Posts tagged ‘Capitalist Free Market’

05/07/2012

France: What Socialist Win Means

FRANCE NOW SOCIALIST: While Republican strategists in the U.S. totally distort the meaning of the word “socialist” by claiming President Obama has become one, since he signed a bill that preserved capitalism, by placing private sector insurance companies, instead of the government, in control of America’s health care system, French voters are not that gullible, and they were not at all confused last week when they elected Francois Hollande, the Socialist Party candidate, to be their next President.

U.S. CONFUSION: Many in the U.S. confuse the meaning of political and economic systems. Political systems can range from monarchy, or dictatorship, on the one extreme, to democracy, or Republican forms of government on the other. Economic systems include pure free market capitalism, on one hand, socialism in the middle, and communism on the other end of the spectrum.

POLITICAL AND ECONOMIC SYSTEMS CAN BE MIXED: Countries are free to mix together different types of economic and political systems. Saudi Arabia has a dictatorial monarchy, coupled with a capitalist economic model. The one-party dictatorship in North Korea functions within a communist framework. Voters in the U.S. democracy lean towards more capitalism and less socialism, while those in other republics, like France, are now opting for more socialism, and less capitalism.

U.S. REQUIRES ONLY DEMOCRACY: The U.S. Constitution requires only a Republican form of government, or in other words, a democratic electoral process. The Constitution makes no mention of “capitalism” or “free markets.” U.S. House members and Senators are free to implement whatever regulations of commerce they wish, using more or less capitalism, or socialism.

SOCIALISM BEGAN IN EUROPE: After the first Socialist Party was founded in Germany in 1861, over time it gained popular support throughout Europe. While progress was made in the Russian Revolution in 1917, as the absolute monarchy of the Czar was overthrown, the movement went too far in the civil war, as a harsh dictatorial communist state gained control. Socialists, who had supported personal liberties and regular democratic elections, had no place in Stalin’s Soviet Union.

DICTATORSHIPS ARE PER SE BAD: To be clear, no country should ever return to the old Stalinist communist model, as it was dictatorial, and denied opportunities to modify economic policies in the market, or through the ballot box. One way or another, individuals had to be free to influence politics and economics.

CONTROLLED-ECONOMIES FAIL ON SUPPLY-SIDE: When government-controlled command economies decide what goods to manufacture, and determine supply, without regard to consumer demand, systems become dysfunction, shortages arise, and black markets develop. If central planners fail to open up enough retail outlets, service declines from the absence of competition.

CAPITALISM PREFERRED AS TO RETAIL GOODS: Supply should never be determined from the top down, but rather from the bottom up. It should be based on the collective demands of consumers, not guesses by bureaucratic planners. Market economies are useful when it comes to boots, blue jeans, and other goods. It is the bottom up message that creates efficiencies.

UNREGULATED CAPITALISTS TEND TO MONOPOLIZE: The government does however have an important role to play in free enterprise, particularly in maintaining competition, which is essential for the system to work. Total free market capitalists, when completely left to their own devices, ultimately devour their own. Where power concentrates, firms get too big to fail, and governments must step in with antitrust laws to bust them up. Without antitrust actions one corporation in each economic sector ultimately dominates, eliminates all competition, and the same inefficiencies observed in command economies surface.

UNREGULATED CAPITALISTS WOULD ABUSE LABOR: Without regulatory laws, workers in a pure free market economy would serve at the whim of their employers. There would be no collective bargaining, no occupational health or safety rules, wages would have no floor, and injured or laid-off workers would go uncompensated. There would be no pensions, or retirement for that matter, since everyone would just keep working.

UNREGULATED CAPITALISTS WOULD POLLUTE: Without restraints on a totally free market economy, factories would be able to dump polluted water into rivers, and motor vehicles would belch noxious exhaust fumes into the atmosphere, unabated.

SOCIAL DEMOCRATS HAVE ENACTED GOOD LAWS: Laws to improve living conditions and to give individuals some degree of security against unemployment, accident, illness, old-age, and the like were needed, and have been enacted by state legislatures using their police powers, and by the federal lawmakers under the Congressional power to regulate commerce.

SOCIALISM IS BETTER FOR ESSENTIAL SERVICES: While the free market is better when it comes to consumer goods, the pure capitalist system has many flaws in the delivery of essential services, since it does not concern itself with equitable distributions of wealth. Many people suffer when the government stays out and gives private enterprise a free hand as to everything. A system in which only those who can afford essential services can buy them, and those who cannot go without, is not a good one, and is prone towards revolution. While pure capitalists believe government should never interfere in economic affairs, no matter how much disparity exists, Social Democrats have made the world a better place, and it could be improved even more, if more nations would follow the French lead.

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06/02/2011

Farm Subsidies: Created For A Reason

With current budget deficits and a growing national debt, some have asked whether we should eliminate U.S. farm subsidies, but a better question is: Why were they created in the first place?

The agricultural free market collapsed in the Great Depression, and could not recover on its own, because the farm economy stubbornly defied normal supply and demand curves. Agriculture was not like other economic sectors, because everyone needed to eat, and food demand remained constant. Since food demand never changed, the only variable that affected price was supply.

The supply problem, which continues today, is the production of more food than farmers can sell. U.S. farming is so efficient it creates an oversupply, which in turn pushes prices down, often below the cost of production. Although U.S. farmers were making enough food in the 1930s to feed the world, in the free market, they were unable to earn a living wage. They responded to low prices, by redoubling their efforts, and producing even more, with a hope of selling more, but this additional supply caused prices to drop even further, and took the entire farm sector to the brink.

The issue in 1934 was how to ensure a sustainable price for food, given the reality that supply routinely exceeded demand. Liberals argued for controls on agricultural supply, and subsidized minimum prices, to guarantee economic stability. The New Deal Democrats proceeded to make radical changes, as they replaced the capitalist free market system with a controlled economy. It was like creating a farm minimum wage. Once the government set the price for food, surpluses in supply became irrelevant.

The question now is whether the U.S. should once again adopt the capitalist agricultural free market that failed so miserably in the Great Depression. If there is one thing we sometimes learn from history, is that we don’t learn from history. If agriculture goes back to the unregulated free market that ushered in the Great Depression, it is reasonable to predict the system will fail again.

Terminating subsidies will return agriculture, a valuable necessity, to the chaos of free market forces. Excessive supply in relation to demand will cause prices to bottom out again. This will in turn trigger bankruptcies, and the ultimate loss of the farm sector.

While consumers may gain in the short run, once the domestic farm sector is out-of-business, the U.S. will become dependent on foreign producers, imported food supplies from abroad, and prices set in a global market place, well beyond our control.

A controlled economy using supply management and subsidized price controls is not an evil. We should think twice before we end the supply and price controls that have met our needs since 1934.