Very interesting article. I agree with the sentiment that the media, with it's need to evoke fear, often clouds the real situation, but some of the arguments you have used fall a little short of need for a free market. Your comment,

'That was in 1975, but the drive for corporate profits has subsequently given us the personal computer, better cars, the Internet, microwave ovens, flat screen TVs and much more. Not bad for a system that is failing, you could be forgiven to think.'

was most difficult to swollow, as well as your throw away line about poverty and people starving. Unfortunately we do live in a world where people are starving if you like it or not. And many of the copporate profits giving us such wonderful toys,... I have to question who the 'US' is. Definately not most of the world, just the select few who benefit from capitalism. what about the rest of the world? Only a third of the world has seen a telephone.

Till

I agree somewhat with what you said, but have you through about the fact that these country ie Russia and China had been under a failed socialist regime and is only now coming out to embrace capitalism.

A lot of African/Middle east are poor, but can you blame this on capitalism? Most of the causes of these had been lack of a system to create wealth, lack of resources, or lack of government ensuring some equity in sharing the wealth

Wise words. I wonder if it is entirely coincidental that the rise of global warming hysteria coincided with the declining after-effects of the 9/11 terrorist attacks, and the financial crisis with the steady accumulation of evidence that global warming is bunk? Perhaps one day governments will trust their citizens to make rational judgements on their own, without relying on the effects of fear and greed -- but I can't see it happening in my lifetime.

I believe you are confusing quantity of government with quality of government.
Liberals support large government too in reality...they just want resources thrown at profitable business instead of unprofitable education, roads, poverty, etc. They *say* they want small government, and pretend they do, but history seems to show they "tax and spend" just as much, just on different things.
The fact that all bank profits for the last 10 years were in effect illusionary after the taxpayer bailouts seems to indicate that the "profits" were in fact just Ponzi-like schemes. Parasitical industries supported through mateship.
Every major industrial country needs government to invest. What they invest in is the issue. Australia has shifted its traditional government investments from social infrustructure to supporting selected (well connected) industries.
The hypocricy of the supposed "free market" exponents in that they don't want a government hospital, but don't mind millionaires being made by private companies that rely on taxpayer funding to be viable.
Take the money and run is the Liberal way!

The political scientist, Louis Wasserman, asks that ask ourselves; "In whose interest does Government government? ... The People, corporations or the unions". I would hope the former, but, perhaps, this is not the case. I think we are in a phase of Corporate Socialism going back decades, and that particilar capitalism does not seem likely to change soon. Were it to waver, all that would happen those whom would be protected would trend progressively more and more towards the top of the wealth triangle.

Ozandy, exactly and point well made !

@ozandy and Kipp:
As the author of this artice says, what we have seen in recent years in the US and th UK (and obviously also in Australia) is not a liberal development, even though it has been called just that by its opponents. The term "neoliberal" has been frequently used by opponents of free markets. But they constantly failed to explain what they actually mean by that, not to mention that "Neo-Liberals" traditionally are those in favour of a free market with a strong government regulating markets that are in danger of imbalances such as monopolies. Contrary to popular belief "Neo-Liberals" thus are by no means free market radicals but acknowledge the necessity of government regulation.
Liberalism has come under attack from a surprising coalition of the left wing (typically non-governmental) and conservatives (typically governmental).
You are right: The recent years have seen an unhappy if not appalling collusion between governments and big corporations. But that has little to do with "liberal" or "free markets" despite being labelled as such.
Interestingly enough, this was foreseen by one of the fathers of Neo-Liberalism, Friedrich August von Hayek, who explained the collusion between left- and right-wing big government against liberalism in his 1960 article "Why I am not a conservative" http://www.fahayek.org/index.php?option=com_content&task=view&id=46

Richard, you are right.

"Capitalism", "free trade" and "economic rationalism" are used in this forum to denote:
1. big government using self-granted monopoly powers to forcibly rip off the whole population and pay the proceeds to politicians and banks
2. government taking money out of people's bank accounts and paying it to government agencies who pay it to corrupt governments overseas
3. government incessantly inflating the money supply so as to get more money, when they do not have the courage to raise taxes honestly, which is always.
4. government military adventures that seem intended to kill large numbers of goatherds, shopkeepers and bridal parties.

The arguments against capitalism in this forum seem to fall into two basic categories:
a) personal abuse; the snivelling of morons
b) getting the definition of capitalism inside-out, upside-down, and back-to-front, to denote the anti-capitalist machinations of government economic interventions for socialist or mercantilist purposes.

Ironically, all the social and economic problems that the critics of capitalism are concerned about, are exactly the reasons in favour of liberty and against government. These people are actually confused supporters of capitalism, and prevented by their ignorance from understanding so.

Murry Rothbard once said, there's nothing wrong with people being ignorant about economics, because it is a specialised branch of knowledge, and is called 'the dismal science'. But there is something wrong with holding forth loud and long in vociferous opinion based on that economic ignorance.

And that applies to all the critics of capitalism that I have seen in here in the last month or so. None of them has refuted, or even understood, the arguments that they are purporting to refute.

Markets are very efficient devices for providing and processing information, for organising production and distribution of goods and services so as to allocate resources to their highest valued use and thus maximise community income. Their superiority to central planning is well attested.

There may be cases where markets do not produce the most efficient outcome. This may arise when there is a natural monopoly, where externalities are not taken into account, where there is information asymmetry or in the case of public goods.

Identification of such “market failure” is not sufficient reason for government intervention. Indeed, “government failure” is more common. The World Bank advised that “countless cases of unsuccessful intervention suggest the need for caution. To justify intervention it is not enough to know that the market is failing; it is also necessary to be confident that the government can do better.” A BIE assessment of the Commonwealth’s fifteen major interventionist policies from 1970-85 found none had clear benefits, 13 had negative returns.

Should the cost to the community of market failure be significant, government should first see whether it is possible to improve the workings of the market. If not, it must assess its capacity to produce a better outcome, and the costs and benefits of any intervention. Given that a number of studies have found administrative costs of around 15-50 per cent in government industry support programs, the prospect of a net benefit from intervention must be considered doubtful.

Within the Queensland system, the term market failure has rarely been used in its true economic sense. It tends to be shorthand for “We think that certain opportunities for which there is no commercial support should in fact be pursued, with government funding.” That is, picking winners.

In 1996 The Economist noted that: “Government intervention must overcome three formidable difficulties: the tendency of regulated firms to “capture” their regulators, weak incentives for efficiency within the public sector, and missing information (where markets lack it, governments are likely to lack it as well). … the burden of proof should lie with those who would extend the government’s role."

Dr Hartwich should be congratulated for putting his opinions forward in a clear, concise and readable manner. A couple of points I found arguable, however:
"The Millennium Bug, for example, seemed to be a huge threat to mankind, but in the end it did not do any real harm - apart from the billions of dollars that were pointlessly spent to prevent planes from falling out of the sky, lifts being stuck and power stations shutting themselves down."
Would the author also bemoan the billions of dollars 'wasted' on the eradication of Polio and Smallpox, when these diseases are also no longer a problem?
The other point I found questionable was already picked up by Till; it was not human inventiveness, or the (Government, taxpayer funded) space race which gave us such things as microwave ovens, personal computers, better cars, etc; or the military complex which gave us the (rudimentary beginnings) of the internet, but the good old 'drive for personal profits'.
I find that last one the most painful cut of all, when the internet is arguably the most egregious example of hobby hackers and enthusiasts contributing freely to create something far, far greater than the sum of its parts.
Of course I have to agree with the good Dr. about the role of the media; in the last example, the media must share some responsibility for the fact that Bill Gates should be so well known, when the man who literally gave the world a far more stable operating system freely, Linus Torvalds, rarely makes the papers.
Yes, as has often been stated, the free market system may not be perfect, but it is -so far- the best system we have.

Continued...
However:
The 2 greatest problems which, like the elephant in the corner, never seem to get a mention are clearly
1. the fractional banking system. When there is many times more money in the system than there is goods and services, how can we not lurch from one crisis, or boom and bust, to another?
2. Sheer size. We are slowly coming to realise the need for bio diversity; nature teaches us very clearly the need to not put all our eggs in one basket. When will we learn that the need for economic diversity is just as great, for exactly the same reason?
This crisis should have clearly demonstrated that 'the bigger they are, the harder they fall'.
The market's answer? "Not big enough. We need more mergers, takeovers and acquisitions".
Unbelievable.
Capitalism is a system whose success is due entirely to competition.
What happens when the race is won? When the winners are established and the losers have been exiled, destroyed or swallowed whole?
Fiat car company recently claimed it wasn't large enough to survive. It's spokesman claimed within a year or 2 there would be only 6 car companies.
How long until there is only one?
Will that still be Capitalism?

Ozandy “Liberals support large government too in reality”
This “Liberal” does not.

My observation of decades is the politics of large government, making it easier to ensure we can only aspire to the level prescribed by the state, are the socialists and

the liberals/conservatives support smaller government. I name Ronald Reagan for trying to reduce US governmental involvement, Margaret Thatcher doing the same in UK.

To the matter of banks lending money to people who could not repay it – the short reason given to explain the GFC (as Krudd would put it) what sort of banker would do that?

My understanding is socialist minded folk in USA decided it would be a good idea to make housing a political football and underwrite anyones ability to buy a house… good vote catching politics… this could be done by the government underwriting the mortgages so the banks took no risk.

That is not capitalism at work.

It is a manipulation of a system to produce a politically expedient socialist outcome.

It is the sort of manipulation which the Europeans like to play with their farm subsidies charging the public double the price and creating the wine lakes and butter mountains of the 1980’s then selling surpluses to Russia rather than let “market capitalism” determine the price..

Capitalism is being used as the whipping boy for the failures of big government; big government born from the dreams of socialists.

It is just another example of the lies of socialism

Col: "My understanding is socialist minded folk in USA decided it would be a good idea to make housing a political football and underwrite anyones ability to buy a house… good vote catching politics… this could be done by the government underwriting the mortgages so the banks took no risk."

Well dang-de-dang ... I always thought Bush was a socialist moron too. And Thatcher, the evil woman ... scaring everyone about climate change.

Can't trust either of them eh what?

Hey Col, keep your head stuck in the mud (or under the bed) - the socialist boogey-man is going to get you.

Grim
The market’s answer to the failure of companies is not necessarily for them to get bigger. The market’s answer is loss and bankruptcy. These have the effect of dismembering the companies, breaking them up, and transferring the pieces out of the hands of those who cannot or will not use them to serve the most urgent wants of the people, as judged by the people, and into the hands of those who can and will. It’s not just a system of profit, it’s a system of profit and loss.

In an unhampered market, big corporations can only get big by a repeated series of successful strokes at serving the people, as consumers, with what they consider most urgent.

By far the biggest cause of the predominance of big business is government, because taxation favours the bigger, and regulation unfairly discriminates against the smaller, because it’s easier for the bigger businesses to bear the costs than the smaller. Also it’s easier for big government to deal with big business, it’s easier for big business to lobby government, and government handouts to business overwhelmingly favour big business at the expense of small. Those criticising capitalism for the predominance of big business should agree to abolish the governmental activities causing it.

The success of capitalism is only half due to competition. The other half is the fact that capitalism allows a greater division of labour, which means that human action is more productive. This enables more human needs to be satisfied with the same amount of stuff. For example, the whole of Australia before capitalism was hardly enough to keep 300,000 people in poverty, and now it is used to keep 20,000,000 people at a much higher standard of living.

The reason is because capitalism allows a much greater level of social co-operation, despite what its critics say. That is why capitalist societies tend to win out against non-capitalist societies in war: the people in capitalist societies are co-operating with each other more closely, through the greater division of labour.

Q&A"Hey Col, keep your head stuck in the mud (or under the bed) - the socialist boogey-man is going to get you."

That is about the height of your level of contribution to this and most debates.

At least I am honest about what and who I am

I do not pretend to be something I merely aspire to.

Keep 'em coming Q&A . . . .

I might start speculating what 'Q&A' actually stands for

(cont.)

In nature, competition results in the destruction of the loser. But competition under capitalism is completely different. The success of a big corporation is a direct result of the behaviour of the people in preferring its goods and services. It means that scarce resources are used to satisfy human wants more economically, which means that what is left over is available to satisfy still other wants. Those who do not use private property to serve their fellow citizens face loss and bankruptcy. Those who lose out, do so as producers. As consumers, everyone is better off, that's the whole point. And as producers, they are free to try again to serve their fellow creatures as well as, or better than the ones who out-competed them. No-one can just thoughtlessly and comfortably live at the expense of others. The consumers do not care what capital vested interests have already invested. Every day everyone's position is reviewed as to who is best using his property to serve others, as judged by those others.

Where will it all end? The theoretical maximum to the world’s wealth is when all people are joined in social co-operation in the division of labour, free of impediments based on force.

It is extremely unlikely that there would only be one firm of car makers in the world, in a market unhampered by government intervention.

But in an unhampered market, if there was only one company making cars or whatever, all it would mean is that the people preferred spending their scarce dollars on buying cars of that make: that firm is best able to remove their dissatisfaction, or provide satisfaction.

It’s not bigness or smallness themselves that are important, it’s the freedom to choose.

How ironic that the advertisments which bombarded me when I opened this article were to implore me to sign up with American Express or to hand my busness dealings over to IBM. Perhaps in recent years too many people believed the ads.

Here we go again: the binary "thinking" of dullards. Is it "capitalist" or "socialist"? Adam Smith or Karl Marx? Is it left or right? No, it is black, not white! The entire derivatives scam and its many elaborate Ponzi schemes escape such cretins' blunt, rounded and soft mental machinery.

Idiots. Such simpleton musings all seem like a tribute to the degenerate IMF-designed education system which forces the stupid and rich - and their imitators - to overpopulate the ranks of execs, management, politicians and intelligentsia even though such people are obviously unsuited to useful thought, and barely fit for any demanding work at all.

Here's the background of your fairy tales, neolib clowns:

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.

Hey mil, I agree entirely ... I think :-(

First capitilism is not a democratic system,it is a complete farce.I will only give one classical example,in South Africa this farce named as such,created wealth they these capitilists did it by exploitation,they gained the blacks were losers,can that then be called a democratic and free society most certaintly not

Diocletian:
you remind me of Descartes defense of his famous theorem, “Cogito Ergo Sum.
As I recall, he claimed -roughly- that anyone who understood his theorem would agree with him, and anyone who disagreed would simply be demonstrating they had not the wit to understand it.
In the hard sciences, the true test of understanding is the ability to make accurate predictions.
Quite clearly, no one, socialist communist or capitalist has managed a complete understanding of economics or meteorology as yet.
Your arguments appear to be just as ideologically (and illogically) driven as those of the socialists you decry.
One presumes the ‘300,000’ you refer to would be the aboriginals. I think most anthropologists would agree that, at the time of the British invasion, the blackfellas had a better standard of living than the whitefellas. They certainly worked less hours, and had a better diet.
Most of the subsequent improvements in the S.O.L (at least for the next 5 or so decades) were due more to advances in medical science, than capitalism.
As to your comment:
“No-one can just thoughtlessly and comfortably live at the expense of others.”
In a world where 25-30,000 children die every day from poverty, and where:
“In 2005, the wealthiest 20% of the world accounted for 76.6% of total private consumption. The poorest fifth just 1.5%:”
The poorest 10% accounted for just 0.5% and the wealthiest 10% accounted for 59% of all the consumption:
The GDP (Gross Domestic Product) of the 41 Heavily Indebted Poor Countries (567 million people) is less than the wealth of the world’s 7 richest people combined.
These stats (from http://www.globalissues.org/article/26/poverty-facts-and-stats) make your statement indefensible.
If you intend to argue that one group is not responsible for the other, consider the concept of ‘ecological footprint’.
If everyone in the world enjoyed the same standard of living of average Americans, we would need the resources of 5 planets.
http://www.naturalnews.com/022890.html
We are living "thoughtlessly and comfortably" at the expense of others.

Grim, Descartes was, of course, mistaken in saying "I think, therefore I am," rather than "I think, therefore thinking is." He observed a process, and incorrectly inferred an entity. Many problems have flowed from this error!

The apologists for the capitalist system now in ruins remind me of the apologists for communism prior to its collapse:

Communism works!
It just hasn't been introduced right yet. And if only people would allow communism to work the way Marx intended then it would prove how well it can work.

Substitute capitalism for communism and you have the basis of this article. If only governments would get out of the way and let the market work everything would be all right. What rubbish!
The market doesn't work. It rips. And boy have we seen some ripping over the past 30 years.

shal

I liken this whole brouhaha to a two-edged sword.

Ergo, there is neo-con capitalism and communist capitalism. In my view neither have worked very well.

So why not take the best of both, throw out the tosh and adopt the middle road?

After all, we are all trying to survive together (aren't we) on this 3rd rock from the Sun.

Yeah, the "cap-soc" binary and Descartes are two useful pointers to the cultural decay we witness hand-in-hand with the monetarist economy's systemic disintegration.

For a clear realization of how futile it is to distract ourselves with cap-soc" binary thought, consider recent comments by Gao Xiqing, President of China's Investment Corporation: "I have great admiration of American people. Creative, hard working, trusting, and freedom-loving. But you have to have someone to tell you the truth. And then, start realizing it. And if you do it, just like you did in the Second World War, then you'll be great again! If that happens, then of course, American power will still be there for at least as long as I live. But many people are betting on the other side".

Now that above quote is from a man who is meant to be, at least nominally, a "socialist". Of course, more significantly, Gao demands that the derivatives market be scrapped as "BS/cr@p". No such frankness or freethinking among the neolib west's ruling oligarchs as they keep hogging our media.

For a glimpse of the profound intellectual corruption - probably inspired by Cartesian subjectivity as one of its earliest propellants - consider ex-RBA clown Ian MacFarlane to the Lowy Institute on 3 Dec: "The events of the last year have been quite astonishing and the capacity to make forecasts of events that are outside the range of previous experience is extremely limited. We're almost incapable, biologically incapable, of making forecasts of events that are outside the range of our lifetime experience and I think some of the events of 2008 have certainly been of hat nature".

Apart from his general verbosity and tortured English, MacFarlane demonstrates the blinkered vision and base conceit common to these ruling, inbred cretins, including it seems Frantisek Lowy and all his vast toadying retinue. MacFarlane couldn't foresee it, so it must be a common failing in all humanity! His brain lacks the "capacity", so such deficiency must beset all human brains. Etc.

That is all before we even touch on the issue of "character"!

Shal “Communism works!
It just hasn't been introduced right yet.’

And hopefully when it does work it will be introduced by people who can actually write English because “introduced right yet” is not.

“And if only people would allow communism to work the way Marx intended then it would prove how well it can work.”
No I have better things to do with my life than waste it on the ravings of a mid nineteenth century dilatant.

Fact, communism crushes individuals and their innovative and inventive problem solving spirit under its bureaucratic weight.
Communism ensures its own extinction by its focus on mediocrity and the false premise that individuals are all equal, when they clear are not.
“The market doesn't work. It rips. And boy have we seen some ripping over the past 30 years.” Actually the market does work but the efforts of some socialist inclined fools decided they knew best and underwrote the debts of people without the means or moral fortitude to pay their debts.

That is why Fannie Mae and Freddie Mac were the first to collapse.

Shal, I suggest you come back when you have acquired some practical experience of life and grown to understand the dangers of promoting a political system which has the blood of more people than the Nazis upon its hands.

I see Q&A is quick to promote his middle of the road path of mediocrity… a bet both ways… I suspect he is an expert at that, rather than giving support a specific agenda…

very “political” of you Q&A, back everything, be accountable for nothing…
side step responsibility, avoid blame and wash your hands of any responsibility, at all cost… it explains your elevation through academia

Col Rouge,

Please note the colon after "collapse" which clearly indicates that what follows represents the views of the apologists for communism. I suggest you learn to read and also to acquire the rudiments of punctuation and grammar. If you could read and if you could decipher punctuation you would realise that what I was saying is exactly the opposite to what you attribute to me.

Grim
The question how best to provide for the material welfare of the mass of people cannot come down to ideology, because reality must cut in at some stage. For example an ideology that we can make crops grow by rain dances is not on an equal footing with natural or economic science.

“In the hard sciences, the true test of understanding is the ability to make accurate predictions. Quite clearly, no one, socialist communist or capitalist has managed a complete understanding of economics or meteorology as yet.”

Fair enough. On the other hand, every belief is not equally true.

The Austrian school of economics maintains that the methodology for the science of human action must be different from that of the natural sciences, because humans act purposively, which planets and clouds do not. This methodology is to start from propositions about human action that cannot be denied without self-contradiction, and then to logically deduce universal propositions of human action that must necessarily follow, and thus to build up the body of economic theory.

The Austrian school predicted the current financial crisis years in advance when all the establishment schools of economics were cluelessly saying the economy is fine, and also predicted the Great Depression years in advance.

Poverty is the original and universal condition of mankind. Nature does not pour riches in our lap. Social co-operation is the key to the things that people want.

Every ideology promises greater material welfare for the masses of people. But whether the means chosen actually work to achieve this end is not a matter of majority opinion, or ideology, but of economic science.

The process by which people become materially better off is uneven and unequal. If people were equally wealthy, or if conditions were even, economic activity would come to a stop, and so would the rise in the S.O.L.

People who think that the rise in the SOL over the past two hundred years is because of forcible re-distributions are merely displaying their ignorance. The great rise in the SOL in modern times became possible from the insights

(cont.)
of the economists that the wealth of nations comes from work, savings and trade, and not from forcible takings or physically making money - that was the watershed in political economy.

Ultimately social co-operation can be based on individual freedom and voluntary exchange, or on compulsion and central planning. There is no third way.

The fact of the existence of poverty is not an argument against capitalism. It is precisely modern capitalism that has given rise to the expectation that people should not have to live in poverty any more.

It is ironical that those professing most concern about the poverty of the masses have done the most to retard the processes that relieve it. Having complained for the last 150 years that capitalism grinds the masses to subsistence level, they now complain that it provides a living standard that is too high.

It seems inconsistent to criticise the existence of poverty on the one hand, and the use of natural resources to relieve it on the other.

Only when people understand that the true basis of wealth and social welfare is in peaceful social cooperation, only when people get over the belief that forcible taking is the way to a better and fairer society, will we realise the better and fairer society that people yearn for.

The fatal conceit is to believe that the problems of natural scarcity can be conjured away by forcibly re-arranging property titles, and that human society can be moulded into any shape at will provided we can bring enough force to bear.

Mil_observer
"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."
Murry Rothbard

Once you have confused the definitions of “capitalism” and “free trade”, with systems of extensive and intensive governmental central planning of economic interventions for socialist or mercantilist reasons, the rest of your argument is futile

Shal ... thanks mate - I just spluttered my vino all over the keyboard and monitor!

avahappyone ... ROFL

Oliver Hartwich has a point in claiming that media sensationalizes and exaggerates threats, about the part governments play in “fixing” the problem and concerning the tendency for big business to use these crises as an opportunity to seek assistance from our "eager to please big business” governments. Other vested interests no doubt also clamour for favour from governments in response to these crises.

But that is as far as it goes. Hartwich fails to disguise his neo-liberals sympathies.

The first clue to his pro free market agenda was his lumping together of a whole lot of localized threats, (BCE, SARS), various known health issues, (asbestos, passive smoking) and that non-event, the Millennium Bug, with really major crises, AIDS (which would have been an even worse had it not been tackled in most parts of the world)and the civilization-threatening environmental crises (climate change and peak oil). As almost an after thought he adds “limits to growth” which is not a crisis at all but a bit of self-evident logic given that the planet is a finite thing.

Incidentally (clue number two) The Limits to Growth was the book that resulted from a project commissioned by the Club of Rome to examine the long-term causes and consequences of growth in the world’s population and material economy. Under every realistic scenario the authors found that the planet’s physical resources in the form of depletable natural resources and the finite capacity of the earth to absorb emissions from industry and agriculture would force an end to physical growth sometime in the twenty-first century. Nothing alarmist about this conclusion is there? Hartwich brushes the logic aside as if the very idea of a limit to growth was evidence of deranged thinking.

It seems to me that the hallmark of traditional free marketeers or neo-liberals is their trivialization of the effects of “growth at all costs capitalism” on the finite resources of the planet.

The final clue to Oliver Hartwich’s right wing credentials is that he is a fellow of that ultra-right wing think tank, the Centre for Independent Studies.

That is merely argument by slogans and labels.

The great attraction of Malthusian theory is its seemingly invincible logic: you can’t have infinite growth on a finite base. Sounds plausible, but as soon as the reasoning is examined, it crumbles.

100,000 years ago, were there enough caves to house a population of six billion? No. Did it matter? No.

150 years ago, was there enough whale-oil to light and power our modern cities? No. Did it matter? No.

Why not? Because people figured out new ways to satisfy their wants and needs using different stuff. Did they need a big centralized government Department of Important Fretting to figure it out for them? No. They used supply and demand, profit and loss.

Was there a problem of “inter-generational equity”? No. By your logic, if future generations live better than us, as is likely, inter-generational equity requires that we use more resources today so as to be even with them.

It is simply wrong to assume that natural resources and human behaviour are in their nature fixed and limited.

What is supposed to be the problem? We’re all going to die from an impending ecological catastrophe?

Even if you accept that logic, fuel energy now powers the farm equipment, the factories and vehicles to provide food, clothing, shelter, transport, communication, medical care and entertainment for hundreds of millions of people who would otherwise die. What are we supposed to do? Cause hundreds of millions of people to die now because you’re worried that they might – but might not - die in the future?

From your post, you would think that central planning by government socialist bureaucracies has a wonderful track record of success, and human freedom is some kind of wacky, dangerous, untried hypothesis.

Even if you assume that there is a massive problem, what reason is there to think that governments are going to be in any better position to solve it?

This is just more of a belief that government has superior knowledge, capacity and goodness that is not reality-based, a superstitious worship of governmental omnipotence that doesn’t exist.

What makes you think these problems are best solved in general, in the abstract, by arbitrary decree, by people who pay no cost if they get it wrong? What evidence is there that they won’t be better solved in particular, specific circumstances by interested parties?

Besides which, carbon dioxide is not a pollutant. The world is not about to face a tipping point at which we all boil to extinction. We are not facing an ecological catastrophe.

Every one of the predictions of Malthus, and the neo-Malthusians such as Ehrlichman (“the USA is going to starve to death by the 1970s”), have been disproved both in theory and practice. People pretending to have privileged knowledge of a coming ecological collapse are pious frauds. Their computer models can’t even predict today, let alone the future.

What I think is interesting about the neo-Malthusians is that they keep on being disproved over and over and over and over and over and over again, and they just keep on popping up with the same unchanged theories and rationales.

What we are witnessing with the environmental movement and global warming is a modern-day epidemic of religious hysteria. It has all the same elements as the old-fashioned kind.

There’s the unfalsifiable belief (either hot or cold weather, flood or drought, are taken as proof). There’s the belief that man’s sin is at the root of the problem. There’s the need for repentance, and abstinence from pleasure. There’s belief in a future paradise (the stasis of ‘sustainability’). There’s high priests (government scientists) reading mysterious signs (computer models) inscrutable to the common herd. There’s the reverencing of a corporation (government) as being morally superior and omnipotent, and charged with showing man the path to salvation.

And now, to cap it all off, we have carbon taxes – the selling of indulgences

For anyone else unaware of the baggage between myself and dio: I never made any equation "free trade = capitalism". Dio persists in claiming I did, whether as provocation or plain tenacious error.

Now dio, I have no problem with ignoring that bugbear anyway. But maybe we can get somewhere if you give us your take on the derivatives bubble? Any insights?

I have much the same understanding as yourself about the "carbon" rubbish, especially its obvious economic intentions. However, on "indulgences" to date, I also identify the derivatives trade. I think you'll find it is a critical factor behind this systemic implosion.

Diocletian,
There is no doubt that capitalism has brought with it benefits to much of humanity and that it has out-performed the Soviet style command economies that are now all but extinct. But in its present form, and perhaps in any form it, has reached its use by date as it a) doesn’t take account of externalities (which the emissions trading schemes are meant to address in a limited regard), b) has become increasingly reliant on the exploitation of material resources and sinks provided by the planets natural systems – and this in spite of improving technologies) and c) feeds on perpetual economic and, in the English speaking economies, population growth.

I said in my previous post the planet is a finite thing. That’s a fact NOT a belief. So with both exponential per capita economic growth encouraged by capitalist systems (and also, but less successfully by command systems) and exponential population growth, an affliction of poor, uneducated society and a goal of some religions and governments, the limits of the planet to provide for humanity as we now know it will be reached at some point. When and what form the limits will take and how society will adjust can be argued. It is impossible to predict with certainty the future of highly complex ecologic and economic systems.

Diocletian, I don’t, as you suggest, believe for one moment that government has superior knowledge, capacity etc. I am as anti the type of governments we have as you appear to be. They do not work for the common good at all but for themselves and, it must be said big business (as can be clearly seen by their latest offerings on the ETS where they tax some and hand most of it right back to our biggest polluters – a windfall for them). They promise the voters but deliver for big business.

Lastly, if the conservationist values are labeled religious (an oxymoron as they are based on facts and logic) then what is the term that should be used to describe the blind faith free marketeers have in their system?

To explain my take on the derivatives bubble I need first to explain the Austrian school theory of the business cycle which causes it.

Increasing the money supply over and above what is held in specie is inflationary. So credit expansion is inflationary. But inflating the money supply doesn’t just cause rising prices, it causes financial crises, for the following reasons.

The easiest way to think about it is, say a bank has 100 ounces of gold in their vault. They lend out in paper money substitutes - banknotes – 150 ounces of gold worth of loans. The bank profits on the extra 50 ounces worth of paper money. If there is a run on the bank, 50 percent of the depositors lose out.

In an unhampered market, there are two major restrainers. The first one is that it’s against the law – fraud – to lend out the extra 50 without disclosing that it’s not backed by gold. Secondly, even if the bank does it, honestly or fraudulently, they are liable in loss and bankruptcy. The market select out banks that do it.

But the market is not unhampered. Government is subject to no such negative feedback loop. Government encourages such fractional reserve fraud by legalizing it, and by backing the banks who are doing it. The banks are happy to profit on the extra non-existent money, and governments take a big cut. Together they milk Joe Public.

Creating new money has the same effect as counterfeit. Even though the Fed’s new money is legal, and counterfeiting is not, *economically* the effect is exactly the same. Those who get the new money first have an advantage over everyone else. They can buy stuff at the old price, and with their new dollars are able to bid up prices.

Those who are last to get the new dollars are paying the new higher prices before they get the new dollars. So inflating the money supply is a transfer of wealth from everyone who uses money to those who can get the new dollars. Joe Public gets milked a second time

In this current case, the new money went into the housing sector. The new money available meant a rise in demand, which meant a rise in prices – the housing bubble.

It is this manipulation of the money supply causing the wild upswings and then the crashing downturns, which did not exist before government’s backing of fractional reserve in the 19th century, and especially not before central banking in the 20th century.

There is a multiplier effect of up to ten times in the sector receiving the new money. This is not just Austrian theory, the others also agree. So we have a major price bubble, and a major debt bubble, in multiples of the original increase in the money supply. If the funny-money tap is turned off, the debt will be proved to be unserviceable.

That is the underlying situation that the derivatives market is trying to deal with.

A derivative derives from the underlying contract. The derivative functions to transfer the risk of the underlying contract to the buyer or seller. Derivatives can greatly multiply the risk or return.

In short:
• The risk that the derivatives bubble was trying to manage was the risk from the massive unserviceable debt bubble, created by government’s chronic policies of easy money, without which, the derivatives bubble wouldn’t exist.
• The risk of any given contract, underlying or derivative, should be on the person who knowingly undertakes it, which is the situation that would prevail without market regulation.
• The problem is that the risk is, by government, imposed on people who never undertook it, eg when Freddie and Fannie misused derivatives contracts and Joe Public ends up paying for the risk of contracts of which he was not a beneficiary.
• Just as bad underlying loans were made in the knowledge that the government would ultimately bail them out, so bad derivatives contracts were also made with the same tacit backing.

Further upstream from the derivatives problem, is the prime cause of the entire financial crisis: government fiat money.

Ultimately, which do you trust more: gold or politicians’ promises