“No emergency can justify a return to inflation. Inflation can provide neither the weapons a nation needs to defend its independence nor the capital goods required for any project. It does not cure unsatisfactory conditions. It merely helps the rulers whose policies brought about the catastrophe to exculpate themselves.”
— Ludwig von Mises
HT: Barry Ritholtz
We started the parade in a post a couple of days ago, in which it’s pointed out that most business people hate capitalism, because capitalism implies competitiion, which business people hate. Especially monopolists like Bill Gates.
That’s Stephen Bainbridge. It sounds a bit cynical, but remember that the late, great Milton Friedman used to say that businesses love freedom for everyone else, but want special privileges for themselves.
John Cassidy explains:
There are basically five stages in Minsky’s model of the credit cycle: displacement, boom, euphoria, profit taking, and panic. A displacement occurs when investors get excited about something—an invention, such as the Internet, or a war, or an abrupt change of economic policy. The current cycle began in 2003, with the Fed chief Alan Greenspan’s decision to reduce short-term interest rates to one per cent, and an unexpected influx of foreign money, particularly Chinese money, into U.S. Treasury bonds. With the cost of borrowing—mortgage rates, in particular—at historic lows, a speculative real-estate boom quickly developed that was much bigger, in terms of over-all valuation, than the previous bubble in technology stocks.
As a boom leads to euphoria, Minsky said, banks and other commercial lenders extend credit to ever more dubious borrowers, often creating new financial instruments to do the job. During the nineteen-eighties, junk bonds played that role. More recently, it was the securitization of mortgages, which enabled banks to provide home loans without worrying if they would ever be repaid. (Investors who bought the newfangled securities would be left to deal with any defaults.) Then, at the top of the market (in this case, mid-2006), some smart traders start to cash in their profits.
Admittedly, Minsky’s theory fits the story.
“We can relieve people of the worries about paying their medical bills. But only at the cost of entrenched mediocrity in medical care.”
— Arnold Kling
John Steele Gordon writes:
But so far, and despite waverings on the margins, it remains the fact that the Republican party, long the champion of protectionism, is now essentially the owner of the ideology of open trade, while the mainstream of the Democratic party, a party founded on that ideology and proudly identified with it for virtually its entire existence, is in the process of a stunning reversal.
True, Democrats do not flat-out oppose lower barriers to trade, or flat-out endorse explicitly protectionist measures. Instead, their views are usually couched in terms of environmental concerns and workers’ rights. Congressional Democrats, for instance, will claim that they are not against free trade; they just insist on provisos in free-trade agreements that no sovereign nation could possibly accept. [Emphasis added.]
HT: Bryan Caplan
John Tamny considers Bill Gates’ notion of ‘kind’ capitalism to be a misnomer:
Instead, capitalism is better than kind for engendering a form of ruthless benevolence whereby capital is constantly being directed away from the businesses and entrepreneurs who fail to give people what they want, and redirected toward those who are. With profit paramount in capitalist systems, capital rarely lies dormant such that its overseers can use it in ways inimical to the interests of the rich and poor alike.
Furthermore, [Greg] Clark writes that when we look at how the rich live, “their current lifestyle predicts powerfully how we will all eventually live if economic growth continues.” Sure enough, this writer experienced the shock of seeing a wealthy Beverly Hills resident talking into a bulky hand-held cell phone in the mid-‘80s, but by the new millennium cell phones were ubiquitous; the only thing remarkable about them in recent years having to do with those not in possession of one.Some, including Gates, might point to the wealth gap wrought by capitalism as a problem in and of itself, but returning to the proliferation of cell phones, capitalism is an engine that rewards profits; the profits frequently resulting from mass production of goods marketable to a broad spectrum of economic classes.
Tamny sounds downright Shumpetarian
Phil Miller on the often unseen wonders of economic growth in our daily lives.
Steve Horwitz echoes my thoughts (expressed in a post yesterday):
…excessive supplies of credit enabled mortgage lenders to give out high loan-to-value mortgages right and left, leading to delinquencies and foreclosures, supposedly leading to a weakening economy and a falling stock market, which the Fed is now attempting to “cure” by cutting rates by 75 basis points, which will inject even more funds into the economy.