Bill Bonner: Hurrah for capitalism!
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Bill Bonner Feb 27, 2009
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"Poor of the World, Unite against Capitalism!" says a huge poster in Managua... featuring the largest picture of a man accused of rape we've ever seen. No kidding. Daniel Ortega's stepdaughter said he had raped and abused her since she was 11.
What's wrong with these people? Do they never learn anything? Capitalism has failed, they say. We need government to fix the problems. The rich hate capitalism because it threatens to take their money. The poor hate it because they think it keeps them from getting money in the first place. And everywhere you look, the chiselers are offering bail-outs, boondoggles and bamboozles. With so many people trying to improve on capitalism, it's a wonder they've never come up with something better.
Danny Ortega makes it sound like capitalism is a system invented by the rich to keep the poor down. Instead, it's what happens when you leave people alone: some watch TV... some blabber about politics... and some build wealth. The rules are simple: thou shalt not steal, it saith in the Bible. Do unto others as you would have them do unto you, Jesus added. Everything else – from hedge funds to derivatives – is merely an elaboration. People make deals with their neighbours to get what they want. One plants the wheat; the other bakes the bread. As long as they respect each others' deals and each other's property, everything goes tolerably well.
But the urge to larceny and slavery is as strong as rum punch. One man gets a bottle of Flor de Cana rum; another wants to punch him and take it away. And if he gets away with it, we're all in trouble. In the second half of the 20th century, around two billion people took part in a bold experiment. The idea was to prove – or disprove – that central planning would do a better job of providing goods and services than people left to their own devices. After Mao came to power, for example, China turned its back on capitalism for a generation. Millions starved or were killed outright. Then, Deng Xiaoping announced a change. "To get rich is glorious," he proclaimed. Since then, the comrade capitalists have been creating wealth at the fastest rate in history.
Too bad the Chinese weren't running things in Africa. But then, Africa had a big disadvantage, says Damisa Moyo; the rest of the world was 'helping' it. Africa has had one bail-out after another. Thanks to so many bail-outs, it is now more bust and desperate than ever. "China has 1.3 billion people, only 300 million of whom live like us, if you will, with Western living standards," says Ms. Moyo. "There are a billion Chinese who are living in substandard conditions. Do you know anybody who feels sorry for China? Nobody. Forty years ago, China was poorer than many African countries. Yes, they have money today, but where did that money come from?" Not from bail-outs. And not from anti-capitalist claptrap-babbling demagogues. Russia prospered only after it sent the Bolsheviks packing. Gorbachev introduced his perestroika programme in June 1987.
In the control group, meanwhile, Americans made their own anti-capitalist mistakes. The central bank lent money at artificially low rates – distorting the value of all capital assets. Tax policies, government-backed lenders, and the government's banking rules stimulated the housing bubble. The use of the dollar as an international reserve currency effectively created an all-night party with an open bar. Instead of having to settle up in gold, the US could pay its bills with more pieces of green paper. Then, other economies had to put out great quantities of their own paper just to keep up. This created a series of bubbles, leading to the great bubble in finance and housing that blew up in 2007-2008. Late at night, after the party has been going strong, all credits are almost equally fetching. An Argentine bond? A house in Pomona? All rose in value. But come the morning, and investors begin to make distinctions.
A business that loses money is like the Soviet Union – a wealth destroyer, not a wealth builder. It produces things that are worth less than the resources that went into them. Eventually, it needs a perestroika; propping it up with bail-outs just deepens the losses. In the Soviet economy, businesses took valuable raw materials and worked them into shoddy finished products that no one wanted. In the capitalist blow-out, valuable products and services were produced by the boatload, for people who couldn't really afford them. Naturally, the producers are worth a lot less than people thought. So are the houses their over-indebted customers live in. And so are all the debt-based instruments that their spending was meant to support. The world's wealth is estimated to have a value of around $100trn. Capitalistic markets, in their wisdom, have judged about a third of that wealth no longer viable.
"Today, it's America that must have a perestroika," says ex-Soviet boss Michail Gorbachev. "You don't have to be a Nobel Prize-winning economist to understand that it's not normal that the country with 20% of the world's GDP consumes 40% of the world's resources." Yes, he's right about a number of things. Western capitalist economies are in the midst of their own perestroika. They are being restructured. Not by the world-improvers, but by capitalism itself – far faster and far better than the meddlers could ever do.
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