Sunday, April 12, 2009

Are we all socialists now?

According to Benjamin Sarlin @ The Daily Beast Socialist Shocker:

Maybe Glenn Beck and Rush Limbaugh are right—socialism is a real and dire threat to America. The latest Rasmussen poll shows a stunningly low 53 percent of Americans favor capitalism over the dreaded "s" word, with a full 20 percent preferring socialism and an additonal 27 percent unsure.

So, 20% committed and 27% on the fence constitutes a dire threat? Since when? Wouldn't it be intellectually honest to compare these stats to those when times are good? How about we ask some of the 27% how well versed they are in the track record of socialism vs. capitalism. Oh, wait, that wouldn't be a feelings based story.

This comment caught my attention, because I've probably read it 100 times on different sites since the start of this debacle:

"Government intervention in the economy is the source of these problems."

Can you please explain what you mean by this statement? Is there any evidence that the financial industry was under-regulated? Have you ever heard of the Glass-Steagall Act? Do you know what effect the Gramm-Leach-Bliley Act had on speculation and investment? What, exactly, do you think brought us out of the Great Depression? If it wasn't the massive government spending of FDR's New Deal or the massive government spending of WWII, what was it?

Bailouts suck. So does chemotherapy.

So here's my response:

The Fed created artificially low interest rates, which combined with tax subsidized home loans, caused a housing bubble. Bailouts have hindered the recovery process by making banks hold off on selling assets for 10 cents on the dollar when Uncle Sam and Taxpayers will pay 30 cents on the dollar. Capitalism has as much to do with punishment as it does reward. The government is rewarding failure, and ensuring that these people are around to make the next bubble turn into a disaster.

The bi-partisan deregulation in the late 90s has exacerbated the problem, but it was not the cause of the problem. CDS need to be regulated, but they are not evil things all by themselves. No one complains about insurance when there's a hurricane, only the fraud and insolvency of institutions that don't make good on their promises.

The Great Depression affected much of the world. Coincidentally, much of the world also had to contend with the destruction of WWII. Our industry was one of a handful that remained undamaged. The U.S. was the only major industrial superpower remaining after WWII. That's how we got out of it.

Debt is useful to bootstrap your company, afford a house, or pay tuition. You know there is a surplus of income down the line that will eventually pay for it. How does the country know that? Our personal finance reality prevents us from taking on more debt than we can repay in our lifetimes. Our elected officials can just pass it to the next generation. But at some point, servicing the debt will take up too much of our resources. Then it's total economic collapse.

If you find yourself in a hole, stop digging.

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