There were three articles in the August 14th US print editions of the Wall Street Journal and Financial Times. One highlighted what the mainstream media does not want to admit about Trump; one looked at the so called lies at the heart of capitalism and communism, and the last looked at Brexit and Germany’s view of its neighbor. This blog looks at the third hot topic of the lies of capitalism and communism.
In “From Lenin to Lehman – the big lies“, Martin Sandbu of the FT would have you believe that communism and capitalism have failed and thus we ought to seek some compromise, some hybrid model. This is bunk and ends up being journalistic diatribe. The author has some bone to promote and the space offered by his newspaper editor allowed him to confuse us all. But its not all bad news. Let’s look at his lies at the center of communism.
Mr. Sandbu claims that there are two lies. The first suggests that communism undid itself since it brayed its own vision of a society of equals, solidarity and self realization through collective purpose. I can see the old black and white videos now. The reality was that a centrally planned economy led to an inner circle of leaders who were “more equal than others” and this spread into the very infrastructure built and supplied to govern the commune. Reality was never like this ideal. The second lie concerns the possibility of central planning. Trying to understand how organizations work is complex; how economies work is harder still. Nothing beyond the planning of a dinner table is possible, lets be honest. But some folks tried.
From here the author decides to show how and where capitalism failed. He argues correctly that the price mechanism is a superior tool to central planning by being able to convey demand and supply conditions. However he suggests that the price system failed during the financial crisis since asset prices were bubbling and so we all fell for the froth and of course we all missed the risk embedded, hidden in the US mortgage system. He argues that the wealth we all thought we had in the prices of housing assets was not real. The value was a lie. Clearly the author is using price incorrectly.
He then asserts that the crash we experienced has left the western countries now poorer than before the crisis and so bereft of any chance to live a life better than our parents. It seems the American Dream is neutered if you swallow Mr Sandbu’s point of view. I think this is all twaddle.
First price and value. Those of us that are smart enough know the difference but is this at the heart of the first lie? Did we all feel that as prices rose into bubble status the value of our assets increased? Yes we did. But the lie was not in the price per se but in the processes used to derive that price. There were policies, promoted by democrat and republican, that encouraged the start of the bubble by enabling poor folks to take out loans they realy could not afford, as a means to promote house ownership (the America dream) to more of the population. This was followed up by exotic financial tools that spread risk across many products. This was then corrupted by villains that poorly rated risk and those loans taken out by poor people that had no income. So all told it was a ponsi scheme promulgated by social engineers and politicians. It was not a simple failure of price.
Yes, as a result our economies have taken a beating. Worse, those same politicians have throttled our economies ability to drive growth: affordable housing is depressed; new start-ups are regulated and taxed to record lows; innovation, R&D and education are under invested and regulated. Overall yes the American dream is under attack. But that is not a lie or a failure of price or capitalism. It is a failure of our socialist, centralized, big government model. We live in a near-socialist system with more controls and more of the economy under government controls than ever before.
The lie is that our media won’t report how bad this situation is. The article suggest some middle ground is needed. We need more pure market-based freedom to allow the individual to grow, thrive, and live on the fruits of his labor. We need free markets. Such freedom will lead to +3% GDP growth and then enough surplus money will be generated to pay for welafare for those on hard times.