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The Forum > Article Comments > Government tactics > Comments

Government tactics : Comments

By John Passant, published 17/3/2008

2020 summit: will there be any new ideas? Unlikely - just a smug group of invitees whose grundnorm is profit, profit, profit.

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Mr Passant may not acknowledge it but the fact that he can post such rubbish on the net is due to capitalism.
The profits that businesses make are re-invested in capital equipment. The resulting increase in productivity enables the business to lower the price of its product, thus benefiting all its customers. The savings made by these customers are then invested (usually indirectly, via bank savings etc.) in new enterprises which employ more workers. This is the history of capitalism, despite the best efforts of governments of all persuasions to derail the process.
Governments should not get involved in directing the economy. When they try to do so mayhem results.
Posted by RobertG, Monday, 17 March 2008 2:50:45 PM
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Canberra's resident far left socialist alliance loopy raises his head again - what piffle pretending to be comment.
Posted by ruawake, Monday, 17 March 2008 3:09:31 PM
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Thanks Runaway.

Perhaps you might like to point out what you regard as the piffle in the article.

Perhaps it was the comment that the Chinese state would repress those who fought back? Perhaps it was the discussion of the sub-prime loan crisis (presaging Bear Stearns)? Perhaps it was the comments on the tendency of the rate of profit to fall? Perhaps it was the reference to the boom slump cycle (which bourgeois economists recognise euphemistically as the business cycle)? Where exactly is the piffle?

Perhaps your attack ad hominem (loopy left, so original and funny and true!)is the sum total of your capacity to respond to such big issues.

As I have lamented before, when is there going to be an intelligent post from the conservatives? Surely someone on the right (or even the social democratic left) can mount an argument against the tendency of the rate of profit to fall, or the business cycle, to use two examples and explain how the State can overcome these inbuilt tendencies? I admit the latter might be a bit harder to argue against since as I mentioned bourgeois economists seem to accept Marx's analysis in this regard. But I also admit that Marx himself saw there were countervailing tendencies to the rate of profit to fall. he just thought that in the end the falling rate of profit would dominate. For a system built on high profit rates that of course is disastrous.

And by the way John has no connection with Socialist Alliance. Facts are difficult things, Runaway. Try acquainting yourself with one at least once in your life.
Posted by Passy, Monday, 17 March 2008 7:00:13 PM
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Sorry ruawake. I shouldn't have made a play on your nickname. It wasn't funny.

RobertG makes some interesting comments.

He says:

"Mr Passant may not acknowledge it but the fact that he can post such rubbish on the net is due to capitalism.
The profits that businesses make are re-invested in capital equipment. The resulting increase in productivity enables the business to lower the price of its product, thus benefiting all its customers. The savings made by these customers are then invested (usually indirectly, via bank savings etc.) in new enterprises which employ more workers. This is the history of capitalism, despite the best efforts of governments of all persuasions to derail the process.
Governments should not get involved in directing the economy. When they try to do so mayhem results."

I am not quite sure why it is rubbish. perhaps RobertG should explain.

he then goes on to explain the superficial workings of capitalism.

It is true that increased productivity can produce cheaper goods. But the competitive drive forces more investment in capital at the expense of labour. if labour is the source of profit then profit rates will fall over time. Why are profit rates now lower than they were in the 1960s?

Another question RobertG. if the system works so well, why does it have booms and slumps? And why occasionally does it go into catastrophic declines?

Government intervention can't be the answer.

And a serious question here for you. What do you say to those whose lives would be destroyed if the US establishment let bear Stearns (or in a previous incarnation, various Savings and loans groups) go to the wall.

More rigid economist might say this is just the marketplace cleansing itself of inefficient operators. I doubt that Bear Stearns was inefficient. I guess my question is how many destroyed lives are acceptable?
Posted by Passy, Monday, 17 March 2008 7:13:11 PM
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Passy,

Government intervention is EXACTLY the cause of booms and slumps. The government via the Reserve Bank artificially lowers the interest rate to "stimulate" the economy. Everyone from individuals to companies starts to borrow because the cost of borrowing is low - sometimes even lower than the CPI. This causes the economy to heat up and eventually the government has to raise interest rates. The increasing costs leads to debts that cannot be paid off and bankruptcies ensue. This is the start of the slump (or bust).
I recommend "Economics in One Lesson" by Henry Hazlitt. Go to mises.com for details.
Posted by RobertG, Tuesday, 18 March 2008 10:08:58 AM
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There are problems with Mr Passant's claim that the Govt will reign in wages.

1) Profits share has been rising, not falling, for over 30 years, and for this reason Ms Burrow wants workers to receive a larger share.

2) Australia no longer has a centralised wage-fixing system for general wages and the minimum wage is set by an independent body. Therefore, there is no mechanism in place for the Govt to control wages.

3) Anyway, trying to contain wages at a time when Australia has the tightest labour market in over 30 years would be near impossible.

A few supplementary points:

- I doubt that profits will be the main topic of conversation at the Rudd gabfest, a more likely candidate is 'climate change'.

- In a capitalist society, production IS organised to satisfy human (material) need. That is what capitalism does best.

- The author has resurrected the old Luddite Fallacy regarding capital and labour. If this discredited notion was correct, why is the unemployment rate not 99%?

- You state that "destroying capital" creates profits. How do you reconcile this with your claim above that investing in capital creates profits?

- While there may be 1 billion starving in the world, its instructive to note that they happen to live in non-capitalist societies. Furthermore, the number of starving has fallen over the past few decades as more countries embraced capitalism.

- On the sub-prime crisis, two points are worth considering. (1) The Federal Reserve under Alan Greenspan made the appalling decision to drop interest rates to 1 per cent in 2003, and kept it there for a year. (Ben 'Helicopter' Bernanke is about to make the same mistake) (2) Evidence has emerged that banks were coerced by the US Govt to provide loans to low income applicants.

While it is always fashionable to attack 'greedy capitalists' when the markets go bad, too little attention is directed at the destructive role played by meddling governments. Indeed, many economists argue that it is the meddling of governments (fiddling with the taps) that is largely responsible for the boom-bust cycle.
Posted by ed_online, Tuesday, 18 March 2008 5:03:21 PM
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