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The Stock Crash; Anyone else worried about this?
Topic Started: Jan 22 2008, 06:05 PM (294 Views)
TheMachine
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I don't know how many of you follow financial news, but this Stock plummet this morning has me a bit worried about the world's immediate economic future. First the USA had the housing crash, and now this... I really think we are on the slippery slope to recession if the markets don't make a major u-turn sometime in the next few days. Anyone else have any thoughts on this?
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Sadhana
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capitalism is dead
I actually do know about this, more because I live too close to Wall Street to not here about it rather than because I follow the stock market. :lol: Haven't the stocks started bouncing back, though?

Well, I believe there will be an economic depression some time in the not-so-distant future, so I'm sorry that I can't abate your fears. I also believe that capitalism as a global economic system will totally collapse, maybe even in my own lifetime, and that it will be a neo-liberal's nightmare. But I have little formal education in economic matters, and my hunches regarding economic recession operate on my understanding that a wide-spread system of greed won't sustain itself. Anyway, that's just my guess. ;)
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TheMachine
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I work in the financial industry (I'm a graphic/web designer at a company that builds websites for stockbrokers), so I'm always on top of these sorts of things. I agree that a general recession or possible depression looms on the horizon unless changes are made soon. However I believe that the problem isn't with capitalism or an economy based on "greed." Rather I believe that over-regulation by the government is responsible for the shaky market. The Fed has too much power, over-taxation takes too much money out of the economy and increasingly restrictive environmental and financial regulation limits the ability for businesses to turn a profit.


I've always believed that the free market, even if it is based on self-interest over communal interest, is the most efficient economic system sustainable by humans. We're we a world of omniscient angels, certainly socialism or mixed economies could work. However self-interest is a fact, and people can more or less be counted on to act in their own interests most of the time. Unfortunately a free-market as such no longer exists, over-regulation has hampered it. For instance if drilling were allowed in certain regions of the United States (particularly Alaska) and the construction of refineries wasn't so prohibitively expensive (due to government regulation), then the USA might reduce it's dependency on foreign oil, in turn lowering prices of most goods across the board. Lower taxes of course, results in higher individual spending which would, in turn, act as a stimulus to the economy.

As Adam Smith mentions in the Wealth of Nations, people are guided by an invisible hand, acting in their own self-interest, to ensure economic well-being. For instance if you are shopping for a jacket, and you see that the price is too high, you do not buy the jacket. Someone else who is willing to spend the extra money does buy the jacket. Meanwhile there is a limitation on the amount of jackets which can be produced profitably, and this ensures that only people who REALLY want the jacket (i.e. are willing to pay for it) receive it. This in turn means that jackets, as a whole, are not significantly over or under produced, and materials and labor are not wasted on producing too many jackets, as who would make them if no one was willing to pay enough to make the business profitable? In a communist society, the government regulates the production of various items, including, say, jackets. They determine how many jackets are to be produced by the allocation of labor and resources to the jacket factories. Only if they guess exactly right do all those who really need a jacket receive one. If they under-produce, there will be many people who cannot get a jacket, or who have to wait ridiculously long for them (think back to the food lines in the former USSR)... or you wind up with too many jackets, and labor and materials which could have been diverted elsewhere were wasted on making jackets for people who didn't really want or need them.

All of these economic mechanics are going on behind the scene, as you browse the rack of jackets at your local department store. Built in mechanisms exist in the form of supply and demand to ensure that the pricing structures remain relatively fair so long as the market remains competitive (i.e. no monopolies or cartels). Also if a company does overproduce, they pay a penalty for it (i.e. having to clearance the items). If they under-produce, they find out they missed out on lost revenue and produce more accurately the next round. Any company that cannot adapt fast enough to changing market conditions is weeded out in a form of corporate darwinism. Such things do not happen in command economies, and only happen irregularly in mixed economies (such as we have today).

Anyway, that's my $.02.
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Sadhana
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capitalism is dead
I know Adam Smith and his theories on the economy well, and he had some very well-thought out ideas. The concept of how self-interest will drive competition is really intelligent. And as much as I dislike capitalism, I dislike communism even more. But the problem with either, in my opinion, is basically the same thing: they both depend upon the exploitation of a population. In capitalism, it's the wealthy that succeed at the expense of the working class. In communism, it's the working class that succeeds at the expense of the wealthy. That being said, I also don't believe that a more socialist/mixed economy will solve all our problems either.

Have you ever heard of Nash equilibrium? You might know the mathematician who created the theory, John Nash, from A Beautiful Mind. Anyway, it very basically dictates that in the majority of cases, the most profit is received when each player in the game adjusts their self-driven strategies slightly so that they are also doing what's best for the other players. This theory can be, and on a small-scale is, applied to economics.

In short, I don't know what economic system out there is best. Maybe it hasn't been thought of yet. But I believe that an economic system in Nash equilibrium would be a pretty good place to start. And it is also my belief that capitalism will fall as communism did.
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TheMachine
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It is well to have an intelligent, well thought-out conversation on this. It's been quite awhile. Anyhow I am familiar with the Nash equilibrium and how it relates to the Prisoner's Dilemma example. However this is a theoretical practice that is entirely removed from the real world, which is far more complex than the Prisoner's Dilemma. Even that being said, you would be correct in saying that this would be a better solution than straight-out "greedy" capitalist philosophy, but it makes the false assumption that people are intelligent enough to employ it.

The unfortunate truth is that people are rarely intelligent enough even to look out for their own interests, much less make any kind of rational judgment about adjusting their own behavior patterns and reactions so as to help both themselves and others. In other words we can only trust that people will do what's in their own best interests... most of the time. And even "best interests" must be used very loosely in this context. Obviously a redneck who decided to get drunk every night is not acting in his own best interests from a purely outside point-of-view, but doubtless the value to him of being drunk and having lots of booze is far greater than it would be to more intelligent person. Thus was can say that in the man's own mind, he is following his best interests, even if it's not objectively true.

It is important to make this distinction when comparing economic systems. Communism assumes that the people as a whole are more intelligent than the people individually, and this has more or less been proven false. In fact the reverse seems to be true, the more people you get together, the less the collective intelligence... it becomes bandwagon politics. Similarly, mixed economies run into the same problem, only to a lesser degree. Capitalism certainly is not perfect, and I would never make the claim that it was, but ultimately it is the best system yet discovered precisely because it has the expectation that people will be greedy morons. It uses this human trait in a somewhat constructive manner. In other words it's goals are realistic: people just need to do what they want to do within the confines of the law, and it more or less works the way it's supposed to by default.

Also, you mention the exploitation of the poor by the rich in Capitalism, and this is a common misconception. Certainly the rich exploit people, that's nothing new, but one must also take into account what wealth actually represents.

Currently we are on a fiat money system, that is to say that the government simply decides to make money, and we, as individuals, assign it a relative value. Usually this value is back by the stability of the government in question, which is in turn tied to the power of that particular nation-state. In other words, money is portable power, not gold or silver or any other trade good. The more money you have, the more powerful you become. Certainly I do not suggest that we go back to a gold standard (that has it's own set of problems) but it is important to know that government power is a big part of why the rich are also powerful. Remember that wealth is ultimately derived from the nation-state itself... it has always been this way. The only change has been the form of capital that wealth takes. In feudal times, the right to collect income from estates (usually granted by a higher-ranked lord), was the primary form of wealth. Only a century or so ago, the wealth took the form of trade goods, primarily gold and silver. And today it is fiat currency backed by government power, essentially a minute share in the relative power of that nation.

Why is this important? One must separate power from the word "capital" as it relates to capitalism. Capitalism is simply a system where the free exchange of goods and "capital" can proceed with minimal government interference. The government's job as it relates tot the economy is to ensure legal rights of possession. That is to say, when you purchase a factory or a home or even just TV, it becomes yours and no one can take it way from you without your authorization free from threat of harm.

Capital is simply the various forms and tools as it relates to the production of goods and services. I.e. a factory is capital, because it produces things. Land -can- be capital if it is used in such a fashion, i.e. if you own a lot of forestland and want to start a campground, or if you want to build a shopping center to lease out to various businesses. But land itself is not capital unless it can be used for something.

Labor isn't a direct form of capital, but the knowledge and abilities you amass are a form of capital. That is to say if you know how to make rocket ships, that's a form of capital... of course so is simply knowing how to clean a toilet, if it can get you a job. In other words everyone owns capital, even if it is simply the ability to hire one's self out as a day laborer to clean up crap. How much capital you amass depends on your work ethic, what capital you are freely given (inheritance, for instance), what you learn and a little luck.

So Capitalism is not directly related to aristocracy or the wealthy. In fact in most societies, there is a form of social stratification even if it is not explicitly states. For instance in the USSR, people were theoretically equal.. but who would equate a farmer with Joseph Stalin? In other words the "rich" will always exist in human societies, the only difference is what form they take. It's not always in the form of money: in ancient times, wealth was often counted in livestock. Sometimes wealth was simply a measure of your status with the King. Sometimes it was the ability to go around and kill people... Regardless of what form it takes, it is not unique to capitalism.

What we must use instead as a more accurate barometer of social progress is the relative living conditions of the "poor." In the USA, most of our poor own TV's, microwaves, many own cars (even if they are crappy). When this is compared next to many other nations, it's a very good standard of living even for the bottom 20%. Most people who really want to find a job can do so. Even in the recession or depression that may occur in the near future as a result of weak financial markets, the standard of living is not likely to go back to, say, the Dark ages. Thus we can say that society has progressed very well, though it obviously still has it's share of serious flaws.

Anyway, lol. I'll stop typing now :).



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