My First Post — Comment about the Purpose of Capitalism and Free Markets
There is a confusion about what free markets mean and the purpose of capitalism that really needs clarification in the debate at large. Some believe that the market is essentially evil and must be contained through regulation and wealth distribution, while others believe in free markets that should be left alone at all (or most) costs. Unfortunately, both sides miss the point.
The point of capitalism and free markets is this — the goal of capitalism is value creation, not fairness or forcing the rise of asset values without rationale. When a person starts a company, hires people, and develops new and cutting edge products, capitalism is properly working. This activity enhances our lives and is what drives our economy and our livelihoods. It is this overriding goal which counts — the government’s role is to facilitate this activity.
On the other hand, “free markets,” without any goal but to generate false returns due to rising asset values (when no actual production or creation occurs), is ultimately detrimental. This crying mantra of free markets at all costs, is really just the scream of people who want to become rich by redistributing wealth to themselves without creating any real value. Such behavior, is what the goal of any regulation should be.
I believe that the global meltdown occurred because our capitalist engine was sidetracked from creating production and innovation, to milking false rising asset prices. The world’s financial actors were solely interesting in pushing up real estate prices, commodity prices, and equity prices in order to enrich themselves (which they did for many years), while creating zero value. This is the illness that must be contained as we move forward.
Any governmental regulation and involvement should be solely contained to encourage true capitalism and minimize such destructive behavior, as long as reasonably and carefully done (with a huge eye towards not overreaching). Any actions that deter true capitalism, should be avoided at all costs. This includes, in my opinion, creating governmental regulation and interference for “fairness” and so-called related social goals which are not only ultimately wasteful, they are unfair as well.
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December 17th, 2008 at 4:00 am
MJK:
Congratulations on the new blog. Let me be the, um, first to shout: First!
Good luck and hatzlahcha rabbah!
Baruch
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December 17th, 2008 at 1:50 pm
mazel tov
viva la revolution!!!!!!!!!
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December 23rd, 2008 at 6:22 pm
Shalom MJK!
Interesting topic and good blog start (design fine), but the meltdown is the result of the unrealistic projections & expectations. The world economy is at 60 trillion and we have amassed debt of 700 trillion. We have killed or abandoned the true principles of Capitalism and now with more regulation and bailouts we are moving closer to European style Socialism.
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MJK
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December 23rd, 2008 at 11:32 pm
David, thanks for your comment! I agree with your summary about the overall cause of the meltdown. Regarding the U.S. move to socialism, I am hoping that this will be temporary or at least as short-lived as possible, where the Government will extricate itself somehow from all this. Obama, in naming a center-left economic team (Clinton redux), is implying that he does not want socialism. Though I find it ironic that these guys too are complicit in fueling the fire towards our meltdown (see the 1999 article, http://query.nytimes.com/gst/fullpage.html?res=9c0de7db153ef933a0575ac0a96f958260&sec=&spon=&pagewanted=all). And as an aside, it was amazing to see the bailout of Citigroup where all the company’s long term directors kept their jobs, including Robert Rubin, Clinton’s Treasury Secretary who is the inspiration behind Obama’s selected economic team. Probably another great example of Bush / Obama cooperation post-election . . .
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