There have been a few stories on NPR lately where the question, “Is this the end of capitalism” has been asked. I’m sure it has been asked elsewhere, I only mention NPR because that is what I am most familiar with. This question is posed in relation to the global credit meltdown brought on by the housing market fiasco. It is also, I feel, a question born out of ignorance of what capitalism is or a desire to see it fail in lieu of other so-called better systems.
Let me tackle the problem of ignorance first. Capitalism at its most basic form are when two people enact in a fair trade of goods and services. Does the housing market meltdown mean capitalism doesn’t work? Quite the contrary, it shows that it does work!
The housing market collapsed because hundreds of thousands of dishonest wannabe home owners lied on their credit applications to dozens of thousands of dishonest so-called brokers who did not check the applications or encouraged the lying in the first place. Those “brokers” then passed those bad loans on to the banks who also did no checking of their own, bundled it up into complex financial packages which were hard to check and sold them off elsewhere.
Now, where in that paragraph would you call any transaction fair. Certainly not the lying cheats who stole the homes by lying. Certainly not the thieves who made commissions on what they knew were bad loans. Definitely not the crook bankers who turned their cheek on the bad loans, repackaged them and sold them as good. Every one of those transactions were not the true definition of capitalism. They were excellent definitions of fraud.
But what system allowed us to see that fraud? Capitalism. When those lying cheats started to default on their loans the markets started to correct themselves. The fraud perpetrated by the thieving “brokers” was brought to light. Granted, someone, somewhere, got stuck holding these debts but the problem isn’t the system. The system worked and is working. The problem is that the people who perpetrated fraud; those that lied on their applications, those that accepted the false applications and those who resold them, are not facing charges.
This brings us to the second group of people who ask this question. Those who want to see capitalism replaced with some other better system. This question, and the desire for change, is born out of panic. The markets are adjusting themselves and the pendulum has swung from over-confidence to under-confidence. IE, people who are panicking get out of markets when they shouldn’t have just as people who are too confident get into markets when they shouldn’t have.
But even with that force in action what are the worst predictions that have come to light? Unemployment might hit 9% is one estimate. A quick look at the CIA Factbook shows that by most estimates from 2007 9% would put the US on par with Germany at 113th (9%) and a tad below France at 100th (7.9%). France and Germany are representative nations of the European style policies that people asking (or being asked) the question want to see enacted. In other words, US capitalism, at its worst, is about on par with European style markets at their best. In a few years this entire thing will blow over. Presuming, of course, that Obama doesn’t seriously screw the pooch by trying to push more European style market structure on the US economy. To do so would mire the healing process in policies which are clearly inferior if their best barely tops our worst!