Misunderstood capitalism leads to a pretext for statism

An excellent, thoughtful, article on capitalism and the role of regulation in the banking crisis by Jeffrey Friedman and Wladimir Kraus from the American Enterprise Institute appears the Wall Street Journal.

Citing various studies, the authors provide powerful arguments that the financial crisis was caused in large part by wrong-headed regulation, and that still greater regulation will not provide protection against systemic risk.  They argue that capitalism, by its very nature, represents competition, and that through competition, systemic risks can be reduced, if not avoided. 

With competition, many ideas - whose end results can only be determined by trying them out - compete against one another in a competitive trial-and-error environment.  Regulation, on the other hand, implies systemic rules being applied across the board, and when the rules are ill advised they may cause the very systemic catastrophes they are designed to prevent.

Competition among capitalists sorts out which of their ideas actually please real-world consumers and which of them are displeasing--however appealing the ideas might have seemed on the drawing board...

Homogeneity, on the other hand, is the ineradicable curse of socialism, in which the community as a whole, through its elected (or self-appointed) representatives, decides on the allocation of resources. One plan is imposed on all, as thoroughly as if everyone spontaneously decided to join a herd.[22] And we maintain that homogeneity is also the problem with regulation. Regulations, by their very nature, align the behavior of those being regulated with the ideas of those doing the regulating. Regulations are like mandatory instructions for herd behavior, automatically increasing systemic risk...

Apart from the role of regulation in past and future catastrophes, the authors cite some very disturbing facts about the public's perception of capitalism and socialism.  While various articles in AT have indicated that the public at large is predominantly conservative (by their own definition), the survey in the WSJ article paints a different, and more ominous, picture:

A BBC poll conducted in twenty-seven countries found last month that only one in four Americans thinks that capitalism works well..."

..23 percent of those polled "feel that capitalism is fatally flawed, and a new economic system is needed." Majorities want their governments "to be more active in owning or directly controlling their country's major industries in 15 of the 27 countries."

Unfortunately, -and thanks to neglect and a preponderantly socialist academic establishment, - the concept of capitalism and its benefits are not taught in our schools, and we are now paying the price.  The simplistic notion of government bureaucrats inventing and disinterestedly applying beneficent rules for the rest of us to follow is an easy concept to understand, whereas the complex dynamics of capitalism requires more effort, particularly when the capitalism we experience on a daily basis is riddled with self-interested government intervention and regulation, and the messes these interventions cause is blamed by the politician-authors on capitalism and "greedy capitalists". 

This widespread misplaced mistrust in and ignorance of capitalism explains to a very large extent the popularity - to the extent that it exists - of Obama's leftist initiatives.  They are in alignment with those who believe government bureaucrats, rather than free market competition, are a more trustworthy answer for society's problems.

If the US is to avoid sliding down the slippery slope towards socialism with the inevitable end to the American Dream, we conservatives must take control , not only of the political agenda, but also the academic agenda, and explain to our children the benefits of capitalism.

An excellent, thoughtful, article on capitalism and the role of regulation in the banking crisis by Jeffrey Friedman and Wladimir Kraus from the American Enterprise Institute appears the Wall Street Journal.

Citing various studies, the authors provide powerful arguments that the financial crisis was caused in large part by wrong-headed regulation, and that still greater regulation will not provide protection against systemic risk.  They argue that capitalism, by its very nature, represents competition, and that through competition, systemic risks can be reduced, if not avoided. 

With competition, many ideas - whose end results can only be determined by trying them out - compete against one another in a competitive trial-and-error environment.  Regulation, on the other hand, implies systemic rules being applied across the board, and when the rules are ill advised they may cause the very systemic catastrophes they are designed to prevent.

Competition among capitalists sorts out which of their ideas actually please real-world consumers and which of them are displeasing--however appealing the ideas might have seemed on the drawing board...

Homogeneity, on the other hand, is the ineradicable curse of socialism, in which the community as a whole, through its elected (or self-appointed) representatives, decides on the allocation of resources. One plan is imposed on all, as thoroughly as if everyone spontaneously decided to join a herd.[22] And we maintain that homogeneity is also the problem with regulation. Regulations, by their very nature, align the behavior of those being regulated with the ideas of those doing the regulating. Regulations are like mandatory instructions for herd behavior, automatically increasing systemic risk...

Apart from the role of regulation in past and future catastrophes, the authors cite some very disturbing facts about the public's perception of capitalism and socialism.  While various articles in AT have indicated that the public at large is predominantly conservative (by their own definition), the survey in the WSJ article paints a different, and more ominous, picture:

A BBC poll conducted in twenty-seven countries found last month that only one in four Americans thinks that capitalism works well..."

..23 percent of those polled "feel that capitalism is fatally flawed, and a new economic system is needed." Majorities want their governments "to be more active in owning or directly controlling their country's major industries in 15 of the 27 countries."

Unfortunately, -and thanks to neglect and a preponderantly socialist academic establishment, - the concept of capitalism and its benefits are not taught in our schools, and we are now paying the price.  The simplistic notion of government bureaucrats inventing and disinterestedly applying beneficent rules for the rest of us to follow is an easy concept to understand, whereas the complex dynamics of capitalism requires more effort, particularly when the capitalism we experience on a daily basis is riddled with self-interested government intervention and regulation, and the messes these interventions cause is blamed by the politician-authors on capitalism and "greedy capitalists". 

This widespread misplaced mistrust in and ignorance of capitalism explains to a very large extent the popularity - to the extent that it exists - of Obama's leftist initiatives.  They are in alignment with those who believe government bureaucrats, rather than free market competition, are a more trustworthy answer for society's problems.

If the US is to avoid sliding down the slippery slope towards socialism with the inevitable end to the American Dream, we conservatives must take control , not only of the political agenda, but also the academic agenda, and explain to our children the benefits of capitalism.

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