Why has capitalism not collapsed?

mariaalice wrote: »

Why has capitalism not collapsed as an economic system especially in the last few years.

Capitalism (inasmuch as we know it) has collapsed a number of times but was revived by the centralised state through Keynesianism, money printing, good old socialising of private debts or any combination of the three.

Pure capitalism (or the closest we've been to it) collapsed and died out in the US sometime in the 19th century (though I guess Somalia is a modern exception), and what we have now is a mixed capitalist-socialist system, with state-provided services being fairly socialist, and private markets/business being more capitalist.

Our current economic system has not collapsed, largely because (despite the enormous social/economic damage) it has not generated enough social unrest to bring about its collapse, and it can be brought back to recovery given enough time (even if current policies unnecessarily ensure this takes a decade or more).

The configuration of the current system is not set in stone either, it is very malleable based upon politics; the difference between eventual collapse and eventual recovery, can be the difference between choosing government cuts over government stimulus.

The Corinthian wrote: »

It's simply because capitalism does not actually exist.

To begin with, even economists recognise that it essentially cannot exist in the Real World; profit maximization should be the goal of every corporation, but we all know that it doesn't work that way. Some prioritize size or 'empire' building, while others optimize for profit per partner (not unlike what tends to happen in worker owned firms or cooperatives).

What we see in the West is essentially are variations on Capitalism; typically employing much of what we understand as free market economics, but typically mixed in with aspects of socialism, corporatism, Keynesian and various other interventionist economic approaches. Every country has it's own particular brand or blend of capitalism and other economic systems; some are more interventionist (e.g. France) others less so (e.g. USA).

And no system remains static; the 'capitalist' system in the UK of 1900 is quite a different beast to that of 1970, or different again to 2000. No capitalist system has and not only have they evolved from the top (government) down, but the market itself does so (Western consumerism is a lot more 'green' than it used to be, simply because market demand wanted 'greener' products and services).

Managed economies, such as in the USSR, were painfully slow and inefficient at doing this and this was a large part of communism's economic undoing.

In short, it's not really capitalism to begin with and whatever it is evolves to deal with changing circumstances. But that's the thing about capitalism, it doesn't really care about ideology or principle as long as it works.

Correct and right,

There are a number of reasons why it's a bad idea to let banks fail in the current system, and one of the big reasons is that you risk causing instability and bank-runs throughout the economy, though depositors losing money, which would have a lot of very bad social ramifications if it became a widespread thing; the system doesn't have to be setup this way, but that's how it currently is.

However, this isn't just about protecting depositors from such contagion/damage either, it is also about (as you say) protecting the CEO's, bank officials, and management who have engaged in fraud, and a lot of powerful people have money tied up in the banks as well (some as bondholders), and are very friendly with fraudulent businessman/bankers, and have ties with people in politics too.

Basically, it's one gigantic corrupt mess, and that's a large part of the reason you haven't seen anybody prosecuted yet (and probably won't ever see anything other than a few token prosecutions/scapegoats); there is also the fact that government is caught between the massive corruption in banks, and the incompetent handling of the crisis at the EU, so there is every imperative to keep the banking/financial system ticking over locally, with dealing with fraud coming not even second (or third, fourth, fifth, etc..) to stability (because starting investigations, that uncover stuff like e.g. mortgage fraud, is going to lead to court cases and mortgage debts being struck-down, which would be disastrous politically/economically, causing more of a shítstorm from the ECB and such, if we end up needing another bailout etc.).


The way finance ties into all of this, is that the financial industry basically tries to earn money through socially harmful behaviour, because they are in such a heavily unregulated state that there is nothing to stop them; this usually comes in the form of rent seeking behaviour (privatization of public assets, or essential markets previously dominated by a government monopoly, where they can extract money beyond the cost and value of the service, or for access to a previously public resource, from the wider population), or through speculative bubbles (like property), where financial markets encourage people to use debt to unsustainably inflate the price of an asset far beyond its real value, so that people in the financial markets can cash-out at the high-point of the bubble, and the rest of society has to deal with the wake of the crash caused by the bubble, where (because the bubble was built on unsustainable debt, imaginary profits) everyone who didn't get out early, loses money/value in their investment.

It's ponzi capitalism; the people in finance inflating the bubble, who get out early, win; everyone else riding the tails of the bubble loses.


It doesn't have to be this way though, the financial system is far too overgrown and unregulated in proportion to the real economy; this can all be counteracted with adequate regulations, separating investment/retail banking, and putting assets prone to speculation like property/oil/industrial-metals, outside of the reach of financial speculators (so that only people who use those assets buy them, and finance doesn't speculatively exploit them to extract profits from those who do actually use them; that's another kind of rent-seeking).

There are also widescale changes that can and should be made to banking, government and the monetary system itself, to properly prevent such financial/economic/social instability; so, finance doesn't have to play such a meddlesome/destructive role in society, that has primarily happened in the last 30+ years of 'neoliberal' economic policy, which pushed deregulation/privatization, to such an extent that it caused the current crisis, and will cause the next crisis again unless it's reformed.

mariaalice wrote: »

Well if the system keep revinting its self and the is no real possibility of change then taking a semi moral view of what business you use or interact with is a good idea and might if enough people did it....it have a real impact, a sort of fair trade idea for financial institutions.

An interesting idea I came across was a burger change in America that guaranteed to pay its employees above min wage and to provide health insurance for all employees.

It's illegal to pay below minimum wage. That is hardly a moral high ground they are on. And I'm not really sure with Obama care what the state of play is with health insurance now that the IRS is involved. This healthcare situation is less capitalist and more socialist from what I can see, and not in a good way. So that also may not be much of a high ground.

That is one of the plus sides of capitalism though, because it has competition, it means the consumer has choices, and can patron or boycott goods and or services that coincide with their values.

The Corinthian wrote: »

Depends how open competition is. Oligopolies are a constant problem in capitalism, in that where entry to market is difficult it can result in everything from lack of de facto alternatives or even price cartels.

Yes, but you have to ask what is making it difficult? Is it a tremendous red tape bureaucracy, a local clannish mentality, or is it the cartels and if so how?
In other words, that problem isn't always an output of capitalism.

clairefontaine wrote: »

Yes, but you have to ask what is making it difficult? Is it a tremendous red tape bureaucracy, a local clannish mentality, or is it the cartels and if so how?
In other words, that problem isn't always an output of capitalism.

It's not always red tape or clannishness or cartels, indeed it's arguable if it is any more than a fraction of the time. Often there are real barriers to entry into a business.

For example, when the telecoms market was liberalized, Eircom was (stupidly) allowed to retain the local loop. This meant that would be competitors either had to 'rent' Eircom infrastructure or spend profane amounts of money putting in their own. Had Eircom been a more flexible beast, it might have retained this lead for many years, but it rested on its laurels and eventually the other telcos caught up.

The pharma industry is another one with significant barriers to entry, literally tens of millions and years have to be investing in R&D and patenting, making it almost impossible for new firms to get in. The costs of exploration in the oil and gas industry, capital reserves in finance and so on all make it difficult to 'break into' a market.

Not every business is as easy to set up as a lemonade stand.

mariaalice wrote: »

If capitalism is the default position then it has to be regulated in such a way that the protects the venerable, I know that position is fraught with problems and contradictions.

Typically it is. All of Europe employs a form of capitalism that also includes the welfare state, to one degree or other - even the US and other nations do to a lesser extent. Capitalism in practice doesn't actually exist, as every government imposes policy to temper it's ruthlessly amoral practice.

bluewolf wrote: »

Not at all, there are numerous loopholes in the min wage law.


http://www.dol.gov/compliance/topics/wages-subminimum-wage.htm


Breakdown of min wage or less demographics:
http://www.bls.gov/cps/minwage2012.htm

Oh yes, the internship loophole. That has been a problem. I believe the Department of Labor is looking at that again.

http://www.theatlantic.com/sexes/archive/2013/02/unpaid-internships-are-a-rich-girl-problem-and-also-a-real-problem/273106/

Governments do not run like a household; macroeconomic accounting is completely different to household accounting, because governments (and in the case of Europe, this is true at an EU-wide level with the ECB, not with individual governments) are capable of accessing money creation, which means their balance sheets (income and expenditure) don't have to sum to 0. Right now this is only blocked for political reasons, not economic.

Private banks make (private) use of money creation all the time for providing loans, and use the associated debt (plus usurious interest) to take the money back out of the economy over time; governments can make (public) use of money creation, and use taxation to take the money back out of the economy, over time.

Governments primary economic limit to spending like that, is inflation, not balancing spending with taxation; limiting spending to an inflation target keeps that in check.

Since inflation is all about resource management, about avoiding resource/supply bottlenecks (including labour), that gives government a pretty wide amount of room for spending, before they hit a resource bottleneck, and then government can also act to alleviate that bottleneck (except for labour, since that 'bottleneck' means full employment), depending on what it is.

The Corinthian wrote: »

Actually, governments ultimately do - always have. The 'invention' of government debt has, for the last two or three hundred years, allowed a fair bit of flexibility, but ultimately there's still a bottom line, albeit a very fragile one since the 1970's.

Ever since the transition to fiat money systems, and breaking the last links with the gold standard, this has not been the case; it is how finances have been run politically, but not how they function economically.

The Corinthian wrote: »

No it's mainly blocked because the 'print more money' approach is a fairly untested economic theory that's become quite fashionable nowadays as a magic bullet solution to the World's financial debt crisis. Problem is it's largely untested. QE has been tentatively tried, with limited results, but anything more aggressive has been shied away from.

This is not untested, the US treasury issued greenbacks for more than a century; this was not debt-based money (like from the private banking system), it was direct money creation by the US government.

It's not even an issue of money creation (something the private banking system does all the time), it's an issue of inflation management, which is very well tested.

It's not really a 'theory', but a combination of well established economic practices.

The Corinthian wrote: »

You're confusing money creation with leverage. What banks do is they loan out more money than they actually have, as they can be relatively certain that any nett outflow of funds will be marginal - not the same as money creation, and ultimately it also comes with a risk, if they miscalculate those margins.

Banks extend loans, and shore up their reserves later with the central bank (if they can't manage to on the interbank market), who provide newly created money in exchange for debt assets; this is money creation going into private banks hands, largely due to having extended loans.

The mere fact that the central bank engages in money creation at all means it goes into the hands of private banks, because (outside of special circumstances) that is how the system is setup.

In the end, all of the money (or at least the grand majority) in our current system has originated from banks thus far, and is debt-based money, private money creation with a debt attached.

^ Eh.... banks invent money all the time... it's known as credit. And yes they do go bust, unless the tax payer bails them out.