Capitalism is the greatest wealth creator the world has ever known…
Every device you own, every meal you eat, every type of entertainment you consume and the financial means you have to acquire these goods all are direct, material consequences of capitalism.
In essence, capitalism is just people collaborating with others or working on their own to create physical and intellectual goods and services that others are willing to pay for. In order to thrive, these collaborations must also be free from coercion, and free from the disruptive hand of big government.
Yet, to hear the presidential candidates from both parties, you would think that the biggest problem facing the U.S. and the global economy is too much capitalism, too much freedom, too many people with too much money and too much wealth concentrated among the top 1%.
Sadly, the constant anti-capitalist rhetoric from politicians, academia and leftist activists has largely corrupted the concept of capitalism so much so that its existence in practice teeters on the brink of existence.
This perilous state of capitalism in today’s environment means that perhaps the brightest light of civilization could be in danger of being extinguished when the next global economic crisis hits.
This is a thesis recently expounded in The Telegraph, which argues that no developed nation could stomach another 2008-style banking crisis or serious worldwide recession.
As the article states:
“We are too fragile, fiscally as well as psychologically. Our economies, cultures and polities are still paying a heavy price for the Great Recession; another collapse, especially were it to be accompanied by a fresh banking bailout by the taxpayer, would trigger a cataclysmic, uncontrollable backlash.”
Given the anti-capitalist zeitgeist in much of the developed world, is there any doubt that the next big crisis will bring about calls for “progressive” reforms that impose more regulation, more laws, more restrictive behavior, less freedom and less capitalism?
The answer is obvious.
As The Telegraph aptly describes it:
“The public, whose faith in elites and the private sector was rattled after 2007-09, would simply not wear it. Its anger would be so explosive, so all-encompassing that it would threaten the very survival of free trade, of globalization and of the market-based economy. There would be calls for wage and price controls, punitive, ultra-progressive taxes, a war on the City and arbitrary jail sentences.”
In the current presidential contest, there have already been calls for wage controls, price controls, punitive taxes, and a war on Wall Street that includes sending bankers to jail.
So, it’s quite easy to see how these calls would gain even more popularity in the face of a bloody repeat of the Great Recession (or worse), and a massive plunge in the value of the stock market on the order of 30%, 40% or even 50%.
If capitalism, freedom, liberty and prosperity are to survive, we must first realize that they are not the causes of financial dislocation.
As novelist/philosopher Ayn Rand wrote in her book, Capitalism, The Unknown Ideal:
“If a detailed, factual study were made of all those instances in the history of American industry which have been used by the statists as an indictment of free enterprise and as an argument in favor of a government-controlled economy, it would be found that the actions blamed on businessmen were caused, necessitated, and made possible only by government intervention in business.
The evils, popularly ascribed to big industrialists, were not the result of an unregulated industry, but of government power over industry. The villain in the picture was not the businessman, but the legislator, not free enterprise, but government controls.”
All we need do is look at the real villains of the 2008 banking crisis to know that at the root was government….
A federal law called the Community Reinvestment Act essentially compelled banks to make risky loans.
Then there was the Federal Reserve, which kept interest rates way too low for way too long, and hence created a situation of dire malinvestment and misallocation of capital.
Finally, the banks knew that no matter how many bad bets they made and no matter how much risk they took, big government would come in with the taxpayers’ wallet and bail them out.
That’s called moral hazard, and it’s a villain created wholly by government’s eagerness to muscle its way further into markets.
So, will capitalism’s light be extinguished by the next financial crisis?
It will if government has anything to say about it.
Editor’s Note: If you like Jim Woods’s political views, then you’ll love what he can do for your investment portfolio…
Over the last 12 months, Jim has made 506 stock recommendations with a 75% success rate and a 17.5% average return per investment.
That success coupled with those returns means powerful fuel for the growth of your portfolio.
Learn more now about how Jim Woods’s Next Week’s Winners can help you start profiting your very first week!