Thursday, March 12, 2009

Capitalism

You may have heard the word 'Capitalism'. This word has defined our country and set us apart for over 200 years. CAPITALISM created the wealth, the freedom and the opportunity that exists in this country today. What is it?

According to Random House Dictionary, capitalism is "an economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, esp. as contrasted to cooperatively or state-owned means of wealth." Capitalism is synonymous with the words "free market."

This means that individuals, or corporations (separate entities run by groups of individuals) decide what to make, how to make it, and how much to charge for it. These same individuals and corporations also have the option to buy or not buy goods and services from other companies. Within this model, prices are controlled purely by supply and demand. In the most basic sense, prices will rise and fall based on the suppliers ability to produce at a certain cost and buyers ability to buy at a certain cost. Everyone has experienced supply and demand.

- You demand food.
- A grocery store has set out food that they have been able to produce at a cost lower than they think they can sell it for.
- You go to the grocery store and select food.
- The grocery store tells you the price of the food.
- If the price is high, you find other food that will suit your needs.
- If the price is low, you buy lot of that item because it's a great value.
- Whatever the price, the grocer has set it so that they will make some amount of money on the purchase.

Seems like a good system. If you see problems with this system, let's discuss them.

The problem with capitalism is that it leaves individuals and corporations with the power. One person or company who supplies a product controls, to some extent, the people that demand that product. This would force the person demanding a product to either find another supplier, or create their own supply by making the product themselves. Now we can see that evil people and corrupt corporations are controlling everything, only concerned with their own benefit. In most cases (minus the evil and corrupt part) this is true, businesses exist to make a profit and increase value for the owners. Also, you could technically say that supply and demand is also at work in other systems that have more government intervention, but in those systems, the market is not the only factor in supplying and demanding goods, I am simply highlighting how it might work within capitalism.

In steps the government to save the day.

Don't forget, businesses also create jobs and provide benefits to employees. Any successful business will have added value to anyone purchasing products or services from them as well, for if they had not added value to their products, no one would have purchased them. It is the circle of life.

I have written about some of these topics before, but I feel compelled to write further and clarify more about how I see things working, and to defend the system that has created the greatest country of our age. Thanks Laura for prompting this post.

Take for instance the mortgage industry. Apparently this thing has failed lately, so it's in the news. Within capitalism, mortgages should work like everything else. Lenders provide large sums of money up front to borrower, in return for smaller sums of money paid back to the lender including an agreed upon interest rate over several years. If lenders don't have money to lend, they don't lend it, if it is determined (by the lender or borrower) that the borrower cannot pay back the loan, the deal is off. This should work fine. Risk is assumed by the lender (for fear they won't get their money back), and the borrower (for fear that if they don't pay, the lender will take something back of equal value and ruin their "credit", or the ability to borrow money from another lender).

Our wise and knowledgeable government decided in 1938 that it wasn't fair. Everyone should be able to get large sums of money for things like houses, even if they might not be able to pay back their loans. So the government created something called Fannie Mae. Fannie Mae says to the lenders, "go ahead and give more loans out to the higher risk borrowers (low income families), we will subsidize your losses if they occur." So lenders start lending, borrowers start borrowing. A NEW SUPPLY of money has been discovered. But where does this money come from? Since more money is available, the demand for housing increases. If you have been paying attention to how supply and demand works, when everyone is demanding something, the suppliers can get away with higher prices. So, guess what, housing prices climbed. This has been happening for decades.

The mortgage industry is one example. Similar examples can be found in every area of the economy that the government touches. There is no regard for where the money comes from, and the "tax and spend" mentality will continue to inflate prices and create a false economy that cannot last.

Why can't it last?

In the case of mortgages we see that everything went pretty well for a while. People bought houses, paid for them, values kept increasing because of the good supply of money. Then one day, when there were more houses than families who needed them, and when the seemingly infinite supply of money backing these risky loans showed signs of weakness, everything collapsed. The free market began to push back on the inflated prices. People realized that the prices were too high, so they stopped paying the high prices. Home values fell; people couldn't sell their home for anywhere near what they paid, that is where we are now.

The Solution. Abandon the free market. The government is the only entity that can stop the crisis. Right? According to many of our leaders, intervention is the only way out. They argue that we must fight to keep the prices inflated.

Does is matter that the government is the reason for the inflated prices in the first place? Shouldn't we stick to our guns and let the prices fall to where the market says they should be?

Are we being setup for a bigger collapse later?

Charlie Rose interviewed Tim Geithner, President Obama's Treasury Secretary. Here's a snippet:
[CR]Will capitalism be different?
[TG]I think capitalism will be different, and the financial system will be dramatically different. It’s already dramatically different. Again, if you look at the scale of adjustment and restructuring in the financial system, it’s already happened.
http://www.editorandpublisher.com/eandp/news/article_display.jsp?vnu_content_id=1003949930Capitalism will be different?

So far we have seen the government become part owners of some banks, car companies and insurance companies. Is capitalism really different? Can we just change the definition of capitalism, or should we find another word that defines what is going on?

Without spreading fear and conspiracy, would you consider with me what is really going on?

Socialism: Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.

Is abandoning the system that created the most prosperous nation of our age a good thing? Is poverty for all better than poverty for some? Our past leaders failed to acknowledge the direction we were headed, our current leaders think it is a good thing, that is the change we were promised. We all need to be aware of what is going on and why. We all need to decide where we go and how we get there. Our government must be reminded that they are for the people and BY the people, not for themselves or their own ideals.

4 comments:

  1. I’m fine with capitalism as long as it is accompanied by temperance, a strong social conscience and a willingness to endure pain when things go wrong. In my opinion, we had very little of those three characteristics lately, and now we have a problem.

    I do take exception with your mortgage analysis. Yes, some of the problem is based on poor people getting loans they couldn’t afford. But there were also A LOT of middle and upper class folks overextending themselves. And in the inner city, 90% of the foreclosures are thanks to middle and upper class white people who bought houses to that they could Section 9 them or flip them. Now urban blight is even worse thanks to those folks who just decided it was cheaper to cut and run and abandon their properties.

    You’re whole, “CAPITALISM created the wealth, the freedom and the opportunity that exists in this country today” is pretty much bullcrap. What initially created the wealth of our country was free land and free labor. Without slavery and dubious land acquisition, we probably don’t see such quick wealth accumulation. America’s wealth is quite unremarkable in light of how it was built. As Soong Chan Rah often says in sermons, “If you can’t make money off of free land and free labor, you are the biggest idiot in history”.

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  2. Good stuff Christian. We share a common ground. I agree wholeheartedly that we must temper capitalism with social conscience and a willingness to suffer. I believe that our country was founded with this very principle in mind. Our founders knew that we must hold on to Judeo-Christian values as the guide and encouragement for our social conscience. Absolute power corrupts absolutely. Social conscience should not be legislated and forced upon us, it should be maintained by personal responsibility. Should the government have the right to decide what is best for society? Our leaders should not be responsible for enforcing temperance, social conscience and willingness to endure pain, that lies with you and me, the people.

    Yes, my mortgage analysis was short-sighted and incomplete. I need to work on not singling out one cause when my intention is otherwise. I WANTED to highlight the fact that government interference leads to a false supply and false demand. If the government takes money, or prints money, and spends it on one thing; what happens if that money goes away? Government spending encourages a false supply of money, thus creating a false demand in many cases. We have a free market fighting against a controlled market, and we are seeing the consequences.

    Am I full of bullcrap? Probably/Yes. But I would say that if everyone had these discussions, regardless of their position, our country would be headed in the right direction and at least led by more informed people. Too many shy away from their convictions and refuse to respect others' views.

    Free land and free labor. You've got a point. But I would go one step backwards in history and ask, why did the pilgrims come to this country? Why did the 13 colonies revolt against the King? Why didn't the "less capitalistic", "less-free" countries of the day suffice? I think our constitution answers these questions, and our constitution has guided the principles that made this country great, one of which I believe is capitalism. To compare the idea of capitalism, and stealing of land and enslaving of people would be false in my opinion, I see apples and oranges. I don't believe capitalism fueled those wrong-doings, that was people.

    This highlights my need to clarify more fully what I write. Perhaps I should have said "Capitalism ALLOWED for the creation of wealth, freedom, and opportunity..." Stealing land and enslaving people would not lead to the same conclusion.

    I just want people to challenge each other and understand what is going on to the best of their ability. I appreciate your comments very much.

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  3. These are the types of discussions that should be happening around dinner tables, in classrooms and near the water cooler! I hope we all start thinking more about what we believe and why and are willing to create this kind of open dialogue that helps us understand our convictions.

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  4. What makes me see red the most is when a single very liberal person (just read his blog) makes a statement, everyone is supposed to stop and be in awe of their wisdom and just shut off the brain and ignor history because he has just rearranged history to accommadate his way of seeing what happen. This country has become great because of the way our founders started this country, with God. They created the constitution with Him in mind. Just read what is written about what all they went through to write it. If you want to believe this country is / was great because of "free" labor then la la land is a good place to live. It is time to stop blaming whatever you think is wrong now on things that happened 100 or 200 years ago. Get over it. Why are we in the mess we are in now? Because we have left how our founders started us; away from God. Period. If we want to get back there, electing a socialist for a President is not going to get you there. We have to start over and 2010 would be a good place to start with a bunch of new congress people, then in 2012 elect someone who actually wants to do what our constitution says instead of what he wants it to say.

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