|Is capitalism really bad?
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The new pope, Francis from the Pampas, has just warned us to beware 'the tyranny of capitalism."
Each man worships his own gods. Some worship at the altar of Jesus of Nazareth. Some at the altar of the Almighty Dollar. The capitalists don't bad-mouth Francis's god. You'd think he would cut them the same slack.
Bad-mouthing Catholicism will win you few fans. Non-Catholics won't care. And real Papists will be your enemies for life.
But bad-mouthing capitalism has a large ready audience of uncritical fans.
Of course, we rise to defend the faith - capitalism, that is. In this, we take the high road...not because we are high minded, but merely because we don't like crowds. So, we will not stoop to criticizing Francis' faith, nor praising Mammon with hearty hallelujahs. Instead, we explore the discreet charm of honest money-grubbing, confident that at least in the land of free enterprise defenders we will always find a parking place.
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Almost nobody really approves of capitalism, least of all the greedy SOBs on Wall Street who call themselves capitalists. They preach the gospel of risk-taking, but as soon as the risks go against them in a big way, they call upon their friends in high government places for aid and succor. They publicly support 'free enterprise,' but privately they connive with regulators for bailouts, subsidies and barriers to entry to keep out competitors.
In the crisis of '08-'09, for example, the financial industry had reached a major turning point. It should have turned. Instead, it kept going in the same direction.
What should have happened as told by David Stockman in his thorough book, "The Great Deformation:"
"...hundreds of billions of long-term debt and equity capital that underpinned the Wall street-based speculation machines would have been wiped out, including huge amounts of stock owned by executives and insiders. Such a result would have been truly constructive from a societal vantage point. It would have implanted an abiding 1930s-style generational lesson about the deadly dangers of leveraged speculations."
Instead, the speculations paid off! And the now the big banks are bigger than ever. This week the Wall Street Journal reported that the top 4 US banks hold $214 trillion in derivatives. 'Too Big to Fail' banks are pushing the little guys out of existence. The WSJ:
"The decline in bank numbers, from a peak of more than 18,000, has come almost entirely in the form of exits by banks with less than $100 million in assets, with the bulk occurring between 1984 and 2011. More than 10,000 banks left the industry during that period as a result of mergers, consolidations or failures, FDIC data show. About 17% of the banks collapsed."
The banks have $2.2 trillion more in deposits than they had when Lehman failed. Where did that money come from? Well, the Fed created about the same amount in its QE program. Is that a coincidence, or what?
Yes, dear reader, the big banks hate capitalism too. What they like is crony capitalism....at least, they like it when they have the cronies in the Treasury Department and the Fed.
And the rest of the heaving masses hate capitalism too, but for other reasons. They are envious of those who have more than they have...and eager to redistribute other peoples' money, to themselves, of course.
So, almost no matter in which direction the Pope heaves his message, to the modest nests of the have-nots or the sumptuous pads of the haves, he is bound to hit a supporter.
It's true, as we have explained, that capitalism is easily corrupted by the capitalists, but that doesn't mean it is a bum creed. People calling themselves Christians have done vile and repulsive things; that doesn't mean that 'love thy neighbor' is not a worthy aspiration. Like Christianity, capitalism is a goal, not a fact.
"But that is the same argument the commies made after the wall came down," countered #2 son, Jules, when we put this to him.
"They said that you can't condemn communism just because the Soviet Union was a rat-hole. They said communism, too, was a goal...one that had been unrealized by the Russians."
Our response was simple enough:
"Yes...but...there are worthy creeds and unworthy ones. 'Do unto others as you would have them do unto you,' is still the best way for a civilized community to get along. The more you depart from it, the worse off you are.
"Capitalism works the same way. The further you get away from truly free enterprise the more cronies and zombies (people who live at others' expense) you get...and the less well the whole system works.
"Envy is a fact of life. You can't eliminate it. But it has different results depending on what kind of a system you have. Trying to keep up with the Joneses in a capitalist society drives people to work harder, invent things, and helps everyone be better off.
"In a crony capitalist society, envy leads people to take advantage of the system. But it doesn't stop everyone else from working hard and inventing things...not completely.
"On the other hand, the closer you get to true state-backed, command economy communism and the closer you get to North Korea! Some goals you want to work towards. Others, you want to work hard to stay away from."
Someone should tell Pope Francis.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.
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