Forbes: How Capitalism Will Save Us

By Steve Forbes (Forbes Magazine) |We are experiencing the devastating consequences of a chain of major economic policy errors, which, to use a current cliché, created the perfect storm. These government blunders temporarily paralyzed the global credit system and are now sending the U.S. and Europe into recession, while sharply cutting back Asia’s growth rates.

Left to its own devices, the credit crisis, which began in August 2007, would have crushed economies as severely as did the Great Depression.

Belatedly, but thankfully, governments recognized that the only way to get credit flowing again was for them to make quick and direct massive infusions of new equity into beleaguered banks, as well as commit to other emergency measures hitherto unimaginable.

If sensible rescue efforts continue–and they will–the immediate crisis will quickly pass. Shell-shocked businesses and consumers won’t recover rapidly from the trauma of recent months, especially as we now cope with recession. But the downturn shouldn’t be prolonged: The economy here and those overseas should start to pick up no later than next spring.

That soon? Despite the crisis, the global economy still retains enormous strengths. Between the early 1980s and 2007 we lived in an economic Golden Age. Never before have so many people advanced so far economically in so short a period of time as they have during the last 25 years. Until the credit crisis, 70 million people a year were joining the middle class. The U.S. kicked off this long boom with the economic reforms of Ronald Reagan, particularly his enormous income tax cuts. We burst from the economic stagnation of the 1970s into a dynamic, innovative, high-tech-oriented economy. Even in recent years the much-maligned U.S. did well. Between year-end 2002 and year-end 2007 U.S. growth exceeded the entire size of China’s economy. Obviously China’s growth rates were higher, but China was coming off a much smaller base.

The world is flush with cash. It’s frozen because of fear, but the cash is there. Productivity gains are burgeoning.

So, will this global boom resume next year, slowly at first and then with increasing momentum? It should. Whether that happens, however, depends on the next, highly dangerous phase: <<<Read the Full Story>>>

>>>Learn more about Capitalism and becoming a capitalist

Fast Food Slow Down in L.A.

TAYLORSVILLE, UT | 30 July 2008 | Amidst the ongoing news of a heated and controversial election, failing companies and markets, and myriad world conflicts, talk of fast food seems a low priority. The city of Los Angeles thinks otherwise, however. In a unanimous vote, the city council voted on Tuesday decided to “place a moratorium on new fast food restaurants in an impoverished swath of the city.”Their reasoning? “A proliferation of such eateries and above average rates of obesity.”

Their goal? “To attract restaurants that serve healthier food.”

Their problem? For whatever reason, restaurants that serve healthier food have not already freely chosen to operate in the area, and the number of fast food restaurants is not likely to be the thing that has kept them away.

Key Points

• After analyzing market conditions and local customer base, many restaurants have decided that it is in their best interest to operate in other areas of town.
• The only real incentive that the government has to attract new business to the area is tax breaks.
• Use of tax breaks to attract a business to an area that doesn’t have the customer base to support it is a recipe for failure. While lower taxes appear to increase profit margins, the increase is synthetic. Without revenues from a loyal customer base that can afford the products offered, there will be no need for tax breaks—there will be nothing to tax. Both the business and the government will be frustrated when the venture doesn’t work.
  Blocking other ‘less desirable’ establishments from opening is an abuse of the city’s power. If the market supports the fast food joints, they should have the freedom to operate as they please, where they please.
• If people really are looking for healthier choices, then the market will support the restaurants that offer those choices. Those businesses should compete based on their merits, rather than on government-given advantages.

Conclusion

Just like some of the left believe that they should keep the price of gas high because it will force people to quit ‘damaging the earth’, the L.A. City Council believes that they can force the people to be healthy by limiting the amount of fast food available to them. This is faulty logic. Dollars follow value. That means that people spend on the things that are important to them. “They should have better things for children,” said Rebeca Torres, a South Los Angeles mother of four. “This fast food really fattens them up.” If the price and convenience of unhealthy fast food has caused people to ignore healthier options (inside or outside of restaurants), then it is unlikely that any amount of government planning will lead them to patronize healthier, government-sponsored restaurants.

When the Nazi’s came to believe that there were problems with certain groups in their society, they began eliminating them. Their impossible goal was the social engineering of a perfect race. While the tactics being used by the City of L.A. are significantly less harsh, they are based in the exact same vein of thinking. With all that is going on in the world today, fast food does seem a low priority. But, the underlying attempt at social engineering is highly disturbing and should be a high priority to any freedom loving capitalist.

Action Items

1. Look at some of the ordinances passed by your city council. Do they generally tend to promote individual freedom or limit it?
2. Pick an ordinance that has been in place for a long time. Does the ordinance really make any difference in the city?
3. Make a list of ways that the community (citizens, not government) could persuade its citizens to effect the same changes without using force.
4. Take a deeper look at your personal relationships. When you want something to change in someone else, do you persuade or try to force?

MRFC Principles: (2, 4, 7, 8, 9, 11, 12)

Sources

Christina Hoag, LA blocks new fast-food outlets from poor areas, Associated Press, July 29, 2008.

(Matthew Pilling is a member of the FreeCapitalist movement known as the Canadian Capitalist. Despite his time in the Great White North, Matthew loves America and all that it stands for. He lives with his wife and two children in Taylorsville and works in finance.)

Can the Kibbutz survive without Capitalism?

MAPLETON, UT | 17 April 2008 | In the kibbutzim of Israel, as in communal societies around the world, an entire generation attempted to live by the ideology of collectivism. Years later, all such social experiments have ended with one choice: adopt capitalist principles or cease to exist. The consequences of collectivism have resulted in two critical failures – economic bankruptcy, with communities unable to sustain themselves, and moral bankruptcy, with new generations rebelling against the oppression of communal sacrifice for parasitic consumption. The result has been deserted colonies, lacking resources, and devoid of the renewal of youth who abandoned them for the promise of individual freedom abroad.

Readers of Atlas Shrugged by Ayn Rand will remember the account of the 20th Century Motor Company, whose heirs decided to turn the company and its employees into a communal “family”. Rand describes a Marxist society that few today would consider plausible – yet the socialist kibbutzim are the literal ideological descendants of the axiom, “From each according to his ability, to each according to his needs.” To learn the economic history and hear the personal tales from the kibbutzim is to witness Rand’s fictional community come to life (with the exception that many modern kibbutzim have chosen reform).

Kibbutz Yasur, founded in 1949, serves as an example. Though it began with high ideals, textile and toy factories, they were unprofitable, and soon closed, leaving many without a means to provide for their future. Homes eventually sat empty, as children left town and no new members joined the community. Today, those homes are nearly filled, and old farmland is being sold for new real estate development.

“The new kibbutz is not perfect, but economically things are improving,” said Mr. Kilon, who manages Yasur and another kibbutz nearby (many kibbutzim are now run by professional managers rather than by popular vote). “The incentive to work has gone up, and after changes in the management, we are standing on our feet.”

Boaz Varol was born on a kibbutz in the far north, but he left at 18. “My parents worked all their lives, carrying at least 10 parasites on their backs,” he said. “If they’d worked that hard in the city for as many years, I’d have had quite an inheritance coming to me by now.”

Key Points:

• In the year 2000, more than half of Israel’s 257 collective farms were bankrupt.
  In the past, kibbutz members were rewarded equally, whether they milked cows or managed a large industry.
• On the new kibbutz, members earn salaries or receive end-of-month allowances reflecting the income they bring in.
• About half the kibbutzim have moved into real estate, selling plots for luxury neighborhoods in place of the fields and orchards outside their gates.
• House buyers generally do not join the kibbutz, but pay for services like child care.
  While the major assets of the kibbutzim are still collectively owned, the communities are now largely run by professional managers rather than by popular vote.

Conclusion:

What has emerged in the social consciousness of the kibbutzim is a newfound appreciation for the principles of prosperity – if not a total embrace. After decades of reaping the starving harvest of collectivism, the kibbutzim, in an attempt at self-preservation, have re-introduced the concepts of private property and wages based on productivity. The results have spoken for themselves.

The kibbutzim have traded pure socialist collectivism not for capitalism, but for a modern mixed economy, where individuals are free to work for themselves, generating private profits that are then taxed in order to fund communal socialist programs. Many assets are still owned communally, though housing is often owned privately. Such a policy is usually termed “privatization”, though leaders prefer to call it “renewal”. Allowing people to own property, produce value and be compensated for it has resulted in a surge in productivity and profit among the kibbutz members. Finally, the prosperity promised by marxist illusions is beginning to appear where free exchange is honored.

Such a society, however, is still not a free society, but a parasitic one. The socialist strategy over the past century has evolved pragmatically from one of total collective control (which, as the kibbutzim demonstrate, has always resulted in economic failure) to a parasitic co-existence with the private producers of value. Such an arrangement has allowed the socialists to remain on life-support, sustaining their moral bankruptcy as long as they allow just enough freedom for their capitalist hosts to produce the profits they are unable to produce for themselves.

The modern residents of the Kibbutzim are enjoying some of the benefits of capitalism, and their prosperity has attracted the attention of outsiders, resulting in increased demand and waiting lists for membership. While the changes have increased incentives to work and reduced the parasitic tendencies of the past, it remains to be seen whether the people will fully embrace the ideology at the core of their newfound prosperity. Their future depends on it.

Action Steps:

1. Read Atlas Shrugged – specifically the account of the train tramp who revealed to Dagny the story of the 20th Century Motor Company after its founder had died.
2. Examine your role in your community – what determines your individual prosperity? What determines your community’s prosperity?
3. What can you do to associate with others and develop local communities based on the principles of capitalism and freedom?

MRFC Principles: (2,3,5,6,7,8,10,11,12,13)

References:

The Kibbutz Sheds Socialism and Gains Popularity
http://www.nytimes.com/2007/08/27/world/middleeast/27kibbutz.html?_r=1&pagewanted=all

Bureau of the Brain-Dead

MAPLETON, UT | 7 April 2008 | There is a little-known disease that afflicts a special segment of any population. It is very contagious, but it seems to manifest itself most frequently when the carrier is either elected to public office or is appointed to a government department. The most severe cases are witnessed in those who are career bureaucrats. Few seem to be able to resist infection after years on the government payroll.

It thrives in a specific climate, namely an environment created by looters, nourished by plunder, and devoid of sterilizing agents such as productivity, accountability, and the consequences of profit or loss.

This is the story of a certain individual who worked in such a government workplace, fighting the culture of the diseased minds. Like the character Robert Neville in the novel “I Am Legend”, her immunity to the disease made her an outcast in her world. Her struggle reject the creed of the moochers and to bring to light the violations of principle in her workplace resulted in her being fired – with the only explanation given that she was terminated for the government’s convenience.

Sibel Edmonds was hired as a translator at the F.B.I’s language division after the events of 9/11. Her story has been featured on major news programs, usually for the purpose of illustrating the government’s inept response to the events of 9/11. There is another aspect of her story, however, that is not typically noticed. In an interview with Ed Bradley of CBS News, her comments reveal the glaring symptoms of the bureaucratic disease.

Key Points:

• From the day she started the job, she was told repeatedly by one of her supervisors that there was no urgency – that she should take longer to translate documents so that the department would appear overworked and understaffed. That way, it would receive a larger budget for the next year.
• “We were told by our supervisors that this was the great opportunity for asking for increased budget and asking for more translators,” says Edmonds. “And in order to do that, don’t do the work and let the documents pile up so we can show it and say that we need more translators and expand the department.”
• Edmonds says that the supervisor, in an effort to slow her down, went so far as to erase completed translations from her FBI computer after she’d left work for the day. “The next day, I would come to work, turn on my computer, and the work would be gone. The translation would be gone,” she says. “Then I had to start all over again and retranslate the same document. And I went to my supervisor and he said, ‘Consider it a lesson and don’t talk about it to anybody else and don’t mention it.’
• Edmonds said, “The lesson was don’t work, and don’t do the translations. …Don’t do the work because — and this is our chance to increase the number of people here in this department.”
• When she made formal allegations, her boss said, “Do you realize what you are saying here in your allegations? Are you telling me that our security people are not doing their jobs? Is that what you’re telling me? If you insist on this investigation, I’ll make sure in no time it will turn around and become an investigation about you.”

Commentary:

Most who read these accounts can clearly identify the incompetence that results in the mishandling of important information. What is recognized less often is the mentality that leads to such a situation. In this case, the quotes concerning the management’s desire to artificially stifle productivity in order to build a case for greater funding is most telling. In a government bureaucracy where productivity and efficiency is not rewarded with profit – in fact, where the opposite is true, is it any wonder that workers would be incentivized to hold back? Why work so hard to finish a task if you can simply let important work pile up and claim to be unable to do anything about it? Why bother innovating and succeeded when incompetence and inability are rewarded with bigger budgets and increased staff to lessen one’s workload?

The very nature of the existence of government bureaucracy is systematically opposed to the forces that govern every private endeavor – which some defend as a indication of moral superiority, as opposed to the presumed “lesser laws” of profit and productivity. However, the mentality that breeds such bureaucracies is doomed to devolve into the very situation apparent in the story of Sibel Edmonds. When the source of the wages of each worker in that bureaucracy is provided by political pull, graft, and the “public good” (as determined by those currently in power), and any negative evaluation of their performance is determined to be simply a result of insufficient funding, it is not surprising that managers would direct their workers to perform at less than their full potential.

Some would argue that an agency such as the F.B.I., being essential to the public good, must operate “above” the rules that exist in the private workplace – yet they are shocked to discover such behavior as was revealed in the case of Sibel Edmonds. Rather than recognizing the principles that govern the actions of all men, they prefer to express outrage, assign blame to bureaucratic scapegoats, and pretend to solve the problem by appointing new directors who are presumably more “principled” than the last ones. This is the best the socialist, bureaucratic mentality can come up with. Since, in their minds, there would be no corruption without corrupt leaders, their best bet is to keep swapping out the leadership every so often – all the while ignoring the cancerous disease that cripples the very operation of the department. Without productivity as a standard (Principle 10), and profit as the tool of validation of that productivity (Principle 9), the bureaucrats are at the mercy of a disease which infects all those whose “mental immune systems” are compromised by the morality and mentality of the moochers and looters. All, that is, except those who refuse to assent – like Sibel Edmonds.

The failure of any government agency to perform its duties can be most effectively corrected by addressing the culture of bureaucracy and the mentality that keeps it alive. Public outrage over the particulars of this case and many others has failed to effect meaningful change, because it appears to the public that these failures are the result of simply having the wrong person in charge. Unless and until the same principles that govern productivity and excellence in the private marketplace are applied in the halls of government, this mental disease will continue to flourish.

Action Steps:

1. Choose to live by principle in your workplace – take personal responsibility for your productivity, and reject the moocher’s mentality of idleness and victimhood.
2. Research what is meant by Principle 10: “Productivity is the Standard”, and ask yourself how you can be more productive. What would be the result of such a commitment to productivity in your life?
3. Read “The Brain-Off Conspiracy” by Rick Koerber in the Free Capitalist Primer – what description best fits those who express outrage at the government without offering principled solutions?

Principles:  (3, 9, 10)

References:

Lost In Translation – CBS News
http://www.cbsnews.com/stories/2002/10/25/60minutes/main526954.shtml

Sibel Edmonds – Wikipedia
http://en.wikipedia.org/wiki/Sibel_Edmonds

Is It Immoral to Use Food Crops for Fuel?

ALPINE, UT |31 March 2008| The recent surge in production of bio-fuels (fuel derived from food crops such as corn, soy, and sugarcane) both in the U.S. and around the world has sparked a debate about whether such production should be promoted or even permitted. Aside from arguments about the energy efficiency of bio-fuels, the latest criticisms have arisen from the recent rise in prices of staple foods, such as the corn used to make tortillas in Mexico. Far away from the corn fields in Iowa, yet linked by the global economy, some have expressed anger over the rapid increase in cost of a commodity they purchase daily for their sustenance. In many third-world countries, citizens have been shielded from the full effects of these cost increases through government price controls and subsidies – but these programs are straining to maintain the illusion of cheap food in the midst of a worldwide jump in food prices. Ironically, in many industrialized nations, governments have been pressured to use tax dollars to “stimulate” the production of bio-fuels through grants for bio-fuel factories, infrastructure, and subsidies for farmers – with the intent of reducing our dependence on petroleum fuels.

Key Points:

• Increased use of food crops for fuel production has reduced the amount sold for human consumption, resulting in price increases (supply & demand).
• Where bio-fuels have been more profitable than selling crops for food, some farmers have chosen to sell their crops to the fuel producers.
• Government price controls on food commodities have limited the profit possible to farmers, incentivizing them to seek other markets for their product.
• Government subsidies for bio-fuel production have distorted the economic value of food crops by creating an artificial demand (using tax dollars to stimulate production in the place of buyer dollars, which would demonstrate true demand).
• Acute shortages of subsidized bread, which is sold at less than one U.S. cent a loaf, have caused hours-long lines and violence at some sites in poor neighborhoods in Egypt in recent weeks.
• The supply of subsidized bread has been decreasing. Many people in Egypt believe subsidized bakeries sell some of their flour on the black market rather than make bread.
• Egypt has long been one of the top importers of U.S. wheat, but its U.S. purchases have been falling as it searches for cheaper sellers on the world market, where prices have tripled in the last 10 months.
• Some have criticized the use of food crops for fuel as “uncaring” and an example of “lopsided priorities”, due to the effect it has had on food prices, making it more difficult for poorer people to purchase basic foodstuffs.

Commentary

Not surprisingly, those who are suffering the consequences of government manipulation of the free market are the first to cry for the government to manipulate it further. This mentality believes that all costs are determined by the power of huge corporations, greedy middlemen, and government regulators – thus creating the illusion that the economy is simply a constant struggle between greedy businessmen and “the public” (represented by government protectors), waging price wars, with both sides continually seeking the upper hand. This illusion, during times of economic hardship, leads to the cry for government to be given greater powers to control commerce and trade, and to set “fair” prices.

What is not seen or heard in this debate is the fact that in a free exchange, the price of the product is decided mutually by the buyer and seller. Absent force, neither party can demand the other buy or sell the product – they must mutually agree. Thus, a general rise in the price of a commodity would indicate that someone is willing to pay more for it, and is doing so. Attempts to manipulate such an exchange through force will always result in its collapse, for the buyer will refuse to sell (reducing the amount of product available) and the seller will refuse to buy (creating a surplus in product available). These forces cannot be changed by government edict, and those who clamor for the force of government to be exercised to impose their opinions on what should be sold for what purpose and for how much will reap the consequences of history – shortages, recession, and general economic collapse.

In a real sense, what is being demanded by those who condemn the use of food crops for bio-fuel, is that each individual farmer should not be allowed to sell the fruits of his labor for the best price he can ask. He should be constrained to use his crops only for the benefit of those determined to be “in need” – by selling it only for food use and only at a price that is deemed “fair” by those who are demanding it from him. Such a policy can only be implemented through force, and has only one possible outcome. Eventually, the farmer will cease to produce when it is no longer profitable for him to do so under the coercive terms of the “public good” – and when that happens, there will be no food to buy at any price, no matter how great the need.

In the case of food crops and bio-fuels, both sides of the equation have been manipulated by tyrants – those who wish to control the direction of the fuel industry, and those who wish to mandate the value of a simple food product. Both distortions have aggravated what might have a been a simpler development in our modern economy. When men are free to exchange, temporary disruptions like those created by the invention of bio-fuels are quickly adjusted to, and self-interested people are quick to fill the needs and desires of others, for a profit. And that motivation, whether you revile it or not, is truly what fuels the economic activity of every person on the planet.

Action Steps

1. Read “Capitalism and Freedom” by Milton Friedman (available in the F.C. Primer).
2. Ask a local farmer what determines the sale price and use of the crops he produces.
3. Research the recent trends in the commodity markets – do you know the cost of the sources of your food?
4. Email your congressman and ask his/her opinion about the U.S. Farm Bill.
5. Read “The Law” by Frederic Bastiat – How does the concept of “legal plunder” apply to the issues of production, free exchange, government subsidies, price controls, and other economic manipulation?

MRFC Principles: (6, 7, 8, 9, 11)

Resources
Indian minister attacks biofuels
BBC – March 26, 2008
http://news.bbc.co.uk/2/hi/south_asia/7315308.stm

Egypt tries to tackle deadly bread crisis. CNN – March 4, 2008
http://www.cnn.com/2008/WORLD/africa/03/24/egypt.bread.riot.ap/index.html?eref=rss_world

Credible Worries: Fed Causing Next Depression

ALPINE, UT | 14 March 2008 | Everyone like to talk about the economy these days but very few people have the gravitas and credibility to send out warnings to the general public like those now rolling out almost daily. While wanna be experts and pundits through out casual references and sensational warnings about America’s current economic woes seldom have institutional voices been so dramatic in their assessments. That is until recently when Telegraph writer Abrose Evans-Pritchard has published a series of startling stories about the criticism and warnings now coming from inside “the close-knit world of central banking.” In a stunning interview with 92 year old Anna Schwartz the Telegraph probes the shocking revelation by a revered figure at the Fed that Read more

Should Congress Make Talk Radio Fair?

ALPINE, UT | 11 March 2008 | For the last several years it has becoming increasingly clear that many of the elected officials in Washington D.C. are not happy about what is happening in the marketplace, especially with talk radio. After years of failed attempts to find “more suitable” talkers to fill the airwaves (most shows have simply gone broke and were unable to entice programmers to continue) lawmakers are Read more

Parents Ordered: Vaccinate Kids or Go to Jail

ALPINE, UT | 12 March 2008 | It is becoming more and more common to see stories where parents are being attacked by government agencies for choosing not to vaccinate their children. Independent of the merits of their choice, contrary to the conversations that usually ensue when this subject is discussed, to the “Brain-On” Free Capitalist the real issue is Read more