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In yesterday's blog I imagined a future where capitalism morphs into something with freedom of employment but more restrictions on how individuals can spend, invest, and buy health care. The point of the restrictions would be to keep gullible idiots from destroying the entire economy, again, through their own reckless behavior.

Most of the comments fell into two camps:


1. Capitalism is fine the way it is.


2. People would never stand for those new restrictions.


Some people also assumed I was recommending new restrictions on freedoms. I'm not. I'm predicting the restrictions because it will become clear that the alternatives are impractical. And as always, it is just a thought experiment. Don't take it too seriously.

First let's look at the notion that capitalism is fine and we're experiencing nothing more than another recession. I don't think that's the case this time for several reasons. The biggest reason is the baby boomer generation that is retiring and poised to absorb all social security and health care resources while adding little in productivity. And by the way, they didn't save enough money to retire. Next you have the Kazillion dollars in debt, and another tsunami of mortgage defaults that will trigger over the next few years as rates automatically adjust upward according to contract.

Meanwhile I see no obvious candidate for an economic driver to the upside. Apple can only sell so many iPhones.

Unwise debt and unsustainable bubbles had masked the fact that the economy was already bankrupt. The next mortgage meltdown (unavoidable), and the baby boomer impact (unavoidable) are not balanced out by anything that looks like good news. In other words, capitalism Part 1 failed.

The second objection to yesterday's post is that people wouldn't put up with any additional curbs on their spending and investing freedoms. That seems ridiculous to me since we already put up with so many societal restrictions. A few more would hardly be noticed. I don't remember the last time I heard anyone grumble about seatbelts. And if the government told banks they couldn't make billion-dollar loans to the homeless, no one would complain about that new restriction on freedom. Some restrictions on freedom just make sense.

Suppose your so-called restrictions on freedom came down to this question: "Would you rather have affordable healthcare or the right to make ignorant and risky investments?" Or how about, "Would you like to have a job or the right to be obese without being taxed extra?"

I don't know what capitalism's second act will look like, but it probably involves preventing individuals from being as self-destructive as they would prefer.

I remind you that I lean libertarian, so I'm happy to let anyone engage in risky and morally ambiguous behavior, but only up to the point where it has an impact on me. When your behavior raises my taxes it becomes my business.

 
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Dec 17, 2008
Just to add a "me, too!" comment alongside Scott's and PHBWB's...

When I was in 7th grade (I'm 40 now), my teacher told us something that somehow or other stuck with me my entire life. She said, essentially, that "your rights stop at the end of your own nose." I believe on some very fundamental level, I must have incorporated that idea into the structure of my being, since many of my beliefs as an adult seem oriented that way. Dunno. Maybe it just makes sense.

(Somewhat O.T.) For those who are into reading very dry tomes, I recommend a book called "Ain't Nobody's Business If You Do". It's about the absurdity of laws against so-called consensual crimes. To be honest, I never really got into it as I was daunted and disappointed by the sheer length and dryness of it. Nevertheless, it might be of interest to some here.

 
 
Dec 17, 2008
I have to laugh that "Hoosier" thinks there is a two trillion dollar "fund" in government just sitting collecting interest until it pays out. SSA has been part of the general fund for some time. There is no giant nest egg that is going to run out.and in fact, with a projected two million jobs lost over the next six months, you might find the so called "fund" depleted long before 2014.
 
 
Dec 17, 2008
Your analysis that capitalism failed is incorrect, since capitalism would not have had the mortgages that were defaulting (Fannie and Freddie and the CRA forcing loans and backing them up that should not have been made on a business case), and the baby boomers retiring. Those issues were not capitalistic ideas, they are socialism, within a construct of capitalism. Socialism, more government regulation, and the inherent downturn of the economy because of these events will be bringing down capitalism, not the system itself. If left to their own devices, most banks would not have loaned money to people unwilling or unable to repay them, but under threat of lawsuit or prosecution had to. If we had "fixed" social security in the eightes to be self directing, instead of coerced, more would have a better savings nest egg, even with the 40% drop of recent months than they will possibly receive currently.
 
 
Dec 17, 2008
I was one who attacked your entry as more of a proposal than a prediction, so, sorry about that.

However, I do have to take some issue with the way you view "Libertarianism." While your definition is strictly correct, you're shoehorning the Libertarian view into a society that it would never work in. As our society is right now, especially given welfare and health care, Libertarianism might as well be a dictatorship. Anything you do to your body directly affects everyone in some minuscule way because if you decide to do something personally risky, you run the risk of costing the taxpayer money in health care costs (or if not the taxpayer directly, the health care industry as a whole). You say you don't hear anyone complain about seat belt laws, but I personally think they're ridiculous; not because I don't want to wear my seatbelt (I always do) but because I believe there is no way to have such a law without having unreasonable punishments for what is a completely victimless crime. (And, side note, seat belt laws have nothing to do with safety, they have to do with revenue. I ride a motorcycle, which, even with a helmet, is about 5000x riskier than driving a car without a seatbelt, and yet motorcycles have not been outlawed).

Similarly, smoking in restaurants - I love the fact that there is no more smoking in bars and restaurants, I love coming home not reeking of smoke. But forcing a private business to restrict what LEGAL activities go on in their establishment, under the guise of protecting society as a whole is a dangerous precedent. And no one likes slippery slope arguments, but how soon after the smoking ban were trans fats banned? And how much longer do you think we have before there IS an obesity tax, or maybe worse?

All of these things in some way cost society money, in some cases substantial amounts, but that is the fault of a broken system more than the fault of individuals. A morbidly obese person should NOT cause a drain on society, and the fact that they do shows us something is broken in our system. An individual choice that should affect only the person making the choice should not hurt the whole system. Regulating the choices people make is the exact WRONG tact to take, and I guarantee it will not fix anything. It will simply, as I said yesterday, lead to more and more regulations as we flail wildly along the wrong course, stubbornly refusing to believe we've done something wrong .The route to take is making sure that when people inevitably DO make idiotic choices, they don't affect the group at large.

I don't claim to know how this is possible with regards to the economy; I am not an economic expert by any stretch. But a big book of rules and regulation blacklisting activities CANNOT be the solution, any more than sticking pieces of chewing gum into a crack in the Hoover Dam would be.
 
 
Dec 17, 2008
I think the implicit assumption of things "failing" is ridiculous. Look at some history of life in the USA during the Great Depression. Now look around. Things are great! The environment is better (and improving), people live longer, healthier lives, jobs are abundant (even recent "high" unemployment is 1/3 the standing rate in France and much less than during the Great Depression). Military service is voluntary, practically every person in the country has better entertainment than a king or president 100 years ago (excluding concubines), higher education is accessible to nearly everyone. Criticize the system while you munch an apple from Australia.

I mean if that is what you define as failure, what is success supposed to look like? When, exactly, were things better? We're failing because of weakened retirement accounts? Global warming? Ask someone from the Great Depression to worry about retirement or the environment and you'd be lucky if they didn't punch out your tooth to sell for a bite to eat.

But you don't have to look back into history - that is just for inside the USA. There are failing cultures all over the world, not just in Africa but Asia and even places in Europe...and North America. Less free, less capitalism, less success. Pretty much in that order.

One last note - capitalism is not so much a system as a recognition that incentives are to humans a type or law, like the laws of physics that govern the natural world. Incentives are neither good nor evil, they are just true when it comes to human behavior. Economics is largely based on incentives so I'm sure there's a nugget for you somewhere there, Scott.
 
 
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Dec 17, 2008
Scott,

I see that happens to you too. When you "predict" people assume you're "wishing". This happened to me about 6 weeks ago.

"I predict Obama will be our next president."

"You loopy liberal! You're crazy! Why would you want him to win?"

"I never said I wanted him to win. But he's going to win."

"That's crazy talk."

I personally think the "free world" is going to become more like China. A very planned economy and harsh consequences for those who don't play by the rules. But keep your head down, your mouth shut, and work and the state will leave you alone.

John
 
 
Dec 17, 2008
The other day heard a commenter on NPR proposing that the government needed to "fix" the 401k system because it was broken and would fail the next generation of retirees. One of the proposals was a government fund that would provide a minimum of 7% yield. The idea was that people could dump their money into this "fund" and know that it would pump out 7% interest regardless of what the economy was doing. The idea was not to take away the chance for you to blow your investments in bad choices on the stock market, but rather to offer an option that would provide a modest return with no/low risk. Given that I am currently -29% for this year and -26% for 2 years in my investments, I would currently jump at the chance to do something like this. But, I know that I have seen yields of 20% in previous years ... greed is a hard thing to control!

I can see that the "mother" state wants to protect us from our (and our neighbors) bad decisions. I am hopeful that whatever is done will be an opt-in/opt-out type thing instead of a thick, even layer of peanut butter smothering all of us.
 
 
+2 Rank Up Rank Down
Dec 17, 2008
I'm all for legalizing drugs. I've never done illegal drugs but mostly because I didn't like the effects they cause. However, if somebody wants to smell colors and taste sounds, more power to them. I think if politicians and the vocal majority/minority/whatever would stop being so self-righteous, we could move past the idea of it being immoral. For crying out loud - are we that far removed from outlawing alcohol and dancing in public places? Geesh.

I know it's pretty taboo but I'm right on the same mark as johnperkins21 with the whole mandatory birth control. Of course, then you get into the whole "right to have a child" and the religious crazies but I'm with Scott on the whole idea of your rights ending where they infringe on mine. I also remember back when Bill Clinton tried this program where anyone who rec'd gov't assistance and was reasonably able to, was required to at least try to work. Wow how quickly that got shot down. They're trying to push something like that through the UK now and meeting with pretty much the same resistance we had. I'm really interested to see what comes next. Heck, what's the worst that could happen? I could lose my job, my house and my car and I could be a government parasite.
 
 
Dec 17, 2008
Unfortunately, Scott, you do make some valid points. The question I have is; do you see these imposed regulations by the government for our well being occuring all at once or steadily over a period of say 10 years? There are alternatives of course, but they won't be easy. Legalizing staples of criminal acrivities such as prostitution and marijuana, regulating and then taxing them, will undermine criminal organizations and create enormous revenues for governments. If they automakers want a bailout, force them to change their practices; mandate that all cars must be high-efficiency gas or plug in electric, and eliminate SUVs and sports cars. Better yet, eliminate buying of cars, make them all term leases, have the automaker warranty them for say 10 years, thus a guarantee of service, and at the end, the automaker must take it back and recycle the car 100%. Any change will take a while to see any lasting effects and become readily accepted, and I also see war, disease and famine overrunning 3rd world countries in the meantime. However, this would prove Darwin's survival of the fittest theory, thereby eliminating the need of god, allah, budda and flying spaghetti monsters and so on.
 
 
Dec 17, 2008
Legalizing drugs would do a great deal towards helping the economy recover. It would create jobs, present more opportunity to collect taxes, reduce crime and the number of people our taxes pay to jail. If people smoked marijuana rather than drinking alcohol, we would probably have less auto accidents, physical confrontations and liver disease. Also, marijuana could easily be injected via inhaler like asthma medicine, reducing the chances of lung disease. This would bring down the cost of health care overall.

Another thing we need to look into is mandatory birth control for everyone under 25, or anyone receiving any social welfare. This would help limit the number of children our government has to support.

There are myriad ways to fix the economy without taking away my right to enter into a risky mortgage.
 
 
Dec 17, 2008
I think most everyone is misinformed on the Social Security system. In the early 80's the baby boom demographics obvioiusly required a change from "the current generation pays for the previous generation" system. Greenspan led a commission, SS taxes were significantly increased, and baby boomers have been paying "double" for over 30 years and in fact have built up a two trillion dollar excess in the SS fund such that the fund is STILL taking in more than it is paying out, which will be true until 2017 and at that time they starting drawing on the two trillion which will hold out until 2041 and even then requires the slightest tweaking now to extend for decades. now some argue that the trust fund is a scam since it is treasury bonds. however i would argue that the baby boomers in fact saved two trillion dollars and put it in the safest long-term investment possible. the fact that congress has chosen to borrow from that fund, along with borrowing from the chinese and the saudi's etc is a congressional spending problem and NOT a social security "crisis".

From page 2 of the April 10, 2008 report of the trustees of the SS system:
Under the intermediate assumptions, OASDI cost will increase more rapidly
than tax income between about 2010 and 2030 due to the retirement of the
large baby-boom generation. After 2030, increases in life expectancy and the
relatively low fertility rates experienced since the baby boom will continue
to increase Social Security system costs relative to tax income, but more
slowly. Annual cost will exceed tax income starting in 2017, at which time
the annual gap will be covered with cash from redemptions of special obligations
of the Treasury that make up the trust fund assets until these assets are
exhausted in 2041.
 
 
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Dec 17, 2008
Scott, you make the assumption that those in charge have the country's best interests in mind and will try to fix these problems. I think a lot of them would like to do the right thing, but the reality is it's much easier and more tempting to get things done that benefit themselves instead. Actually fixing these problems would require risk taking and annoying someone powerful, which is not good for getting re-elected even if it's the right thing to do.

Capitalism has two major flaws:
1) It requires constant growth - Companies only survive if their product can be sold to more and more people, or people will buy it over and over again thus requiring constant new people and new resources.
2) There are no checks on unintended consequences - Companies are solely driven by exchanging their product for money, and if the junk they dump in the river next to the factory kills a town downstream, that doesn't enter the equation until govt forces the issue.

The problem is the western world hasn't had actual capitalism since the 1800s when 1) was true, and 2) was ignored. This lead to explosive growth and industrial revolution. Since then, 1) is only true when considering the 3rd world population who now produces all our crap, because 2) is too expensive for corps here, and 3) the govt has instituted various forms of socialism to counteract the fact that 1) is no longer true.

I'll give you two alternate visions:
1) What I'd like to see..... technology advances so quickly that no humans will have to actually do any real work anymore, it can all be handled by robots and machines. People will eventually realize this and the need for money will suddenly go away and we'll wake up in a utopia where anyone can do whatever they want, be artists, create entertainment, consume entertainment while all the machines give us anything we need and want. Nice dream.
2) What will probably actually happen.... the world population continues it's exponential climb in the 3rd world until all natural resources become rare commodities... the western world will continue a long slow decline into anarchy and revolution as the weight of the socialist promises to the unproductive crushes the few remaining healthy young people that can work.... until there's a massive world wide war that drops the population in half or more until we reach a point where our resources match the population than can be supported.... sounds fun doesn't it?
 
 
Dec 17, 2008
Sadly Scott is probably right on what is going to end up happening with a Democrat in the White House and the Democrats controlling both houses of Congress.

To fix this mess we need to get out of the mindset that propping up our current economy is the right thing to do. We dont' need to to prop up what is failing. This sub-prime meltdown simply showed us what has been wrong with our economy for quite some time, we are a consumer based economy rather than one based on manufacturing. We have to have people spending money for this economy to work and the second you take away their precious credit lines they are suddenly unable to spend outside their means and our economy comes to a screeching halt.

We have little to no manufacturing base to fall back on which is what made this country strong initially. We need to get back to creating products that we can then sell to other Americans as well as the rest of the world that way we actually have money coming in rather than constantly going out. We also need to get out of this mindset that everyone needs to go to college to be successful. You don't need a college degree to do manual labor and it's manual labor that is going to fix this economic mess.

Think about it, why are China and India starting to become economic powerhouses? Because they are making products that the rest of the world seems to think they are above making. This is causing massive redistribution of wealth to those countries, we need to take it back.
 
 
Dec 17, 2008
The failure of the social security system is not a failure of capitalism, though I agree that it will have consequences that will force the capitalism that we do have to change
 
 
0 Rank Up Rank Down
Dec 17, 2008
I wonder if capitalism--in the sense that businesses and individuals are free to use their money as they see fit (with the assumption that they hold their best interests to heart, and are logical about these... I know its a stretch)--isn't the problem. We have a problem over poor decisions regarding how banks were lending money--first the individuals didn't understand the contracts they were signing for their mortgages, and the banks were overlooking the fact that people wouldn't be able to pay after the mortgage rates rose. This was taking the risk/reward behaviour over the edge for both parties. The question really comes down to: "how do you force common sense and logical reasoning" - How do you prevent banks from throwing money at high risk individuals, and how do you teach people what is reasonable for them to borrow.
It might be interesting if there was some way to create a overall "credit limit" on an individual, saying they can't go over x% of their yearly income in debt. Or force banks to take a better look at what individuals can afford to pay with a mortgage. These are things that all individuals should be taking into account, but unfortunately our emotions, and desire for dopamine lead us to make bad decisions.
Here's your solution Scott - a little pill that causes us to loose all emotion. Then we can all be rational moist robots, and capitalism can run free, tethered by reason.
 
 
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Dec 17, 2008
Scott wrote: "I don't know what capitalism's second act will look like, but it probably involves preventing individuals from being as self-destructive as they would prefer." Remember what the NS-5s did in "I, Robot"?
 
 
Dec 17, 2008
Scott:

I appologize for my part in the Reading Comprehension failure that didn't distinguish between your recommending the changes and your predicting the changes. But keep in mind that if you are predicting them, then SOMEONE is going to be recommending them at some point, so any objections to your predictions are just misdirected to you instead of that mythical someone.

This wouldn't be Capitalism part II. Part II happened after 1929, with the New Deal, the SEC, and all the rest. This is probably Capitalism 5 by now.

But we don't have capitalism in this country. We have a mix of capitalism (anyone is free to start a company making almost anything), and socialism (social security / medicare / unemployment insurance) and even a dash of true communism (I own a peice of Microsoft; you probably do to - in the form of "shares". We've done what the USSR couldn't, and got rid of the Central Planning / State ownereship junk that was a lot of the real problem).

Let's say that today, the mix is 80-15-5. (Cap-Soc-Comm) When the dust settles, we may get 75-22-3, or maybe 83-11-6. But my Ouija board isn't good enough to see what that mix will be. "Always in motiion is the future" - Yoda. We could go more socialistic ("Universal Healthcare"), or more Communistic (Bailout money for stocks - "to protect the taxpayers"). Or even more raw Capitalistic ("No bailouts"). All three ropes are currently being pulled at in this tug-o-war, and the new administration is too much of an unknown to get a good feel which combo will win.

Nor can I tell whether they are good enough salesmen to sell the either-or choices that you present, like the previous one did with "Do you want privacy or security?".

 
 
Dec 17, 2008
You seem to forget that eeuu can always increase its laboral force by letting inmigrants in. There are sima countries with similar ethnicity and professional qualified people which would be happy to emigrate to EEUU. Argentina would be an example, Uruguay, east europe countries.
Inmigrants could then boost your economy and reduce the baby boomers retiring effect.
 
 
Dec 17, 2008
Scott wrote: … capitalism Part 1 failed.
No! The Third way failed. Mix of socialistic regulations and state (fedreal) interferences implanted to reamins of free market fialed. (Of course there are the problems with social system and health care but they have one thing in common – service consumers don’t pay for services, but somebody else do. And this is not capitalistic AT ALL).
Or, "capitalism" of the New Deal failed.

BTW: I’m not an US citizen, and I remember, when nearly 20 years ago, the commee was removed from power in my country. Then followed few years of real capitalism (of course associated with frauds and thefts), but by then – we are still liberal free market economy – the State (always the enemy for any libertarian) recovered, thousands of new regulations and laws were imposed, making business is not as free as it was, there is thousand restrictions what is legal and what isn’t… in short, the life is much more socialistic, then it used to be; nearly like before our “revolution“ (As Orwell wrote – now, it is not easy to distinguish pigs from men).
 
 
 
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