Has Capitalism Failed?

Politicians often find scapegoats for America’s economic woes. It is rare – if ever – that they point the finger at themselves. Yet, the basic cause of the current severe economic problem lies in the machinations of government.

It is clear to even a casual observer that Congress has abused its power to tax and spend. It has taxed success to subsidize failure. It has purchased votes by enacting an unending stream of entitlement programs, financed by taxation, foreign debt and a progressive degradation of the U.S. paper dollar.

This cynical boosting of consumption at the expense of production has resulted in the American consumer now accounting for some 70 percent of United States GDP. By consuming three times what it produces, America has become the largest debtor in history. The Administration now forecasts annual deficits of trillions of dollars for the next decade. This is all the direct responsibility of Congress.

The executive branch is also to blame. Under President Bush II, the United States entered a Global War on Terror, with a mission so ambiguous it was almost sure to bankrupt its executor. To this day, and despite campaign pledges to the contrary, President Obama continues to waste massive amounts of blood and treasure on two fatally flawed wars in Iraq and Afghanistan and on maintaining over 1,000 military installations in 135 countries abroad. No one should forget that the assumption of an international military role depleted the wealth of Rome, Great Britain and the former Soviet Union.

But at least the Republican president slashed domestic spending to compensate, right? Actually, Bush II passed cherry-picked tax cuts for special interests and spearheaded a new prescription drug program for Medicare recipients, at a cost of some $40 billion per year. This was a capstone of sorts to a century-long experiment in entitlement and intervention.

This federal spending went from a drag on the economy to a true albatross by the 1970s. After former Fed Chairman Paul Volcker and Ronald Reagan courageously bought our currency a new lease on life, Alan Greenspan was given the helm at the central bank. Colluding with Presidents Clinton and Bush II to simulate economic growth for political gain, Greenspan, and his chosen successor Ben Bernanke, unleashed a torrent of new dollars into the banking system, where they were leveraged to finance the largest asset boom in history.

We are now in the process of deleveraging from this boom. It is painful, but it represents an opportunity. A government genuinely interested in economic restructuring could be focusing on cutting spending, lowering taxes, and reducing corruption, instead of playing ‘pin the blame on the capitalists.’

Today, we are likely heading into the second wave of massive recession. There is a concerted effort by the government to blame the fallout from their schemes on the free market. You, the educated observer, should recall that the most rabid capitalists – Peter Schiff, Doug Casey, Jim Rogers, Lew Rockwell, Ron Paul – were the only opponents of the bubble economy while it was occurring. Meanwhile, those that seek to pass judgment on capitalism – Bernanke, Greenspan, Tim Geithner, Jim Cramer – celebrated the artificial boom and were shocked at the resulting bust. Why does anyone even listen to these fellows anymore?

No, this crisis is not a failure of capitalism, but the result of a sustained attack upon our capitalist system. If we allow it to be used as a pretext for more government control, we will endure a ‘lost decade’ like the 1990s in Japan.

To avoid this fate, taxes must be lowered, especially corporate rates. Instead, we are increasing taxes on businesses and individuals. The government must cease its corporate bailouts which subsidize failure at the expense of success. Instead, we are now giving away money not just to failing giants, but to reward those with less efficient vehicles – when they didn’t even ask for it.

Most importantly, the Fed must be controlled. Presently, in addition to its ‘open market operations’ that subsidize government and industry, the central bank is paying interest on the bank reserves it holds. This encourages banks, borrowing at nil percent, to lend at zero perceived risk to the Fed rather than accept the higher risk of lending to small and medium sized businesses – thus snuffing out any remaining embers of economic vitality. Meanwhile, the massive Fed-enabled borrowing by the U.S. Treasury is crowding out healthy American companies from debt markets.

It takes years to dissect the myriad ways in which the federal government cripples the economy. After all, politicians spend most of their time obscuring their true intent. Do your own research if you have the time and interest, but at the very least, do not uncritically accept the party line. Capitalism is to blame for the government’s financial crisis like a house is to blame for an arsonist setting it aflame. Congress, the Executive, and especially the Fed, have meddled in the market with impunity for thirty years. Now that the consequences – about which they were fairly warned – have brought our economy to its knees, don’t let them shift the blame.

Comments

[Pauly B:]

When I watch these town hall meetings and how out of touch these politicians are the more I swing to Term Limits, Term Limits, Term limits!!!!!!!

We dont need career politicians in our Congress, they long ago gave up on their party platforms and went to "I scratch your back, you scratch mine" system of governing on a mega scale.

The country saw the logic of this with the President on term limits and changed the constitution, we need to do it for congress too. That will also help give Capitalism a chance too.

Sep 06 09:19 AM

[yellowhoard:]

You get to limited government with a gold standard. It's the only way.

The runaway treadmill that we have built for ourselves is powered by fiat money.

If Washington were forced to legislate through the discipline of a hard currency, that is one that cannot be inflated at will, they would find it very difficult to rationalize all of the corruption and waste when they travel back home between sessions.

This principle was thrown out of the constitution by Woodrow Wilson when he established the Fed. We've been sliding towards collapse and totalitarianism ever since.

Sep 06 09:42 AM

[D. McHattie:]

"If we allow it to be used as a pretext for more government control, we will endure a ‘lost decade’ like the 1990s in Japan."

We will be lucky if we only lose a decade.

Sep 06 09:52 AM

[lynnybee:]

Another wonderful article from my MOST FAVORITE author.
How do we hold our lawmakers accountable when most (young) people have been brainwashed by our politicians? The FEDERAL RESERVE has been presented to them as "the good guys" who have their best interest at heart !

Yesterday when I was @ a local fast food restaurant I remarked to the very young black male who was taking the food orders that he was one of the lucky ones who had a job. I told him we were going into a DEPRESSION. This 16 year old looked at me and said, "What's a DEPRESSION???"

Therein lies the problem, the younger generation has been indoctrinated into the spin from corporate America and Washington D.C. The younger generation has known only prosperity and is not prepared for the change that is coming to America.

Sincerely ................

Sep 06 10:42 AM

[Greame H:]

Big well entrenched government is like a cancer. Starve it of the "blood " it needs to survive and grow, and it can be controlled.

Sep 06 11:11 AM

[lynnybee:]

The first time I read this comment I dismissed it & gave it a negative thumb down. Then, I read this comment a second & third time & have completely changed my mind. It's a good comment, a great comment, a true comment ...........I like it and am changing that thumb down to a thumb up! Sincerely..........


On Sep 06 08:07 AM EEB wrote:

> This article seems to state that the big, bad government has become
> increasingly powerful over the last forty years, and, despite the
> efforts of valiant capitalists, that's why the economy is so bad.
> What hogwash. Rockefeller and J.P. Morgan were two of the most successful
> capitalists ever, and they basically controlled the federal government.
> A look inside the federal government right now, and especially during
> the last thirty years reveals a very cozy relationship between corporations
> and government. These relationships exist across all industries from
> defense to agriculture.
>
> If you want real liberty, then you need to have a more adversarial
> relationship between the government and corporations. In fact, the
> more adversarial relationships that exist between government, business,
> the media, established religion, etc. the better off the average
> person is. When all the power is in the hands one part of our society:
> government or the corporations or the churches, the group in power
> becomes tyrannical.
>
> But the idea that a care-taker government could exist that only guards
> a few minimal individual liberties is a fantasy because such a weak
> government would be overwhelmed and corrupted by powerful business
> interests. This was already occurring during the last Bush administration
> because the regulation of important business activities, such as
> finance, was a joke.
>
> In other words, the libertarian rant that all evil comes from government
> is wrong, and it is usually either naive or disingenuous. There are
> many sources of evil in our world, and bad government is certainly
> one of them. But corporations, religion, evil individuals and many
> other factors can be sources of evil as well.

Sep 06 11:41 AM

[Rob Viglione:]

Rather than an "adversarial relationship" between government and business, how about NO relationship?

Just as business should not have power to use government to its advantage, so too should government be shackled in using its power to disturb free commerce.

Arguments for who should have the right to use what powers against whom always come down to unjust favoritism. Rather, we should be questioning whether or not these sorts of powers should even exist.

On Sep 06 08:07 AM EEB wrote:

> This article seems to state that the big, bad government has become
> increasingly powerful over the last forty years, and, despite the
> efforts of valiant capitalists, that's why the economy is so bad.
> What hogwash. Rockefeller and J.P. Morgan were two of the most successful
> capitalists ever, and they basically controlled the federal government.
> A look inside the federal government right now, and especially during
> the last thirty years reveals a very cozy relationship between corporations
> and government. These relationships exist across all industries
> from defense to agriculture.
>
> If you want real liberty, then you need to have a more adversarial
> relationship between the government and corporations. In fact, the
> more adversarial relationships that exist between government, business,
> the media, established religion, etc. the better off the average
> person is. When all the power is in the hands one part of our society:
> government or the corporations or the churches, the group in power
> becomes tyrannical.
>
> But the idea that a care-taker government could exist that only guards
> a few minimal individual liberties is a fantasy because such a weak
> government would be overwhelmed and corrupted by powerful business
> interests. This was already occurring during the last Bush administration
> because the regulation of important business activities, such as
> finance, was a joke.
>
> In other words, the libertarian rant that all evil comes from government
> is wrong, and it is usually either naive or disingenuous. There
> are many sources of evil in our world, and bad government is certainly
> one of them. But corporations, religion, evil individuals and many
> other factors can be sources of evil as well.

Sep 06 11:46 AM

[PG13_Funnys:]

Great Article and Beautifully Told !
ITs EASY to see Your Protesters are PAID Government Liberal PROs !
Most Incumbent Politicians have & still continue to Bankrupt US with UnAccountable Failed "Monopoly"
[The USA "Democratic" Government].
They ARE the slimiest of ex-Lawyers & THE failed Managers of OUR - antiquated, UnAccountable, out-of-Control BROKE Government.
"Why do they still get free benifits ? We cant WE ALL buy into their Plan ? Didn't the Dept. of Health FAIL: US-a and We need a new one ???

Sep 06 01:07 PM

[notsosmart:]

too late.it will take a violent turn(unfotunately) to change things.all of the systems mean nothing.the human being is in control.as america gets dumber & dumber(50% high school drop out,50% 1st year college drop out) the country will continue on its downward slide.a lot of the laid off folks will never work again.we have met the enemy & it is us.

Sep 06 01:30 PM

[RECESSIONPROOF:]

capitalism failed, but not the capitalists

Sep 06 02:28 PM

[ed martinez:]

Symptoms right, diagnosis wrong. How about the perversion of democracy?


On Sep 06 08:31 AM CautiousInvestor wrote:

> I agree with the authors slant on this and believe capitalism has
> not failed, we have failed capitalism by allowing the state and society
> to default upon their responsibilities and obligations to the system
> of capitalism. Capitalism is organic and must be nurtured.
>
> Capitalism flourishes in an environment distinguished by a strong
> and stable currency, restrained federal spending, less harmful legislation,
> dependable contract law, limits on taxation and countercyclical capital
> regulation. And there must be strong incentives to save and invest,
> as investment is backbone of capitalism.
>
> More fundamentally, though, capitalism requires a spirit and ethic
> borne of a belief system under which members of society (1) believe
> that work gives meaning to life; (2) have a strong sense of duty
> to one’s work; (3) believe in the necessity of hard work and of giving
> work (even before the family) the best of one’s time; (4) believe
> that work contributes to the moral worth of the individual and to
> the health of the social order; (5) view wealth as a major goal in
> life; (6) view leisure as earned by work and as preparation for work;
> (7) view success in work as resulting primarily from the amount of
> personal effort.
>
> The deformed and malignant policies emananting from Washington, though,
> undermine this largely protestant belief system and simultaneously
> relieve individuals of their duties and obligations to society. Under
> prevailing views, society (the state) has obligations to the individual
> and the individual has none to society.
>
> Presently, and under a system of expanding individuals rights, the
> state owes the individual everything and the individual owes society
> nothing. How can capitalism succeed when there is an entitlement
> mindset, fails to understand the morality of work and the individual
> has no accountability for failure and no responsibility to be successful?
>
>
> This bizarre mindset has spilled into the educational system and
> now its the state's responsibility to educate the child and parents
> are totally absolved from taking an active interest in their childrens
> education, believing that it is the state's responsibility. We spend
> more per capita on education, yet rank around 15 in general proficiency
> tests. This has come about because have relieved parents of some
> of their must basic duties and, in so doing, have failed to produce
> an increasingly educated workforce upon which advanced capitalism
> depends.
>
> From this it's easy to see the confortable progression of taxing
> success and rewarding failure and transferring income and wealth
> from producers to the parasitic classes, policies diametrically opposed
> to a system of robust capitalism but the natural outcome of a system
> in which the state owes the individual everything but nothing is
> required of the individual.
>
> Similarly, governement spending rises along a parabolic path attempting
> to fulfill its limitless obligations to society, incurring hemorrhaging
> deficits and crowding out private investment. To placate critics,
> spending is frequently undertaken under the guise of prudent stimulative
> fiscal policies when its really a blatant transfer of income and
> purchase of constituency votes.
>
> And as the author notes, the entreched cartel of the Fed and the
> large banks were only to happy to expand credit and lending until
> the bubble burst. Along this same line, and underscoring the powers
> of the banking cartel, some time ago Barry Ritholtz noted there are
> considerable many pressures to think within the box and to think
> positively, even if delusionally. There is clearly a herd mentality
> with few, if any incentives, to think critically and outside the
> box.
>
> John keyenes said it is better to fail conventionally than succeed
> unconventionally.
>
>
>
>
>
>
>
>

Sep 06 03:07 PM

[The Recusant:]

Whoa...nice deflection! The author blames the government. And no doubt they deserve blame for failing to do their job as watchdog. Nowhere does the author mention that the primary cause for our current economic crisis was the banks practicing capitalism on steroids. This smoky circumlocution would only fool those want to blindly believe that unrestricted capitalism is the sole path to sound economics--forgetting that capitalism is just the behavior of a group of people, and people (many who are avaricious) have vices (like a taste for rather large bonuses). That's were the government (supposed altruistic people) is supposed to step in and slap their little hands when they misbehave.

If our present situation tells me anything, it tells me that "pure" capitalism doesn't work without constraining limits placed on excessive behaviors. However total government control will not work because it lacks incentives and limits creativity, and I presume somewhere in the middle is the real answer, and perhaps at some point in our history we've been there. But blaming the government's snakeoil cure without addressing the bank's snakebite that caused the illness, as the author's biased reasoning has done, is a misleading argument for his love of unrestricted capitalism.

Sep 06 06:09 PM

[SeekingTruth:]

Capitalism is merely a process for making money.

One of the surest and better ways for making money is to create and market products of high value (see end) and demand.
It also serves any nation best when it is honest, fair, intelligent, timely, forward looking, and non corrupt.
In all these areas , it obviously fails from time to time, the failures interspersed with its victories.

For those that elevate this system to a level of religion or dogma, and as a substitute or proxy of a process for a people to govern themselves, there surely must be some voices and intellects out there capable of enlightening them to the quite significant differences.
Confusing these differences is causing a great deal of unnecessary dissension and harm.
It has the effect of causing the victories to be smaller, and the failures to be LARGER, as in recent examples.
This article does nothing to acknowledge and illustrate these critical differences, although I have read and agreed with the author on many subjects and thoughts in the past, as I am sure I will again, he falls far short on this one.

What is VALUE?
Value is simply "worth" divided by "cost".
Example: If two different stores are selling the identical model Ames shovel at different prices, i.e. shovel at store 1 is $20, and same model shovel at store 2 is $10, then the $10 shovel from store 2 has twice (2X) the value of $20 shovel from store 1.

Sep 06 11:01 PM

[Moon Kil Woong:]

The gold standard failed in the Great Depression merely for the reason people were printing money and lying about the amount of reserves bacjking it much the same as we now print money and lie about our ability to repay it or just plain print money (more Fed Reservish QE policy) to buy our own bonds used to print more money.

If you want to play with money be prepared to play with deception, unless the script is writen by a bank with real reserves and strictly audited by a uncorruptable government. However, even then if a gold standard was used it would bridle the economy and remain a bit too much a zero sum game (encouraging hoarding and wars over gold ie. colonialism). We must face the fact that value is not absolute, however we need something relatively stable in which to compare things to.

Clearly, allowing government to play with fiat money is not really very stable and is becoming increasingly hard to make real capatalistic comparatives due to their policies to distort both the free market as well as the value and quantity of the money supply.

Certainly if I had the ability to start the world from scratch I would not use either a hard asset or fiat money, but the odds of that today is about 0%. I must inform you rationality is not in humanity's nature. It must be worked for in order to be achieved.

Sep 06 11:49 PM

[Gregman2:]

The single failure of capitalism is that its extreme efficiencies lead to incompatibilities with liberal democratic Enlightenment principals, which as a precondition allow for self-governance to arise in the first place.

Sep 07 12:47 AM

[Smarty_Pants:]

" You get to limited government with a gold standard. It's the only way. The runaway treadmill that we have built for ourselves is powered by fiat money." - yellowhoard

This is only the first leg of a three-legged stool. The 'complete corruption' of capitalism is accomplished by using 1) fiat money, 2) fractional reserve banking, and 3) gub'mint granted monopoly to not be prosecuted for fraud when practicing the first two items in the list.

While problems often arise with fewer than the entire list in place, the combination of all three guarantees eventual corruption and/or economic destruction.

Even in the good old days of gold/silver backed currency in the US (late 19th century) private banks printed their own money based on the coin they held on deposit. Usually there were more bills issued than actual gold in the vault, though the multiplier for each bank was usually less than 2. (Getting caught meant a bank run and insolvency/bankruptcy.)

Go back and take a look at most banking panics in the 1800s and you'll see that right before everything fell apart, the private banks were at the highest levels of currency issuance multipliers, usually just below the 2 to 1 point. When things went south, bank runs started and the banks who issued more notes than they had specie to redeem them with went under. Their assets were auctioned off to pay creditors and depositers as best could be arranged with the gold/silver raised. People lost money and property if their bank was imprudently run, sometimes everything.

What really supercharges the damage to the economy is when the gub'mint gives legal immunity to a central bank to print enough money to keep poorly run banks in business via extra cheap loans. Eventually politicians and opportunists figure out that this power can be harnessed for personal gain, and moral hazards multiply like rabbits.

We have gotten to the point where the "too big to fail" banks have taken on so much leverage that the gub'mint will do whatever it takes to prevent them from collapsing, regardless of the cost to the economy, the citizenry, or the taxpayer.

Without the gub'mint protection from prosecution or guaranteed rescue from outright failure, the economy endures corrections as bank and business failures prune the dead wood from the economy and leave the most efficiently run businesses operating and maximizing the output for the limited resources available.

It is the gub'mint protection for the fraudulent fiat money and fractional reserve practices which allow the economy to become so distorted that it eventually self-distructs.

We are rapidly approaching that point now, despite what you might hear the talking heads on CNBC spouting on a daily basis. The current gub'mint actions are merely adding fuel to the fire. Soon it will be too late to put the fire out and nearly everything in the economy will be reduced to a smoldering pile of cinders.

The only way to really fix our problems is to let everyone suffer the full consequences of their actions, good or bad, without any gub'mint protection. Painful failures will teach economics much more effectively than any college class could ever hope to do.

Sep 07 02:43 AM

[SeekingTruth:]

Sir Browne,
Further thoughts on your article,
You have made many good points , and named many people that deserve the discredit for our present predicaments.
Taken line by line , and point by point, I agree and respect the preponderance of the evidence and opinions that you have presented, and have had many of the same thoughts myself along the line, and I am glad that you expressed them for the benefit of us all.
Where we differ, and it is a significant difference, is in assesing the role , and culpability of Capitalism in our system.
The major elements of our system,i.e. business, capitalism, government, politics, religion, and society itself, are intertwined, interleaved, and commingled to such a depth and degree that no single part of that system can be singled out and exonerated from responsibility or given a reprieve or pardon relative to our current difficulties and severe problems.
For brevity's sake , I simply state that Capitalism (what should be an inert process relative to government, but definitely isn't) certainly should be granted "no mulligan" (or reprieve or pardon) for it's role in our national behavior, degradation, and demise.
It played its unholy and substantial integral part right along with everything else, and to ignore or downplay this fact does us all a great disservice.

Sep 07 07:56 AM

[smarttogether:]

Capitalism is amoral - it doesn't care about anything except making as much money as possible. It really isn't concerned if it makes cigarettes or treats disease (strange how causing disease and treating the same disease both add to GDP - what a flawed measure of value to our society). This is not necessarily a bad thing, as long as we remember to provide the proper framework of regulations and laws. We need to make sure we protect workers, the environment, and to keep in mind the goals of our society. Oh - and don't let unelected bankers control our public money.

Sep 08 12:13 PM

[woodsey:]

Did y'all think the capitalism thing could be solved here ?
Nah!
It was settled in my grandma's big kitchen during the Great (?) Depression.

Oct 08 03:50 PM

[Deborah W:]

I think our immense military establishment is the dictator that controls most of the US Monetary System via Fiat money. Capitalism is hindered by these powers that be. Always seems to be about control of resourses. Seems like a no win sititution when the big guns hold the purse strings.

Dwight D. Eisenhower Farewell Address

A vital element in keeping the peace is our military establishment. Our arms must be mighty, ready for instant action, so that no potential aggressor may be tempted to risk his own destruction. Our military organization today bears little relation to that known of any of my predecessors in peacetime, or, indeed, by the fighting men of World War II or Korea.

Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But we can no longer risk emergency improvisation of national defense. We have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security alone more than the net income of all United States cooperations -- corporations.

Now this conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every Statehouse, every office of the Federal government. We recognize the imperative need for this development. Yet, we must not fail to comprehend its grave implications. Our toil, resources, and livelihood are all involved. So is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

Akin to, and largely responsible for the sweeping changes in our industrial-military posture, has been the technological revolution during recent decades. In this revolution, research has become central; it also becomes more formalized, complex, and costly. A steadily increasing share is conducted for, by, or at the direction of, the Federal government.

Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in laboratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers. The prospect of domination of the nation's scholars by Federal employment, project allocations, and the power of money is ever present -- and is gravely to be regarded.

Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite.

It is the task of statesmanship to mold, to balance, and to integrate these and other forces, new and old, within the principles of our democratic system -- ever aiming toward the supreme goals of our free society

Oct 14 10:33 PM