Why Capitalism Fails

Why Capitalism Fails

www.boston.com

But if Minsky was as right as he seems to have been, the news is not exactly encouraging. He believed in capitalism, but also believed it had almost a genetic weakness. Modern finance, he argued, was far from the stabilizing force that mainstream economics portrayed: rather, it was a system that created the illusion of stability while simultaneously creating the conditions for an inevitable and dramatic collapse.

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The article goes on to say...

In other words, the one person who foresaw the crisis also believed that our whole financial system contains the seeds of its own destruction. “Instability,” he wrote, “is an inherent and inescapable flaw of capitalism.”

Very interesting article.

Here we have someone who believes in Capitalism, predicting, decades ago, not only what would happen in our most recent economic crisis, but also the next big problem as well.

So perhaps we have seen the end to the "Free Market Solves Everything" mentality.

www.boston.com
(visit the link for the full news article)

reply to post by HunkaHunka


Capitalism will fail everytime the government sticks it's nose into it with useless regulations and pandering to special interests.

Capitalism, left alone, runs just fine.

Originally posted by mikerussellus
reply to post by HunkaHunka

 

Capitalism will fail everytime the government sticks it's nose into it with useless regulations and pandering to special interests.

Capitalism, left alone, runs just fine.

Really? Did you even read the article?



So what about the meltdown this guy predicted, which occurred BEFORE government intervention?

Some people just have blind faith... whether it be in a religion or a economic style... it doesn't matter. Those with blind faith are just that... blind.


[edit on 17-9-2009 by HunkaHunka]

Originally posted by HunkaHunka
So perhaps we have seen the end to the "Free Market Solves Everything" mentality.

My take...as an observer, not an economist...remains that capitolism likely failed about the same time as communism did. The reason we didin't notice is that we were all propped up by credit.

The Fordian Principal...that you sell the product in the same market that you make it...has disappeared. Globalism has taken over, and it was an obvious financial inequity that you can't take the jobs away from North American workers, send them overseas, let Wall Street scoop the difference and maintain the North American way of life.

Free market only works if the Great Unwashed can buy stuff. Wha did I hear yesterday? One in eight American homes are in real danger of default? That's gonna limit your purchasing to what you can fit in your tent.

And when the Unemployment benefits run out...that's when I see the scata really hitting the fan.

And you don't need to know Keynes from kitty litter to figure all that out.
All in my humble, uneducated opinion, of course.

Originally posted by HunkaHunka

Originally posted by mikerussellus
reply to post by HunkaHunka

 

Capitalism will fail everytime the government sticks it's nose into it with useless regulations and pandering to special interests.

Capitalism, left alone, runs just fine.

Really?

So what about the meltdown this guy predicted, which occurred BEFORE government intervention?

Some people just have blind faith... whether it be in a religion or a economic style... it doesn't matter. Those with blind faith are just that... blind.

Ummmm, this guy was not even born when the government began regulating the free market. So how could he have 'predicted it'?

reply to post by NOTurTypical

Another one not to actually read the article.

The man was born in 1919...



It's hilarious how many followers there are of the blind faith in the free market.

I mean seriously look at the stars on the posts from people who didn't even read the article... just snarky remarks...



[edit on 17-9-2009 by HunkaHunka]


Mod Edit: Quoting Etiquette – Please Review This Link.

[edit on 19-9-2009 by DontTreadOnMe]

reply to post by HunkaHunka
Okay Mr. Smart Guy let me ask you a question....

Whan did the GOVERNMENT begin REGULATING private businesses????????

Take your time.

Originally posted by NOTurTypical
reply to post by HunkaHunka

 

Okay Mr. Smart Guy let me ask you a question....

Whan did the GOVERNMENT begin REGULATING private businesses????????

Take your time.

His point wasn't even about that....

Understanding Minsky's Financial Instability Hypothesis

Hyman Minsky's theories about debt accumulation received revived attention in the media during the Subprime mortgage crisis of the late 2000s.[5]

Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt. He identified 3 types of borrowers that contribute to the accumulation of insolvent debt: Hedge Borrowers; Speculative Borrowers; and Ponzi Borrowers.

The "hedge borrower" can make debt payments (covering interest and principal) from current cash flows from investments. For the "speculative borrower", the cash flow from investments can service the debt, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The "Ponzi borrower" (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.

The inevitable disillusionment of the Ponzi borrower, when the bubble pops, i.e., the asset price ceases to increase, can lead to seizure of the credit system. The speculative borrower, who needed no more than debt rollover, can no longer refinance the principal despite the borrowers ability to cover interest payments. The collapse of the speculative borrowers can then bring down even hedge borrowers, who are unable to find loans despite the apparent soundness of the underlying investments.

reply to post by HunkaHunka


You hate capitalism and the US people, so what exactly do you propose that can make this country a utopia? Communism? Show me facts on how that system works and explain why all of those under a communist society are so much better off and happier in their Utopian society.

reply to post by HunkaHunka


That reply is not a date for one, and for two that is the BANKING and investment SYSTEM, NOT a market for the SELLING of goods and services.

Now, if you want to discuss the problems with a communist-style central banking system then I'm all ears.

Again, when did Uncle Sam begin regulating BUSINESSES?

Originally posted by sickofitall2012
reply to post by HunkaHunka

 

You hate capitalism and the US people, so what exactly do you propose that can make this country a utopia? Communism? Show me facts on how that system works and explain why all of those under a communist society are so much better off and happier in their Utopian society.

I don't hate capitalism, and neither did Hyman Minsky.

Why do you assume, because I'm not 100% for something and 100 against anything else that I hate it? And where do you get off assuming I hate American people? Oh that's just an ad hominem attack because you have nothing else to stand on.

You seem to have a very dualistic view on things.

What would make things work better is a different ethos behind our capitalism. For example... teach children how to start businesses in highschool. Prioritize owning your own business over working for someone else... that working for someone else is only so you can build a surplus to start your own (as Lincoln admonished).

Teach our children to save... put on PSA's about saving being better for us all than spending... etc

Instead we flood our media with the "go get a job and spend spend spend" mentality.



[edit on 17-9-2009 by HunkaHunka]

Originally posted by sickofitall2012
reply to post by HunkaHunka

 

You hate capitalism and the US people, so what exactly do you propose that can make this country a utopia?

I'm sorry...can you point me to the part where it said he hated the American people? I missed that. Capitalism ain't happening. I guess that slipped past you.

When you land a pair of Nikes in Vancouver for $9...these numbers about a decade old...and sell them for $100, that is not capitalism at work. You aren't making money by making shoes, you are making it by shuffling money around. The product is incidental. The Ponzi scheme is how much money can you wrest out of the market before it collapses from a lack of input.

That ain't capitalism...and it ain't anti Americanism either.

It's realism.

Originally posted by NOTurTypical
reply to post by HunkaHunka

 

That reply is not a date for one, and for two that is the BANKING and investment SYSTEM, NOT a market for the SELLING of goods and services.

Now, if you want to discuss the problems with a communist-style central banking system then I'm all ears.

Again, when did Uncle Sam begin regulating BUSINESSES?

Well, originally business had to have a charter from the US Gov. And if found that they no longer provided a positive service, that Charter could be revoked. Personally I believe we should go back to that...

When American colonists declared independence from England in 1776, they also freed themselves from control by English corporations that extracted their wealth and dominated trade. After fighting a revolution to end this exploitation, our country's founders retained a healthy fear of corporate power and wisely limited corporations exclusively to a business role. Corporations were forbidden from attempting to influence elections, public policy, and other realms of civic society.

Initially, the privilege of incorporation was granted selectively to enable activities that benefited the public, such as construction of roads or canals. Enabling shareholders to profit was seen as a means to that end.

The states also imposed conditions (some of which remain on the books, though unused) like these:

* Corporate charters (licenses to exist) were granted for a limited time and could be revoked promptly for violating laws.

* Corporations could engage only in activities necessary to fulfill their chartered purpose.

* Corporations could not own stock in other corporations nor own any property that was not essential to fulfilling their chartered purpose.

* Corporations were often terminated if they exceeded their authority or caused public harm.

* Owners and managers were responsible for criminal acts committed on the job.

* Corporations could not make any political or charitable contributions nor spend money to influence law-making.

For 100 years after the American Revolution, legislators maintained tight controll of the corporate chartering process. Because of widespread public opposition, early legislators granted very few corporate charters, and only after debate. Citizens governed corporations by detailing operating conditions not just in charters but also in state constitutions and state laws. Incorporated businesses were prohibited from taking any action that legislators did not specifically allow.

States also limited corporate charters to a set number of years. Unless a legislature renewed an expiring charter, the corporation was dissolved and its assets were divided among shareholders. Citizen authority clauses limited capitalization, debts, land holdings, and sometimes, even profits. They required a company's accounting books to be turned over to a legislature upon request. The power of large shareholders was limited by scaled voting, so that large and small investors had equal voting rights. Interlocking directorates were outlawed. Shareholders had the right to remove directors at will.

In Europe, charters protected directors and stockholders from liability for debts and harms caused by their corporations. American legislators explicitly rejected this corporate shield. The penalty for abuse or misuse of the charter was not a plea bargain and a fine, but dissolution of the corporation.

In 1819 the U.S. Supreme Court tried to strip states of this sovereign right by overruling a lower court's decision that allowed New Hampshire to revoke a charter granted to Dartmouth College by King George III. The Court claimed that since the charter contained no revocation clause, it could not be withdrawn. The Supreme Court's attack on state sovereignty outraged citizens.

reply to post by HunkaHunka
Your copy/paste answered my question: the early part of the 19th century. So in order for this man to have 'predicted' it he would have to be over 200 years old.

Thank you.

Originally posted by NOTurTypical
reply to post by HunkaHunka

 

Your copy/paste answered my question: the early part of the 19th century. So in order for this man to have 'predicted' it he would have to be over 200 years old.

Thank you.

Once again... his proven hypothesis has nothing to do with market regulation and everything to do with modern finance...

You really should read the article and debate it on it's merits instead of using misdirection and deflection.

Your point about market regulation doesn't even figure in to his proven hypothesis.

His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. “There is no simple answer to the problems of our capitalism,” wrote Minsky. “There is no solution that can be transformed into a catchy phrase and carried on banners.”

Sigh, for the last 30 years, I've overheard the cries of the Freemarketeers, the unfettered capitalists, sound every bit as defendant of their idea of capitalism as the old radical left was of communism. Both defenders held that their systems would be perfect, if only ... . The radical left was put in the corner of the room, while the radical right was allowed to dance every dance and be the life of the party (hmmmm, literally, the Republican Party).

For three decades, as the national wealth flowed upward, yanked from the hands of the American middle class, both sides adjusted. The average American adjusted, with increasing reliance on credit in a world of increasing financial insecurity, happy to have a job, while those on the other end of the financial spectrum got greedier and greedier, being so bold as to resort to outright fraud and theft.

The Freemarketeers were the biggest enablers of this greedy fraud, being allowed to cheer lustily while the game became rigged. Decades to get this stuck, years to recover.

reply to post by HunkaHunka


He didn't predict it before government intervention. The intervention started in 1913.

It's easy to predict what happens when Central economic planning takes root. It only ever ends one way. Central Banking is not capitalism. Never was. Once the currency can be manipulated it's pretty simple to tell where the country will end up.

[edit on 17-9-2009 by aravoth]

Originally posted by desert

His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. “There is no simple answer to the problems of our capitalism,” wrote Minsky. “There is no solution that can be transformed into a catchy phrase and carried on banners.”

Sigh, for the last 30 years, I've overheard the cries of the Freemarketeers, the unfettered capitalists, sound every bit as defendant of their idea of capitalism as the old radical left was of communism. Both defenders held that their systems would be perfect, if only ... . The radical left was put in the corner of the room, while the radical right was allowed to dance every dance and be the life of the party (hmmmm, literally, the Republican Party).

For three decades, as the national wealth flowed upward, yanked from the hands of the American middle class, both sides adjusted. The average American adjusted, with increasing reliance on credit in a world of increasing financial insecurity, happy to have a job, while those on the other end of the financial spectrum got greedier and greedier, being so bold as to resort to outright fraud and theft.

The Freemarketeers were the biggest enablers of this greedy fraud, being allowed to cheer lustily while the game became rigged. Decades to get this stuck, years to recover.

This is indeed the issue...

It takes someone who is a capitalist himself, Minsky, to understand that it is also flawed...

There is no economic system which is better than the other... only a hybrid approach is the best bet we have.

reply to post by HunkaHunka


I don't really think Capitalism failed per se. I mean it did exactly what it was designed to do. Get as high up on that cash cow as possible right? At least for a while right? The only problem is, everything in life is a trade off. For every high there's a low.

Because like all things, capitalism has good and bad things about it. One of the good things is when everyone is making fat cash and livin it up. That's the only part of capitalism people like. They don't like the other part where someone has to starve. But it's just basic physics.

Socialism and capitalism are just different systems for managing scarcity. Which means we don't have enough stuff so we have to decide who gets what. What we're scarce on is natural resources BTW. How to divide that up?

In capitalism we all compete for it somehow. With socialism we let the government decide how to divide everything up. Most countries use a bit of both with regulated capitalism where we compete with each other, but the way we compete is regulated.

Somebody has to starve in capitalism. If the government regulates it to the point where nobody starves then you don't have capitalism, you have socialism.

So with socialism the government divides everything up so everyone gets a much much smaller fair share. But humans are greedy so they don't look at it that way. When a human looks at socialism what they see is just that everybody has nothing.

So our greed leads to us wanting that capitalism because everyone thinks they're going to be the one that gets to live high up on the hill. They're not going to be the one that starves right? But everything in life is a trade off.

Since the highs of capitalism are so high, well guess what? The lows are even lower!

And that's the problem with capitalism. Everyone keeps competing and competing and competing thinking they're not going to be the ones that starve, and they may be right. But someone starves.

And when they do, and when we figure out who's going to be the one to starve today we look on in horror, finally realizing what we've done. And we can't admit that we're the ones that did it. So we blame capitalism, but who's idea was it to use capitalism?

Just like a roller coaster I suggest that if you're scared to come down, then don't go up. But when the government comes in and tells us the roller coaster is dangerous and don't go up there. We call it socialism, fascism, a dictator ship. Mainly because as they tell us not to climb the ladder the politicians are pushing us down trying to get up there themselves. So we think hey, they want up there really bad. Must be fun. And it is for a while...

WE know better. We'll do it right next time! We'll regulate the highs! We'll base our money on gold this time! We WON'T MESS UP AGAIN! they say.

But then it fails again anyway. Then someone else starves again and we look on in horror and blame capitalism again.

But there's not enough resources for everyone have two cars and a white picket fence. As long as that's the dream, someone somewhere in the world has to starve to pay for that.

But nobody is going to give up their house and two cars and white picket fence because some jerk that didn't work just starved to death right? You worked for it, he didn't right? Must be capitalism's fault! Not yours!...Right?

YOU COMPETED FOR IT ALL AND WON RIGHT! Sounds like capitalism is working just fine to me.