7 Steps Towards Real Free Market Capitalism 12 comments
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Market commentators and the White House have been quick to blame last year’s economic meltdown on a free market run amok. And they’ve used that false assumption to justify their unprecedented response of government intervention and increased regulation.
But we’ve never really had free market capitalism in this country. The last 30 years of America’s market system is better described as “mixed crony capitalism” – one part capitalism, one part government intervention through various programs, and one part corporate cronyism where officers and directors of big businesses pay themselves more, lobby politicians on both sides of the aisle and gain more power through favorable governmental regulations including mergers.
In such a three-way shared system, it shouldn’t surprise anyone that true free market capitalism always appears to be outnumbered by the interests of the government and corporate cronies.
For example, despite the billions in taxpayer dollars that have helped prop up a slew of “too big to fail” banks, and unprecedented government ownership of them, the powerful bank lobby has somehow convinced the current administration that little needs to be changed about how those banks operate. It’s as if the bankers and politicians are saying “let’s just call last year a mulligan and move on". Not surprisingly, most of the CEOs and directors of the banks that drove their institutions over a cliff are still in place.
If Standard Oil or Ma Bell existed today, it’s hard to imagine there would be the political will to break them up. Instead, politicians and their corporate donors would argue that what’s good for Ma Bell, GM, Bank of America (BAC), Citigroup (C), or any other company is good for America. Politicians would never support programs that curtail spending, because it would give them nothing to go back home and talk about to get them re-elected.
There are many critical thinkers arguing why even more government intervention is needed today than ever before. Unfortunately, there are no critical thinkers arguing why our system needs more emphasis on free markets with clear “rules of the game” and less state involvement in our economy and less protections for corporate cronies. This paucity of ideas is something that greatly troubles me and other investors I know.
Milton Friedman and Ayn Rand are no longer around to argue for their vision of free market capitalism. Instead, we only hear alarmist libertarian rantings of Ron Paul or populist sloganeering to “keep the government out of our business”, providing no clear direction for what changes should take place.
We need a renewed focus on the ideas of individual choice championed by Friedman and Rand. Both argued for a free market system built by entrepreneurship and small business and against abuse of power by “robber baron” CEOs. Government’s role in their eyes should be limited to police, defense, and the legal system. The importance of a market system following enforced rules is critical. The ideal market system the US should be striving to attain here is not Russia but Hong Kong.
The economic problems our country face are great, but they won’t improve by further deteriorating our federal balance sheet by short-term spending and tax breaks. Instead, we need to:
- reduce excessive government spending and restore fiscal balance to the federal and state governments,
- break up companies that are “too big to fail” including the big banks,
- force over-leveraged banks to undergo debt-to-equity conversions that allow them to get credit out to real entrepreneurs sooner,
- bring back Glass-Steagall that separates commercial and investment banks,
- prosecute insider trading and other white collar crimes when they occur,
- get the government out of the business of setting executive pay - in favor of giving shareholders more direct powers to remove directors not doing this appropriately, and
- eliminate special tax breaks for homeowners and cars which only prolong the pain of an inevitable correction until later.
The heroes of free market capitalism are the entrepreneurs who create real value and real businesses. Those people are the antithesis of “fat cat” capitalists who ensconce themselves in money, power, with government protection. We need more people championing well articulated pro-market, pro-entrepreneurship policies in Washington.
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This article has 12 comments:
On Nov 11 05:51 AM doodoo wrote:
> Isn't the present admin. trying to put in changes in the system?What
> I see and read is that the Repub. don't want any change that is put
> forth.No to anything is the word of the day when is comes to Govt.
> intervention.Let the market set policy.Well the CEOs cry bloody murder
> if you even think about knocking back on their bloated pay scale.Do
> you think that shareholders can overcome the strangle hold boards
> filled with yes men for the EXECs now have?Not without Gov.stepping
> in and putting in some language that allows them to get at the greed
> shown by almost all CEOs and the rest of upper management.Record
> bonus money 40% increases in retirement plans and it goes on and
> on.We just went thru oil co. setting energy policy and the drug co.
> doing the same.No environment protection for the last 8yrs.This country
> was being given to the rich at a record pace and getting it stopped
> is going to be one hell of a job.They have all the money and want
> more.Buy the Govt.and make their own policy.The poor sure as hell
> won't get any help from the Repub. and damn little from the Dem.
> so far.Someone some time needs to set the rich on a different path
> for their greed knows no bounds. When is it going to stop?Your guess
> is as good as mine.
"Instead, we only hear alarmist libertarian rantings of Ron Paul or populist sloganeering to “keep the government out of our business”, providing no clear direction for what changes should take place"
Glad someone was here to provide a clear example.
On Nov 11 07:36 AM JCSG wrote:
> I have to chuckle when I saw your serious move toward "Real Free
> Market Capitalism" included breaking up companies, reinstating regulation,
> prosecuting businessmen etc. A true return to capitalism would simply
> eliminate government intervention in the economy. The damage that
> exists in the form of Crony Capitalists would fade the minute they
> were removed from life support and lobbyist control. We need to have
> term limits in Congress (will never happen without a revolution),
> and we need to relieve the national debt by selling federal and state
> lands and "businesses" (like the post office) to private owners,
> and trading debt for tax credits until it is all paid. Most importantly,
> we need to re affirm the bill of rights and ensure that no law infringes
> an individual's right to life, liberty and the pursuit of happiness
> in order to provide goodies to others. And that is it....
Yes, we need term limits in congress and more information on board members to vote on them.
the author is unlike most posters and authors on here in that he actually is aware of how the system works
I have achieved financial independence solely from investing and can say we need free market capilialism and fools like Frank Dodd and others to quit precahing and make full disclosure on their special mortgages and their phone records
Socilaism has NEVER worked over time
Actually it is working in many European countries that have better education and health care, while still having thriving economies.
While I actually agree with many of the op's points, I don't see how any those steps will get us away from crony capitalism and the corruption of government by the wealthy.
Some of the rest of you sound like you just got back from Ayn Rand fantasy camp.
Dean Baker, on truthout, just had a piece about the folly of empire by force.
Ron Paul was the Paul Revere about this every time he could sound the alarm. It was a major reason for so much of his spontaneous support. It resonated across assorted social boundaries.
His offshore military supporters had expressly mentioned this when they sent in donations, as they explained what was going on with the corruption they were observing.
Is it OK when Dean Baker says it, but not when Ron Paul said it?
I am as unimpressed by Ron Paul's arguments about a Gold Standard as it is possible to be.
I have argued for bean or solar-cell standards personally.
Nonetheless, Ron Paul is an honest and straightforward human in Washington, D.C.
Even if he has odd leanings, he is an exceptional bit of non-fiction among Love Boat, Fantasy Island, and the Sopranos.
It remains to be seen whether Ron Paul's efforts to let us know where the booty went will be eviscerated.
Even if they won't make Fed dealings transparent, we could be in for some interesting municipal bond failures that may unearth some of the spoils garnered by international conglomerates favored by the usual suspects and precipitated by unfunded mandates.
I am nervous about municipal bonds. I just noticed all the second liens floating about with an unemployed populace expected to cough up the money that didn't make it to Main Street. I do hope Birmingham, Alabama, is not the start of a waterfall, or should I say a sewer fall, of bond failures.
What a mess that would be. They might have to clear some of the poor folks out of jails to make room for some cultural diversity. We seem to get token limousine perp-walks when there are deluges of fires and bubble-busts.
First, I don't believe that either Friedman or Rand would agree with that.
See this clip of Ayn Rand and Mike Wallace from 1959 (the business/free market aspects are in the 2nd clip of the interview):
www.youtube.com/watch?...
Wallace specifically asks her if all she cares about is protecting the "robber baron" (i.e., monopolist or oligopolist) capitalists. She clearly says she doesn't want to see monopolies and is favor of breaking them up. She also, of course, played an influential role in the 1st term of the Reagan administration when they (among other things) broker up Ma Bell.
I am not she wouldn't have supported keeping Glass-Steagall or breaking up TBTF.
Friedman and Rand clearly saw a role for govt for police, defense, and our legal system. Clearly, an extension of those agencies would touch business. After all, why else would she support the break-up of AT&T?
But let's all -- as proponents of free markets -- think for ourselves instead of only speculating about what Rand would have thought. After the last 2 years, to me, it's clear that government's primary role in relation to the free market is to set and enforce the "rules of the game" such that the entire game isn't at risk of stopping... as it almost did last year.
Rules of the game means preventing monopolies that inhibit choice. It means -- to me, and I don't care what Friedman or Greenspan used to thing -- you prosecute no-talent fund managers who cheat their investors by illegally trading on insider information. It means giving shareholders -- the true owners of the corporation -- the right and freedom to toss out under-performance directors.
The government -- again my view -- shouldn't be setting pay, deciding that Bear should get bought and Lehman should go under.
Strong "rules of the game" set and enforced by the government allows 'real" free market capitalism -- and would also remove crony capitalists from their comfy perches.