David Stockman, director of the Office of Management and Budget under Reagan and a former Congressman puts it bluntly “I believe we no longer have free market capitalism and we no longer have a democracy.” What we have instead is “crony capitalism” — a system that is rigged in favor of the financial elite, and which will “generate results the market wouldn’t otherwise provide for”.
The whole point of free-market capitalism is that it is supposed to reward the best and the brightest, encourage innovation and keep businesses competitive. Without competition, what you have is socialism (or worse, National Socialism). When conservatives attack socialism, they are actually attacking socialism for the poor, but socialism for the rich is even worse because the rich control our economy. When failure is met with bailouts and flabby industries are kept alive with corporate welfare, our entire economy is in jeopardy.
According to Stockman, the main culprit is The Fed. “The Fed is the great enabler.” Allowing banks to borrow money at no cost for so long turns “capital markets into a rip-roaring casino that really is not productive for the real main street economy and is generating windfall gains for a very limited number of people for no good purpose.”
How do we we solve this problem? Simple, go back to free markets. No more bank bailouts, no more subsidies for dinosaur industries (I’m looking at you, oil!), and regulate banks so that all investors have an equal opportunity to make money, not just insiders. And raise taxes.
12 Comments
I generally agree, but I get a little skeptical whenever someone talks about “going back” to something. I’m especially skeptical when that something is as vague as “free markets.” Take health care, for instance. Health care is expensive because of increased demand. Some from aging, yes, but another big source is increased demand for pharmaceuticals. Why do we have increased demand for drugs? In my view, increased advertising is a major contributor. In other words, as a result of creating a freer market in advertising, we have increased costs, which seems like a free market response to me. I hope any of that made sense. What I’m trying to say, I guess, is that “free market” seems to be an ideal and a red herring. We’ve never had free markets and never will.
On the other hand, one area that I’d like to see un-free markets is broadband and cable providers. Right now, major providers basically have localized monopolies, and consumers are getting the shaft. I’d personally like to see some good old-fashioned government intervention to mandate competition. But that would increase competition, which would make for a free market… I guess…
This reminds me of what the Tea Party’s platform used to be. Before the people bankrolling them steered them back firmly into the GOP pro-corporate fold.
Yes Morrius you are right.
“When failure is met with bailouts and flabby industries are kept alive with corporate welfare”. We should never have bailed out the banks and we should not give them 0 int loans. Remake the Fed, dissolve it, or oversee it anything but what it is.
I still believe, as much as the bailouts are maligned, that TARP and ARRA were necessary, given the conditions at the time. I think that, had they not been passed, the economic devastation would have been greater. I believe, as bad as they were, they were necessary poisons.
What should have happened (and didn’t) was reinstating the regulatory powers of Glass-Steagall, as well as implementing oversight of the derivatives market. Eliminate the revolving door of corporate executives controlling the SEC, and give the SEC greater power to investigate corruption. It’s easy to just say, “No more bailouts,” but until these industries are more regulated, they may be necessary.
What Socialism? Socialism is defined as “an economic system in which the means of production are publicly or commonly owned and controlled co-operatively, or a political philosophy advocating such a system”.
Welfare is not socialism. Welfare is welfare. Conservatives are attacking welfare for people but supporting welfare for companies while at the same time saying the government shouldn’t do so. Tickle down has never worked and still doesn’t.
Michael, I actually agree with you. The bailouts were necessary, but only because the banks had grown dependent on them. I suppose it will be necessary to wean them off of them. Reinstating Glass-Steagall is a good step, as is regulating speculators and increasing taxes on the wealthy. You are entirely correct that you need regulations to ensure that we have a free market, then you can get rid of the bailouts.
Michael, I think your definition of a free market is different than mine. A free market is where lots of companies compete freely. I never said that “free markets” are markets without regulation (although I suppose there are Republicans using that bad definition).
Person, we are agreeing. Trickle down (your “tickle down”) has never worked.
Regarding free markets, I agree with you that the ideal is a market in which a lot of companies can compete freely. But an economist might argue that regulation, being government intervention, interferes with the natural result of a free market. (Of course, this ignores the fact that regulation is often designed to counteract externalities and market failures. I just don’t like the term, because it seems to mean whatever the speaker wants it to be.
There was once the law requiring corporations to obtain charters to receive corporate status. Most were 10 to 20 years to keep Corporations from getting too bloated and powerful. Many were turned down because their company didn’t work for the “public interest”. Corporations pay very little in taxes compared to a sole proprietorship. Denying corporate status was a means of distributing wealth, without gouging the little guy.
Michael, you are making the Wall Street argument (and IK you fell for it!), but you are missing a crucial point: the PRICE for the bailout should have been paid FIRST by the bank stockholders, NEXT by the bank bondholders, THEN the taxpayers, the same thing that happened to GM.
Michael and I are on the same page on this one. The bailouts were necessary because of the unbelievable mess that shadow banking caused. Everyone who demanded that we not bail out the banks, to let everything fail and “reset” itself, had no real idea of the catastrophe that would have caused.
On free markets also. My problem with free markets is the same: the definition is manipulated to suit the argument. In general competition is good, but regulations are necessary. Michael makes an excellent point with health care. Health care is one of the few unique goods that will always (yes, always) fail in a free market environment because the demand for health care is unlimited, while the supply is severely limited in several ways. You will pay everything you have (and more through loans, etc.) to provide yourself or your family with life saving health care.
In this case, no amount of competition will save the day. Either it will be provided as a public service and the price will remain relatively static and controlled, or it will be provided on the private market and prices will spiral out of control.
I know you aren’t a free market zealot IK and this isn’t particularly directed at you. I just feel like most pro free market arguments boil down to a simple tautology: “free markets are good because they are free”.
To be clear, I also know that Wall Street needed a bailout to save Main Street, but not on such easy terms. The bailout did not prevent the Great Depression II, but just postponed it a few years.
Lack of regulation does not equal a free market. Nobody would argue that a market where one company has a monopoly is a free market. That is why we have anti-trust laws to ensure markets are open to free competition. At least some regulation is required for there to be free markets, just like laws against murder and robbery are required for people to be free. It is pretty simple, really.