that had her face and all the poor/hungry kids splashed all over media, that took in $$$$$$$$$$$ of monies, that never used 1% of that money to help those kids, but was the reason people gave the money and was used to fill the vaults of the Roman Catholic Church. No wonder she was canonized, best money make the Church has seen in hundreds of years.

Bad point in case me thinks (she was selfish) in her beliefs, that suffering was good for their souls. To bad every one that gave money did so under false pretenses, but their good at that game eh.

Skippy…careful of your goals.

Anonymous says:

Agree with skippy, I love the idea of trashing a Saint.

JR

Mother Theresa wanted to help people? Who is to say they could be helped to begin with? Who is she to decide how any money, time or effort will be spent? In the best radical position of anarcho-capitalists, those people would be much better off spending that themselves.

Charity is not a good use of capital.

Those who have the gold make the rules.

The biggest problem with a gold standard is the Mechanics.

Who already has the gold? Why, if you have all the gold, would you let anyone use it for money, its value is theoretically infinite in that situation.

Who makes the rules going forward? Are there elections, lobbies? Who gets whats there?

If the government budget is too big to not have people sucking on, who says the money supply of the world wouldn’t be a great target for manipulation? Who are the police that protect this money supply? How are they governed? How do they get the gold in order to get the power to make the rules?

God bless the good mother.

Anonymous says:

Yves,
Thanks for the BBC links. Very much confirms my gut intuitions about how modern Americans have become consumers and not citizens. Apparently this was planned– which is pretty disturbing. I have some experience with the human potential movement, and can attest that a lot of it promoted self-satisfied, uninvolved people. One of the things that is sad about it is that so much of it was poorly understood and warmed over Buddhism. Looks like Sam Harris and his cohort are well on their way to being this generations pop-Buddhist ideologues.

For the libertarians:
Again for the minarchists and libertarians: HOW will you keep the government limited? HOW will you prevent private entities from overwhelming a crippled and weakened state? Why should the state become limited? Just because people want it to be so? Are you going to depend on people’s altruism? Waving a piece of paper at an oligarch is not going to stop him.

Please also provide working examples of your minarchist paradise.

Yves Smith says:

Anon of 4:10,

I find that to be a very distorted reading of the series. Nowhere does he say anything resembling your points.

As to points 1-3, Curtis instead says that government and big business used ideas from psychology to promote a consumer culture and later in the Reagan/Thatcher era. to combat the growth of a cohort that sought self-actualization (out of the human potential movement) which was hard to reach by conventional ad techniques (they became a psychographic rather than demographic segment) and used libertarian messages to successfully reach many of them.

And as for 3, I suggest you look at the effectiveness of TV drug ads. They most assuredly do lead consumers to hound their doctors for those meds. I get that complaint from doctors all the time. And 50 year ago, values were very different. No one cared about designer labels or having the right gadget. To argue against the effectiveness in the face of consumer loyalty to brands, or identifying certain brands with status (particularly in cars) suggests you have not been out in middle/upper middle class America in the last 20 years.

Curtis in fact seldom uses the word capitalism in the series, save when talking about the struggle versus communism/bolshevism.

He did not say advertising “drives” the desire for accumulation. Greed has been around for centuries. He said that advertising shaped tastes and create a consumer society. That is quite different.

He never said anything resembling 4. Saying that the effect of creating and catering to a consumer class has shifted even the left to the right is far short of 4.

And mercantilism is alive and well. It’s the basis of Chinese trade policies.

Danny Vice says:

America isn’t a free market system?

What? Are you losing your mind?

If I want to sell a banana for $12, I can. Now is there regularion that requires me to assure I won’t kill someone with that banana? yes.

Do I have to charge tax for it, yes. Do I have to provide safety measure for emplyees who harvest that banana? Yes.

But those are regulations for the public good.

Socialism isn’t even in the same argument.

Socialism is when the state buys my company and decides how much I deserve to make for my “part” in providing it.