A La Carte (8/25)

I am no economist, BUT “Crisis of Capitalism” piece, though really well done, was obviously advocating socialism/marxism. Capitalism motivates people to produce in a way that no other system does. We don’t actually HAVE to have credit to create demand. Eliminate consumer credit and the economy would still grow, just at a more moderate rate.

Tim - just love “a la carte”. Thanks!

I’m with you on classifying myself as “I need to learn more about economics”. I recently read Sproul Jr.’s Biblical Economics and it rocked my world. I can’t stop talking about it and it’s helped me in tremendous ways, especially in how I listen and interpret much of the mainstream media’s content on economics.That got me interested in the free market/capitalistic approach and landed me over on http://www.mises.org looking into the Austrian school. Still researching that but I found a fantastic little book called The Law by a French Philosopher/economist named Bastiat. Another excellent book, this one focusing more on the role of government and the follies of marxism/socialism.

i’m just getting started and already I feel at the very least able to finally listen intelligently (for the first time!) to all the economic conversations and debates out there.

have fun!paul

@Josh - I have Money, Greed and God too and was going to mention that in my post! I can’t wait to dive into that one too. Thanks for the reminder!

Brian B said it best above “The problem is not capitalism, the problem is sin.”

Capitalism is the best system we have come up with, but as with any system, it will be exploited by sinful man. I need to learn more about economics too and here is my to read list on the issues:Biblical Economics by Sproul, Jr.Basic Economics by Thomas Sowell

Also, for an interesting viewpoint, I’m just finishing up “Priceless: The Myth of Fair Value”, which is a fabulous book.

Hi Tim. While I’m not an economist (much less an expert), I did study economics for my undergrad, and now I work in a closely related field, so I feel like I may have 2 cents worth adding. First, let’s be clear. “Capitalism” is not a problem, nor is it broken. Capitalism itself simply *is*. It’s an irremovable function of human existence. People trade. And therefore, to say that capitalism “failed” and led to this crisis would be like coming upon a plane wreck and saying, “Well, the Bernoulli principle obviously failed, that’s why this plane crashed.” It’s nonsense. (Adam Smith does an excellent job of describing the ins and outs of trade.) And with that in mind, it’s clear that you can’t go outside of capitalism or replace capitalism.

Now, to the lecture itself. The thing that stands out to me as most provocative and questionable is his claim at 7:10 that “Capitalism never solves its crises, it merely shift them geographically.” That’s where his entire argument loses all cogency. Now, perhaps it’s true that weak-kneed politicians attempt to shift problems onto weaker demographics, but (a) this doesn’t merely happen geographically, it also happens (i) temporally and (ii) onto different sectors of the same economy (these are called asset bubbles), and (b) going back to my first paragraph, this isn’t a problem of capitalism, it’s a problem of bad policies.

Regarding the problem of obscene remuneration for financiers, I tend to agree somewhat. Finance is kind of like a faucet: when it’s going full bore, the water gets through, and everyone is satisfied with what they want. The faucet holds a lot of power over everyone else. But just because finance holds that power does not invariably mean they should receive such large premiums. However, conversely, those premiums (known in economics as “rents”) are the current cost of having an effective and working financial world. There’s no free lunch. (And again, let’s be clear: the economy didn’t crash because finance got things wrong. The lecturer’s 5 points in the early part all hold some truth: partly it was a failure of government, of policy, of finance, of regulation, etc. It wasn’t plainly the financier’s fault, so let’s not unduly villify them.)

So, Yes, I agree with his conclusion at the end: change your mode of thinking regarding political promises. And perhaps consider, how can we, or should we, change the individual incentives and power given to financiers. But I can’t agree with how he got to that conclusion, riding a Marxist magic carpet. There’s no free lunch. There is no system, especially including marxism, that can actually work outside of human nature. Incentives are powerful, and policies always have unintended consequences. Think them through. But don’t blindly blame “capitalism,” as some are wont to do.

/That was more like 5 cents.

The moment that you see or hear the term “new social order”, turn the page, close the book, turn the channel, and go do something useful!

On Crises of Capitalism-

He puts all of the blame for crises on the greediness that capitalism produces in individuals. There are always times of boom and bust, but the federal government of the U.S. poured jet fuel on the housing bust by encouraging banks and other institutions to facilitate home ownership (Clinton, W. Bush, and other politicians pushed hard for for home ownership, especially Clinton). They even created an outlet to whom mortgage originators could sell these flawed loans (Fannie and Freddie were created decades ago, but became the biggest purchasers of home loans- yes they are only quasi-governmental, but their involvement made it much worse).

What’s a businessman to do? You had guys originating loans like crazy, and had the government’s implied backing of those loans. They could sell these loans for $2-$5K a pop.

The biggest mistake of the government was creating an imminently corruptable system. Had the government not been involved, there may have still been a housing boom and bust, but you can bet it would have been much less severe. The government gave the free market a false sense of security and made the natural cycle that happens grow to a very unhealthy extreme. He doesn’t really mention this point.

He also makes an incredible claim that our recklessness caused Greece’s financial crisis??? I believe Greece is a warning about what can happen to a welfare state that has more liabilities than it can pay, but to say that our behavior or anyone else’s behavior magically imposed itself on another country and caused it’s downfall seems pretty ridiculous to me. Maybe I just don’t understand what he was saying on that point.

Well at 6:05 roughly he overplays his hand and condemns the accumulation of capital as the problem. Really? So the Marxist solution then becomes, “take everything away from everyone and all will be well.” This needs no refutation other than to point it out as absurd. Some other thoughts:

He blames American’s desire to have a house as government inspired in order to suppress worker revolt, which only a Marxist would think up. It comes from our heritage, go read Second Treatise of Government by Lock and see that the exercising of rights demands a place to do it. The founders knew that a right to happiness was synonymous with right to property.

“the history of capitalism is financial innovation.” No, it’s the increase of productivity. Money is money, it’s how you allocate the and make use of scarce resources, not how you procure funding.

Profits in 1990 were exploding due to increases in manufacturing because of the internet. Thanks to integrated supply chains, just in time manufacturing and being able to directly ask your customers what they want we are much more efficient and waste fewer resources. It’s not due to greed or “racking up of wealth.”

India is increasing productivity, so people are growing more wealthy, which is a good thing. That we have more people with money is a *very* good thing. Unless you’re a Marxist, and want the money for yourself, in which case having people live in holes in the ground and starve to death is okay so long as none of them are billionaires.

Tacitly he rejects division of labor, requiring us all to be farmers, welders, engineers of all disciplines, all things, which quite obviously won’t do for an advanced society such as ours.Anyhow, none of this gets to the problems with Communism, namely that when my neighbor and I no longer can make decisions for ourselves then someone else is making the decisions for us, and we have to wonder on what basis does the government official make that decision? Hyack speaks to this on “Road to Serfdom” a short book that’s worth your read.

Capitalism is the ability for my neighbor to meet my needs, money is a tool that facilitates trade when he makes guacamole and I make car tires and we are wondering how many gallons of food should I sell my tire for.Any other model has other people stealing from me to give to my neighbor and telling me that my owning money is a problem. It’s tantamount to saying that working (divinely ordained) and producing things is the problem.

Man, Philip is spot on. I almost mentioned it in my note, but want to remember, that the accumulation of capital is actually NOT a bad thing. Wealth is what lifts people out of poverty. Accumulation of wealth is better than destruction of wealth. (now, we sinners take our accumulated wealth and do some bad things with it. Greed, the love of money, is the root of all kinds of evils.) But in itself, Having Stuff is actually better than Not Having Stuff.

Thanks for the link to Bible Summary!

Carol (comment #1) - Absolutely! My biggest hope for the project is that it will inspire people to read the Bible for themselves.

It’s been amazing how many people have already got in touch saying things like “I’m not a Christian but I’ve always wanted to know what’s in the Bible.” There seems to be huge interest in Scripture, even where you wouldn’t expect it!