Capitalism busting the myths
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Governments and Left leaning Pseudo intellectuals make an some astonishingly illogical claims about Capitalism with out any shred of evidence. Here we take some of those myths and demolish them through simple logic
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Capitalism busting the myths
- 1. Capitalism Breaking the Myths
- 2. Myth 1 Free Markets are immoral Markets make people selfish Driven by greed and profit No concern for others This is a morally false claim All transactions are voluntary exchange Cooperation for Mutual benefit Markets work on principles of Justice Success depends on customer satisfaction Both Altruists and the Selfish operate in peace
- 3. Myth 2: Markets lead to monopoly Free markets create monopolies A few big firms would control all all markets Small producers would be squeezed out Do Free markets promote monopolization? No evidence to believe, no concrete examples Free markets allow free entry into markets Huge rise and fall of great corporations Governments promotes monopolies Through licenses, Tariffs, special status etc Government itself is a monopoly
- 4. Myth 3: Complex modern society Modern society is too complex for markets and needs government intervention If anything the opposite is true A tribal society can work on centralized power Complex society requires Extreme levels of information High level of decision making Only Markets can handle Government bureaucracy Slow decision making Red tape, populism, etc
- 5. Myth 4: Not for Developing Nations Markets require Developed infrastructure Well developed legal systems Hence developing countries require state direction Markets are the solution All wealthy countries were once poor Wealth is created through incentives for people Create strong Legal systems with property rights Wealth creation requires & leads to infrastructure
- 6. Myth 4: Not for Developing Nations State control is the problem State control and rejection of free markets Lack of incentives to create wealth Poor quality of decision making, delays Freedom to cooperate for mutual benefit The Solution Create strong legal foundations Limit the powers, budget and reach of state power
- 7. Myth 4: Economic cycles & Recessions Markets lead to Boom and Bust cycle Overconfidence and asset bubbles Recession: production & employment contraction Wrong again Markets have inbuilt self correcting mechanisms Economy wide bubbles are not a free-market phenomenon Free markets redirect investments between sectors
- 8. Myth 4: Economic cycles & Recessions Government: Cause of bubbles and recessions Foolish manipulation of monetary systems Subsidies and protection to unviable industries Interference and distortion of Currency markets Great Depression Cheap credit and monetary expansion Sudden contraction of money supply 2008 Crisis Excessive liquidity and low interest rates Eurozone Crisis High FD’s and separation of Monetary/Fiscal policy
- 9. Myth 5: Rich get richer Poor get poorer Only those with Money & Education benefit Free Market is not a zero sum game Voluntary exchanges benefit both parties Maximize opportunity for growth & Social mobility Poor People emigrate to free countries Income growth across all categories Rich get richer and Poor get Poorer Applies to rigidly controlled markets Access to Power determines wealth
- 10. Myth 6: Free markets tend to raise prices It is competition that keeps prices down Focus is to offer more value at lower prices Increase productivity and efficiencies Regulation can keep prices low Direct or Indirect subsidies Price controls distort markets Black markets and corruption Production shortfalls and low wages Labor Productivity and wages Higher in free market economies Price of items/wages is low
- 11. Myth 7: Mixed economy Combines best of Free markets and socialism The diversified portfolio approach Policies need to be focused, not diversified Indian experience is worst of both The evidence is clear: Market economies Higher GDP growth and per capita income Lower unemployment, better healthcare Every parameter of human development
- 12. Myth 7: Mixed economy There is no middle path State interventions in market Distortions and crises – Excuses for intervention Governments By nature seek more control Tend to blame private players Bad policy – Perpetuated by vested interests Politicians – Crony Businessman
Editor's Notes
- Unlike in Feudal societies, wealth in free societies is not only inherited. The foundation of the USA was laid by immigrants from countries which did not have economic freedom and hence lacked opportunities for growth. From Mcdonalds to Walmart, fortunes were made by meeting the needs and desires of the middle classes. In non free countries, you can get monoplies and special benefits from Governments through money or access to poltical leaders
- From Telecom to Automobiles to PCs and laptops etc, prices have come down due to intense competition. At the same product quality and customer service has improved. Subsidies essentially uses Tax payers money to keep prices low for some people. To give a Rs x benefit to someone, Government spends x + y of Taxpayers money.Prices are high in countries in USA and Europe. But so are wages. So what matters is price of items w.r.t. to wages. In any of the developed countries cost of days basic food is less than an hours wages, more like 20 min wages. In general products especially manufactured products become cheaper through the use of technology
- Inflation over the last 2 years was caused by High fiscal deficit and the enormously wasteful NREGA scheme. But was blamed on everything from Speculation to Commodity markets to Oil prices. Interventions in Education sector like single exam is meant to get control of government over all education institutes.By nature government is unlike a Corporation which seeks to make profits by servicing customer better than competitors. It is a monopoly which seeks to expand control over all aspects of human life from Education to Telecom to Airlines to Facebook and Google. Free markets benefit people but not the politician or bearueocrat because in a truly free market no one needs to pay bribes. For example if you are going to bid and win spectrum in free and fair auction where is the need to bribe anybodyRaja and his businessman friends created a market distortions to benefit themselves.