As a socio-political historian, fully agree with you Peter.

Even as Adam Smith, father of the free-market warned-

Though competition may look after itself, but owing to the human greed involved in such competition it is up to government still to act as watchkeeper.

Sounds like Smith as a philosopher was as earlier with Locke and Voltaire, very much part of the Enlightenment meant to eventually give us a decent democracy.

With Western greed which in many ways has brought on the Islamic hatred causing much of the present terrorism besides our economic problems, maybe it is time we took to checking our history books to find were our present socio-political economic problems really arose from.

The problem with this article is that it starts from a completely false premise: that markets are 'free'. There is not now nor has there ever been a completely unregulated market anywhere in the OECD. The problem in the US is not the lack of regulation but the uncoordinated nature of it. Federal and State jurisdictions overlap; various Federal regulatory regimes both overlap and compete; and there is no consistent set of arrangements that applies nationally.

One can only be thankful for Lindsay Tanner who understands that the answer is not more regulation but regulation that is better targetted to contemporary circumstances. The Prime Minister's COAG initiatives are, in part, directed at overcoming similar, though fortunately lesser, problems in Australia. None of this has anything to do with greed. It is about the proper management of the legitimate regulatory functions of government. As for the 'General Theory of Value', any observer of current Australian regulatory arrangements would say that these four 'criteria' are what regulations already try to do.

bushbred,

Only catch is that Government invention tends to be selective, to reward of peer groups and maitaining the status quo. GM has been building inferior cars and suffers the consquences and then goes cap in hand to the US Congress for a hand. Same of the Banks.

If the GM or Ford go to the brink these companies are more likely to merge than to go into liquidation, or, perhaps, GM could taken over by Toyota. Herein, the free market needs to be allowed to work. We hav suffered fron agrarian socialism for decades (Oz,US, EU and Japan!), now we find, Banks and automotive manufacturers also being given hand-outs. Further, these handouts transnationsals make tax payer handuts to millionaire farmers small in comparison.

What if the payouts don't work, eapecially given those senior executives who created the problems in the first place are mainly still place? More "billions and billions"? (as the Late Carl Sagan might say).

Short-term Government intervention might warranted to R&D support of sunrise industries and buffer new forms of competition and avoid monopolies and oligopolies, but not stop failures from failing.

Senior Victorian “The problem with this article is that it starts from a completely false premise: that markets are 'free'.”

I agree there

Certainly when I look at the volumes of legislation which regulate most transactions, including the promotion and ownership of shares and financial instruments, the idea of an “unregulated market” and the problems of the current economic crisis being a direct consequence of a “lack of regulation” I just fall about laughing (well I guess I just try and find the funny side in everything).

I am still trying to understand how the “sub-prime” market collapse could have ever been initiated by free-market capitalists who live their lives chanting the mantra of return-on-risk?

What I am told actually happened is US Banks were threatened by US government, back when Clinton was on the throne, to support the US financial stimulus package designed to deal with a flagging US economy which allowed people of “less-than-pristine” creditworthiness, access to home loans. These loans being under-written by the US governments pre-existing mortgage institutions, Fannie May and Freddie Mac.

No real “market-capitalist” would take on a risk where the likely hood of default exceeded both the interest rate being charged and the Loan to Value ratio of the security, that is rule No 1 in lending and even the most incompetent banker has it committed to memory.

Only a socialist political mind would conceive of such a loony scheme and only a socialist political mind would put on a show which pretended it could work.

Far from this being an example of the excesses of capitalism, it is in fact the direct consequence of government ignoring the "rules of the market" and discarding its role as “regulator of the market” to become an “operator in the market” and proving, once again that the dual role of regulator:operator produces such a conflict of interest which dooms it to failure

But when it is a government failure it takes far longer to disinter the corpse and the consequences are far greater, affecting everyone rather than just the foolhardy.

Greed is the main problem. Adam Smith thought that once the people had risen to a better standard of living than that which pertained at the time, then they would be satisfied and the economy would level out. He overlooked the fact that greed made people at all levels, dissatisfied with their lot, so the lassez faire economic system which he proposed eventually got out of hand. This, coupled with the uncontrolled increase in population has led to the environmental disaster which today we face with trepidation.

Notwithstanding the above, Bill Clinton's ideas of providing the poor with houses that they could ill afford, has helped to fan the fires of recession/depression which we will also be unable to avoid. Our reliance on China for survival is also misconceived as it is suffering as its bubble bursts. Thirteen years ago, I visited Russia and saw first hand what happens to a country which loses its way because of greed and corruption at the top. Today, we are seeing a similar decline in the US and China and as sure as night follows day, we are going to suffer the same fate.

David

Col,

The other side to protecting, say GM in the US is; protection makes it harder to reward succesful Japanese captalists owning Toyota.

The market should allow the fittest capitalists to survive. If GM et al. does not meet market needs and is uncompetitive, these failed companies must go from he market.

Directors will typically put shareholder needs ahead of employees - entrenchments. Likewise, the market and taxpayer should not prevent the companies being going into liquidation. Actually, it i a bit hypocritial if one thinks about it; it is okay to sack staff but not ostracise a company.

After distilling the article's obscure theorizing and translating its euphemisms, it seems clear that it advocates ETS/fart taxes as some kind of mystical source of enlightenment.

As I have stated before, the fictitious market of misnamed and misconceived "carbon trading" is meant to provide usurer-parasites the ultimate fake economy for their speculation. That is why the AGW/CC hoax has been pushed from World Bank men Stern and Garnaut, with extra marketing by hedge fund boss Al Gore, along with explicit support from the likes of Murdoch. The creed's high priests are beyond not only criticism but even scrutiny, blessed by their bogus "humanitarian" and supposedly "leftist" dogma.

After the fake trade in packaged debt and bets on rise/fall, etc., via the derivatives market, such is the fakery's intended replacement by a yet faker and more oppressive, obscurantist indeed feudal economy.

Just a comment about the US car industry. There is little doubt that too many cars are manufactured in the world. The US suffers from this because it has excessively high cost structures brought about by union feather bedding and legislative absurdities like "The Two Fleet Rule" which requires US car manufacturers to balance their profitable large car production with locally made small cars to reduce the overall average fuel consumption of the cars they make.

The result is that US manufacturers build high cost, low quality small cars that nobody buys. Instead of bailing them out, Congress could repeal this ridiculous rule and then let the market work its magic.

I am amazed beyound belief that any one from the real world can start off with the premise that the market is unregulated. They are obviously not active in any market I know of. Indeed I can only think of the ransom market controlled by African pirates as unregulated. It is clear that investors and banks went into the loan bubble market despite all the warnings and there were many warnings over the last few years. Like all bubbles it burst. Investors must have been blind to allow themselves to be trapped into listening to the so called money market experts. For instance 14 months ago a significant Australian money magazine was advising that the sub-prime problems of the USA were not going to have a significant effect on Australia and that the best investmemt around was real estate. Gosh! so much for the wisdom of the press ignoring fundamentals again...

This is yet another in a series of articles blaming capitalism for the failure of government interventions. They fail to make out a cogent economic theory because they fail to come to terms with basic definitions.

Capitalism means the private ownership of the means of production. Unregulated means unregulated. It means not regulated. It means government is not regulating it.
No regulation. Got that?

The onus of proving something is on those who assert it.

Now. Where? What unregulated capitalism?

The existence of the Federal Reserve alone disproves the entire thesis of these articles. The Federal Reserve is a government monopoly of the money supply. The supply of money is a means of production. As it is a government monopoly, it means this system is not ‘unregulated capitalism’. Understand?

This is your definitional problem. You are confusing government monopoly control of something, with capitalism, and then blaming capitalism for the failures stemming from central government interventions based on anti-capitalist economic beliefs.

But the advocates of capitalism never claimed that central planning by government will not produce economic chaos and cronyism: that is the whole argument in favour of competitive capitalism and against such collectivism in the first place!

If the Fed was abolished, and the right of people to supply money in a competitive market was not illegalised as it is now, that would be capitalism as to the supply of money. But that does not describe the current situation, does it? Well guess what? These facts have economic consequences!

What all the anti-capitalist schools of thought don’t seem to understand is that these negative consequences are happening as a result of economic law. These are universal propositions of human action that apply regardless of time, place and culture. They follow logically from certain natural limitations including the scarcity of resources including time, natural resources, and human labour. They cannot be made to disappear by legislative fiat, or by changing human institutions. They apply anyway whether you like it or not. There is no magic pudding hidden in Obama’s backside.

*If* the government lowers interest rates, government cannot stop the resulting inflation. *If * there is inflation, the government cannot stop the resulting systemic malinvestment. *If * there is systemic malinvestment, the government cannot stop the resulting boom and bust.

If money was supplied in an unregulated market on the basis of private property, then society - through the market - would replace government paper with gold and silver as money. None of these current problems would have arisen on a gold standard. Why not? Because government couldn’t just keep inflating the money supply by printing paper and passing it off as real wealth, in pursuit of collectivist agendas of wealth re-distribution.

What is the function of the Federal Reserve? It is to manipulate the price of money so as to manipulate the supply. Is this a free market in money? No. It is a regulated market.

Why is it regulated? Because the government thinks it can make for a better society by centrally planning the values and actions of the population.

Is this capitalist? No, it’s the opposite. Capitalism means the private ownership of the means of production, not government ownership and control of them with a view to central planning. Get it?

Why does government do it? Because they think that by manipulating the money supply, they really can make real wealth, stabilise the economy, and do social justice. Why do they think that? How can they believe they can make real wealth just by printing paper, and do social justice by fraud and theft?

Have any of the anti-capitalists ever refuted the arguments that show that the only economic activity stimulated by government inflation of the money supply is nothing but the consumption of capital, which makes society poorer, at the same time producing the very problems in issue? No. All we get are the same old tired personal arguments, slogans of left and right wing, and sense of entitlement to unearned wealth

"Capitalism means the private ownership of the means of production".

What pseudo-Marxian quackery is this? If a group, village collective or state institution pool capital investment for enterprises then we already offer serious measures of "public ownership" - not private.

You're on a different planet mate - it just kills the discussion by the "appalling factor" - you know, like "there goes the neighborhood...any use hanging around this sheltered workshop?".

And get over this "government" shibboleth: most recent governments have sold out the public because the main parties have become hoes for prevailing monetarist oligarchs, even joining such predators (like Bob Carr's case, among many examples). There's not even an ounce of controversy in such a statement any more.

Mil-observer,Oramzi and Col rouge
Have you seen the 'fora' dicussion I referred to in a general discussion topic including Arthur Stiglitz, Hernando de Soto discussing the sub prime/derivatives markets?
they answered most of your questions.
The derivatives weren't regulated because Greenspan thought that reputations would keep it in line.
Many economists including the two mentioned have said that the derivatives market was a free market(perhaps the only one ever). The problem is that there is allegedly contracts in the system of face value of 12X the world yearly GDP. There was no regulation ie there just isn't enough money in the world to satisfy these contracts. Watch the show very informative.

One of the worst article written, blaming Free market for the current credit crisis is someone living in a fairy land

The reason for the crisis is the Housing bubble in the US and europe. The fact that there was a "Bubble" (artificially inflated) means the free market was not at work.

So what caused this bubble
- Greedy people, some people are paid for the amount of loan they originate, and these people gets paid without getting the consequences of the loan, these people needs to be regulated. However, this is not a problem in Australia. The reason is the bank will only lend 75% or ask for the buyer to pay for mortgage insurance and there are low deflaut rate in Australia. So what is the problem
- government regulation, the US government wanted to restart the economy after WWII, then after Vietnam, then after 1987 crash and 9/11. But instead of spending their own money, they want the public to foot the tab. So they legislated the following
a. A bill which require bank to lend to minorities
b. require bank to lend without recourse, ie borrower can walk away anytime and leave the bank with the house and the loan

The facts are socialist caused these mess, by allowing loans to be make to people who cannot repay, and by removing the obligation for people to be liable for their bad decision, so eveyone tries to borrow as much as they can, which fueled the price rise, while not having to worry about any responsibilities.

Add these to the fact that some people are paid for whatever loan they write, means we are in this mess. and investors do not want to give the money freely now.

Free market is not to blame, Socialist reform program by the government is. Ownership of houses to drive price up is good, but it is only good if the borrower had through about it and is penalise if they cannot repay

Well dab-nab-it dovif2.
If the socialists caused this mess, what was the neo-con free market George Dubya doing these last 8 years?

Next you'll say it was all Clinton's doing, or the Oz Labor crew 12 years ago. I'll let you in on a secret, the real ones to blame for all this mess are those damn aliens from planet boo-haha - if I catch one I will demand all my money back, with interest.

Q&A

Why don't you bring some facts and logic

Why was property overvalued? Why was there a bubble

The market does not create a bubble, the banks don't like bubbles, if Housing market rises by 20% it does not benefits the banks, the bank still only get their interest rate

So what causes the bubble?
Socialist government intervention

FD Rosevelt after WWII Richard Nixon after Vietnam, Ronald Regan around 1989 and Bill Clinton and GW Bush around 1997

they created government policies to drive the economy (and increase people spending) by

a. giving little downside for people investing in property (non recourse loans)
b. forcing bank to lend to groups who might not be able to repay

This drives the economy and artificially increase demands for housing, which led to the Property bubble. These are facts on what happened, if you want to make any point, bring some facts.

Or you should not even post in this forum

dovif2

Unrestrained greed and rabid consumerism (no matter what ideology you subscribe to) are the cause.

People and institutions who say I want it and want it now are the problem (whether that 'it' is a house, plasma TV or an exaggerated profit or share dividend) - despite the fact most people can't afford it and despite the fact some institutions will lend to them.

Governments and their econometric policies can do something about it. However, it appears that the last 8 years or so of conservative policies have not done anything substantive (despite the warning signs) to soften the landing. You want to blame Socialism - I think that attitude is misguided.

If what I say disturbs you, so be it ... but please, who are you to deny me from posting on this forum?

Unfortunately, Q&A is absolutely right. Governments have done nothing to curb the greed and consumerism, All they want is growth, growth, growth. It is all coming to a screeching halt. Latest figures from China show that in only a few months, they have gone from an annual growth rate of sixteen percent to virtually zero growth. That is going to absolutely knock the socks off all our bloated resource companies and cause massive reduction in numbers employed in that sector alone. We are not just headed into a recession, we are staring into the face of a full blown depression. In the meantime, our beloved PM and his henchmen are busy squandering the surplus that was carefully built up by Howard and Co and counselling the needy and the greedy to spend the $1400 handout as quickly as they can.

The sooner we get rid of this mob of incompetents, the better.

David

Q&A

As I said earlier, why has this not been effect in Australia, where bank (as lenders) requires 25% deposit or mortgage insurance. There is no non-recourse loan. There is no free refinancing

This is commercial, this is market forces at work, which does not cause people to lose money

In your scenario, you thinks greedy people wnats to .... lose money

If I am an investor, I would want it proven to me 99% that I will make money, that is greed, losing money is not greed.

The blame lies in the Government policy, it is time you start reading and not just basing everything on what you think.

examinator: contrary to your assumption, I have no questions about the phenomenon except this: why does the debt-spreading derivatives market continue to escape proper scrutiny, especially in light of its causal role in this disintegration?

On that point, Stiglitz is one of the slimiest commentators: he mentions parts of the real problem (apparently in order to seem credible), but then backs practically every bail-out scheme and other heist in direct contrast to the simple neo-Darwinian "principle" these free-trade gurus push! And in this bail-out robbery context, Stiglitz's "we are all Keynesians now" is just more filth. He speaks only for himself and his degenerate oligarchy.

"The derivatives weren't regulated because Greenspan thought that reputations would keep it in line". It seems you wrote this in response to my comment on another thread i.e., '“unregulated financial capital can lead to catastrophe”. Again, the derivatives bubble of funny money is itself a catastrophe. If it had been regulated, maybe we could have had a more regulated catastrophe?' (see: http://forum.onlineopinion.com.au/thread.asp?article=8268)

So I dismiss the notion that such fakery and fraud can be somehow usefully "regulated". Think: how to regulate a 20 megaton thermonuclear blast? You do not regulate such crime: you put the perpetrators in prison, or more usefully in a chain gang, with their bankrupt usurer entities in bankruptcy. That last point is a truism, but constantly avoided in this regime of corrupt, stupid pigs.

Remember too that Sir Greenspan is still at it, only now as adviser to ex-British Treasury string-puller Gordon Brown. Greenspan is clearly a liar, so the idea that "reputations would keep it [derivatives] in line" is ridiculous distraction anyway, as Greenspan no doubt intended.

Your point is important about the derivatives being UNPAYABLE; that is why I keep referring to the "quadrillions" figure. I keep reminding people of this essential fact, because it is the most emphatic factual condemnation of this bail-out lunacy. This massive fascist-corporatist scam is being perpetrated in public, only lately being dressed up as Keynesian or otherwise pseudo-socialist. But then Keynes was on record as a eugenicist nutter, so no surprises really.

mil-observer
By definition, people backing bail-outs are not 'free trade'. You are blaming capitalism for govermental policies that are anti-capitalist.

Oliver “The other side to protecting, say GM in the US is; protection makes it harder to reward succesful Japanese captalists owning Toyota. “

Wholly agree…
Q why are the Japanese car makers not experiencing the same pain as the US makers?
A some call it ‘responding to the market’ and ‘business planning’.

Senior Victorian “and then let the market work its magic.”
Exactly
(rather than pretend that government can ‘regulate’ for consumer preference)

Examinator “Have you seen the 'fora' dicussion I referred to in a general discussion topic including Arthur Stiglitz, Hernando de Soto discussing the sub prime/derivatives markets?”

No, I would appreciate seeing though.

Re derivatives and free markets

I am not sure what the implication of “free market” is in the manner you are using it.
I always understood the Chicago grains market was considered as close to a “perfect market”, where no buyer and no seller controlled the price and did not need regulating.
Certainly, for centuries, markets existed without regulation.

What I believe when someone is trading what I understand as “derivatives”
is that the freer it is, the more one relies on the honesty of the other participants (Greenspan’s “theory of reputation”?).

Historically, this could have been true (but the “affirmative action“ folk would have called such a reliance on “reputation” the very thing which excluded some from participation and would have legislated against it).

dovif2 “Q &A

Why don't you bring some facts and logic”

“Q&A” and “Facts and Logic” is a bit of an oxymoron.

“Unrestrained greed and rabid consumerism are the cause.”

Sounds like a blame-card for the innovatively challenged.

Maybe we should ban consumers, that will fix the “rabid consumerism” and AGW , two birds with one stone.

And “Next you'll say it was all Clinton's doing, or the Oz Labor crew”

Krudd and Co are giving 2 million “consumer families” (targeted because they were seen as the least likely to save the money) a pre-Xmas bonus this week .

What does that tell you?.

Maybe Q&A can “Show me the Logic”.

Diocletian post above is right on the money

Diocletian: "By definition, people backing bail-outs are not 'free trade'. You are blaming capitalism for governmental policies that are anti-capitalist."

I'm sure George W Bush would be 'interested' in your take on things.

_____

Col

I agree with you ... we could kill two birds with one stone.

Environmental, ecological and economic sustainability is difficult to achieve (as is now so patently obvious), especially for the “innovatively (sic) challenged”, like you say.

What do you suggest the fix might be ... socialism by stealth?

Your dinner guest list sounds great – have a good Xmas.

dio, you say I "blame capitalism" but I did no such thing. Rather, you confuse "free trade" mythology with "capitalism"! You should be embarrassed on that point alone, but you dug yourself a canyon after that. Your other assertions are demonstrably wrong in theory and practice where you claim that "people backing bailouts are not 'free trade'", then referring to "governmental policies".

First, the main backers of free trade AND instigators of bail outs are free-trade bosses from such outfits as Goldman Sachs (Paulson and Turnbull the most obvious) and JP Morgan Chase. The corrupt mainstream parties are merely gutless hoes doing the bidding of such mega-usurers (and reassuring themselves that they will thereby avoid the "stick" of terrorist attacks too).

Now, the ongoing case of Citigroup and Citibank is a useful insight into 'free trade' and 'competition' in practice. An opportunistic oligopoly around JP Morgan, HSBC and even Rupert Murdoch has been doing all it can to talk Citi down, whereas Citi has been in several respects even less exposed than themselves. But these are predatory, imperialist carnivores, slavering after their pig-outs on Bear, Lehman, and WaMu, for example. Now they smell even more bail-out loot!

It's the same with Goldman's appointee Paulson directing the heists: that is a logical consequence of 'free trade' mythology, whereby such acquisitive expansion into the public/government realm is deemed proof of the free-trade entities' neo-Darwinian 'fitness'. Of course, it's just fatness, actually, and an anti-democratic, feudalist and criminal mentality, but these guys consider themselves above and beyond such common understanding.

Secondly, as my above points indicate by reminder, its is a very creative distortion to claim "governmental policies" as driving the bail-outs! Who do you think Paulson represents again?

No hard feelings though dio: just pray to goddess Ayn Rand and ask her to wave her magic invisible hand over you. You might get better.

Anyone advocating that government should take money from the general population and give it to corporations, or accepting such money, is to that extent against free trade.

It's what people do, not what they say that matters.

It doesn't matter if the person suggesting it is George W. Bush, or Paulson, or Goldman Sachs, or General Motors. If they are for government bailouts, by definition they are to that extent against the basic principles of free trade and capitalism. People who think George W. Bush stands for 'free trade' are simply confused.

The irony of it is that you correctly identify these massive acts of theft as 'heists', as robbery, which is what they are. But the companies don't get the money by stealing it directly from your bank account. They get it via government, in reliance on government's monopoly of force. That's the whole point.

But even if we say that it's the companies' fault because they influenced or controlled government, that's still no defence of the role of government, is it?

The principles of free trade and capitalism, both, mean that the government
a) shouldn't take the money in the first place, either by taxing or inflating, and
b) shouldn't hand it out again to someone else.

In that case, none of this entire crisis would have happened.

People are confused, on the one hand blaming the recipients of the handouts rather than the thieves who took it in the first place, and then calling on government to fix the problem, when it is government that both took the money from ordinary people and paid it out to their political favourites.

Why are we drifting off track? The real issue us did the investor have enough information to make a reasonably valid decision to invest. Some did but many didn't since they were at 4th 10th hand away from the festering debt. However many of those who invested in the derivative stream have only themselves to blame. The warnings were being made public more than 12 months ago. Take a too high a gamble and you are bound to lose. At the end of the day the investor has to carry the can for making a wrong decsion. I wonder what has happened to those Chinese investors who got it wrong on behalf of their government? That would cdertainly be Socialism in action. As for GMH Ford etc they must welcome the current problems as a way of off loading some of their crook mamagement processes - perhaps Toyota could show them how to operate in the USA.

dio: Rubbish. You're obviously parroting some glib, unexamined concepts in a careless, freestyle manner; it now just appears pretentious and oblivious to historical precedent and extensive critique.

The very notion of "free trade" is itself a blank cheque for oligopolies, monopolies and imperialism; their neo-Darwinian (and often eugenicist) worldviews determine just how the "free trade" fairy tale operates in real economic life. The public and state domains of treasury, the reserve and the government are all fair game to such aggression. "Freedom" in "free trade" is much the same divisive, dysfunctional or, at least inefficiently primitive impulse as it is in fascism. And yes, fascists just loved "free trade" notions in their own imperialistic ventures and state reforms. If they could not achieve such thorough "free trade" empires as the East India Company, they certainly admired them and tried to emulate them in such areas as northern Africa and eastern Europe.

"Free trade" is like "free speech": a mythological notion that, on even superficial examination, is certainly not "free" but comes at a price only within reach of those rampant subverters and usurpers of state and democratic processes. That is why mainstream (funded and press-accredited) political parties all kowtow to neoliberalist, globalizing, free trade programs which suit imperialist ventures in much the same manner as the East India Company's leading role in British and Dutch aggression and enslavement around the world. Therefore, in Globalization's neolib regime, governments too are anything but "free" to act: they are infiltrated and sponsored into their role merely to serve the interests of free trade's supposed "fittest" oligarchs, who constantly break and set rules for their own increased and continued dominance. That's why free-trade creeps love reading snippets of Nietzsche too.

Then your quote "In that case, none of this entire crisis would have happened" [i.e., without government taxing, inflating and handing out]. You really don't have a clue. Give up. Stop wasting all our bandwidth.

Mil

Your personal argument proves nothing, and don't think it conceals the fact that the rest of your argument cannot withstand critical scrutiny.

Your method is simply to label anything you don't like as "free trade" even if it's government that's doing it.

According to your argument, if government uses its powers of compulsion to tax people and hand it out to political favourites, this is "free trade". The expropriations of the Treasury, and of the Federal Reserve, according to you, are "free trade".

You have not got to the stage of understanding the most basic definitions of the terms in issue.

By the way, the "free" in free trade does not refer to some mystical metaphysical perfect freedom: it simply means freedom from restrictions on entry being imposed by government.

However if, as you say, the big corporations who are benefitting from the bailouts have infiltrated government to such an extent that the Federal Reserve is corrupted into channeling billions of dollars to those corporations, and government is not able to stop them, then why not abolish the Federal Reserve? How can you justify its existence, even in your own terms?

The Darwinist jibe is on the other foot: it is people advocating government interventions who are in favour of the strong using force to take from the weak.

No, it's nothing personal, but you're clearly off your head, made worse probably from some corrupt education. Find someone else to misrepresent, bashing those square pegs into round holes.

Mil-observer in this thread displays the deep structure underlying all Marxian argument.

It starts out with statements purporting to be economic theory, critiquing the role of capitalism, and claiming or implying that a better and fairer society would result from governmental control of decisions over production.

But when the errors and fallacies in these ideas are shown, the argument turns into personal insult, bitter invective, and a repeat of the original claims.

But when these fallacies are named as such, the argument becomes mere personal insult and bitter invective.

And when the fallacies in that are exposed, it degenerates into personal insult, mere impotent rage.

It is important to understand that this approach to argumentation is no coincidence. Why not? Because Marxian theory cannot withstand critical scrutiny. The fallacy of personal insult is the ultimate bedrock of Marxian argument. Distraction is all they’ve got.

At base, the anti-capitalist arguments resolve into this: “Wouldn’t it be wonderful if everything was wonderful? We are right because we are right.”

Yet the whole point of theory is that it’s supposed to have explaining power. When theory is shown to be erroneous, the rational response is either to accept the refutation, or to rebut it with reason or evidence.

The fact that Marxians do not do this, but only persist in trotting out the same fallacious arguments, shows that the belief system belongs in the category of faith, not reason. It’s immune to refutation. It’s like one of those plastic punching clowns that just keeps popping back up again.

But if I am wrong, then perhaps Mil_observer can give a justification for the existence of the Federal Reserve, and its permanent inflation of the money supply, or explain how the government’s taxing of the population to pay billions to political favourites can sensibly be called “free trade”?

All the anti-capitalist arguments so far are merely circular. I invite anyone to show how the role, or the incompetence, of government in controlling the nerve-centre of the market economy - the price of the money supply - can be blamed on “capitalism”

Krudd and Co are giving 2 million “consumer families” (targeted because they were seen as the least likely to save the money) a pre-Xmas bonus this week .

What does that tell you?.

Col Rouge, no one else seems to have answered the question so here goes.
It tells us that Rudd and Co are very naive and are not fit to run the country, that's what it tells us.

David

David,

Col asked me the question ... I answered: "Environmental, ecological and economic sustainability is difficult to achieve (as is now so patently obvious), especially for the “innovatively (sic) challenged”, like you say."

Was my answer that difficult to understand?

As to your answer, who do you think is fit to "run the country"?

Oh dear oh dear. The question is the fundamentals of capitalistic economic life in the context of the current global economic crisis and I see people arguing about their interpretation of economic theory including, would you believe, that of the archaic Mr Marx. I suggest there are two interesting but fundamental threads to be followed. (One) is who knew what and when. and (two) who exactly is exposed to debt and how much are they exposed..A sub set of (two) is how much was China exposed to debt because of its investment practices.

It is flattering to read the number of comments on my article but disappointing that they have little reference to what was actually written. Most responses quibble about the concept 'free market' or engage in a slanging match on Ayn Rand's ideas. (For what it is worth, I believe that Ayn Rand's literary world is a fictitious one inhabited by caricatures!)

I would like to read reactions to the references in the paper to the relative importance of 'countervailing power' and 'competition' in market functions and to the concept of 'The General Theory of Value'

Peter: to answer your query…

The explicit premises of your argument are that the financial crisis is because of “unregulated extreme-end” capitalism; and that the failure of unregulated markets shows that capitalism needs regulation. The implicit premise is that the task of economic theory is to suggest governmental interventions that bring markets closer in practice to a theoretical perfection, or at least to a better outcome.

You are spot-on that there is a need for economic theory to be subject to an epistemological review to test the validity of what it contains. However I respectfully suggest that your own argument does not withstand the necessary critical scrutiny of epistemology.

To begin with, your argument simply assumes as a given that the financial crisis arises spontaneously out of ‘unregulated markets’ and has nothing to do with governmental interventions, in particular governmental control of the central nervous system of a market society: the price mechanism of the money supply.

This is an economic question, and the first epistemological issue is: how do we know your assumption is correct as a given? At the very least, you should open the issue up to critical examination.

To even begin ignoring that task as you do, you would need to be able to point to an unregulated market. But certainly that does not describe the money supply, and therefore the financial markets, in the U.S.A. or any other of the western countries.
How are we to know whether government’s manipulation of the money supply of the entire economy, and compulsory imposition of permanent inflation of fiat money, might not have something to do with the financial and economic problem?

To assume one way or the other at the outset as you do, is to assume what is in issue, which is circular, which is fallacious, which is against epistemology; because our way of knowing must stand to reason.

Similarly, the method of proceeding by identifying the conditions for a “perfect” market, and then introducing regulations intended to make practice more closely comply with this theoretical perfection, is problematic for a number of reasons.

For those who missed it, a quote from one of dio's earlier toxic emissions: "The existence of the Federal Reserve alone disproves the entire thesis of these articles. The Federal Reserve is a government monopoly of the money supply".

So, if you missed it behind dio's postures and pretences to ideological perceptiveness, there it is in all its flatulence: the most conspicuous, basic error on this thread, claiming "the Fed monopolizes money supply", whereas myself and examinator (if not Col Rouge and ORAMZI too) already identified the inherently unregulated nature of speculation in the derivatives market. Remember: that derivatives market exploded its fake, multi-quadrillion-dollar money supply in PRIVATE contracts - many barely discovered - quite OUTSIDE the Fed!

Such basic facts are the reason why I urge dio to just shut up or go away, because some of OLO's onlookers may be unaware of the derivatives trade's causal significance in this systemic meltdown.

Therefore, at least since Bear Stearns sank lower than the Titanic, the derivatives market's gargantuan scale, centrality in debt-stimulation, and ultimate unpayability all most clearly signaled the basic dynamic underlying this disintegration of recent decades' unregulated, monetarist capitalism.

All of dio's syllables, feigned rhetorical style and other poses at theoretical sophistication amount to nothing, except perhaps to demonstrate that dio's toxic pomposity matches dio's ignorance. Such a Grand Canyon of ignorance is probably this thread's closest metaphor for the grand fraud and economic Black Hole of the derivatives market itself.

Wedgetail: it seems to me that you implied the causal problem of derivatives when alluding to the system's "unregulated" behavior. However, I maintain that the repeated insinuations of "environmentalist" economic concerns threaten a futile effort at filling the derivatives hole with an at least equally toxic monetarist fiction in ETS a.k.a. fart taxes.

(cont.)

(Mil_observer's last post assumes that the price of money in private transactions has got nothing to do with government's manipulation of price of money it supplies to the market.)

First, obviously perfection is not an option for human beings. Theory puts the cart before the horse when it gives policy prescriptions intended to approach perfection, before it has done its primary job of explaining the facts in the real world.

Secondly this state of perfection in theory - perfect knowledge, perfect competition etc - is a state of equilibrium. In this state the market is at rest: no-one can get an advantage by making an exchange. But the task of economic theory is to explain human action in the real world, not to prescribe the conditions of inaction in a hypothetical perfect stasis.

Thirdly, the original problem is in optimising economic activity. It is not permissible to simply presume that people acting as governments, more closely approach a perfection that people acting as markets do not. Government is also made up of human beings with all the same imperfections and motivations as people generally. But if the assumption were true, there would be no need for private action whatsoever: the entire task of economic activity could be optimally delegated to government.

Talk of ‘true’ value, ‘distortions’ of prices, ‘unequal’ power, ‘incomplete’ information, ‘irrational’ expectations: - these are not self-proving, self-evident. They presuppose propositions of economic theory which are themselves both
a) problematic in terms of epistemology, and
b) implicated in policies which led to the current economic crisis.

There is a need to strike to the root and the root is epistemology. The issues you raise cannot be resolved without first resolving the underlying epistemological issues.

But the mainstream economic theories: Keynesianism, neo-classical, monetarism, don’t even recognise the underlying issues.

They assume that what makes economics scientific is positive measurement. But the assumption is wrong, because human action is based on subjective valuations that cannot be measured so all their mathematical models and statistical aggregates are based on a fallacy.

Oh yes, brilliantly obfuscated Giles..."in terms of epistemology": absolute truth is unknowable, ultimately, therefore we can postulate our liberalist indoctrination and aloofness as woolly-headed, wishy-washy, indecisive and impractical creatures who, er, never have to work - or even think - for a living. How terribly refined and far-removed from the masses, proof of "leisured" status.

At least the flatulence becomes transparent after its initial smokescreen effect. Not just a waste of bandwidth, but a waste of school fees, and HECS too, probably! Or were the uni fees paid up front at a discount?

Diocletian et al
Hereunder is the barest outline of how I introduced epistemology in parallel with teaching orthodox economics. If you can get a copy of Economic Realism (Halstead Press), do so. It is more complete.

Underpinning epistemology is the notion that some statements are inherently logical (rationalism) and some reflect close observation (empiricism) but nothing is true just because someone said so (authoritarianism).

Orthodox economic teaching is not based on those foundations. Just ask yourself if supply and demand analysis is rational, empirical or authoritarian. (So called ‘economic rationalism’ is at best empiricism and at worst authoritarian!)

I support a conceptual framework for the subject that has three components: language, method and content.

Language
Students should become proficient with the appropriate use of: everyday language, technical terms, maths, diagrams, statistics and accounting concepts.

Method
The basic method of learning is to develop and consider propositions and the appropriate ways to test them. The basic tests are rationalism, empiricism and ethical prerogative.

Content
Content is a set of hierarchies of propositions in each topic. There is no reason why we should not each have our own personal sets as a basis for discusssion and for some cocsensus to emerge.

That would be better than the current interchange of slogans.

Peter Gilchrist

Unless you want to see falsehoods passing as truths, and such lies thus unchallenged deceiving your audience, then you must deal with this thread's authoritarian lunacy around the "free trade" myth. Such mythology continues to appear in OLO threads where its adherents seem to enjoy its aura, as if the "free trade" badge confers some exalted status and privilege on the wearer.

The "free trade" (or laissez faire) cult is an influential remnant of a profoundly corrupt mythology as sponsored most energetically by the British East India Company (BEIC), especially via its Haileybury School. After the Venetian-sponsored ideologue Francois Quesnay, Adam Smith propagated "free trade" in direct support of BEIC ventures - specifically those in the trading of human slaves. The essentially mystical quality of Smith's musings is most obvious in his "invisible hand" notion, but cultists regard that cliche too with equally uncritical awe, reverence, or fetishization, just as the BEIC valued such a "cloak of invisibility" for its own criminal and immoral conduct. In this sense, other BEIC ventures were no less relevant and no less disgusting i.e., opium dealing and the commercial resort to large-scale plunder, extortion and terrorism via the BEIC's private mercenary armies.

Therefore, whenever someone mentions the likes of Adam Smith, David Ricardo or Thomas Malthus, remember the imperialist-commercial, racist and even misanthropic origins and purpose of their lives, and the life of the entity that created their Haileybury School - the vile East India Company, an entity that still has its many admirers, propagandists and emulators today.