Sunday, March 29, 2009

Why capitalism rules...

There is an ill wind blowing Master Wu.

We are seeing articles like this piece in the Independent announcing the end of capitalism, neo-liberalism, or whatever it's called these days. The new socialists like to believe that capitalism has failed.
These arguments lack credibility because there is no evidence that capitalism has failed in any way. Quite the contrary, it is government intervention that has led to today's crisis.
Let's start by looking at Clinton's lobbying for more mortgages to low income families in 1999 described in this NY Times article.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

The justification was that Hispanics and Blacks couldn't get on the property ladder. Unfortunately, this led to the very same group defaulting on their mortgages 10 years later. Who could have seen that one coming?
Next comes the fatuous claims by leading socialist leaders like Chavez that capitalist countries are on their way down. Tell that to the hundreds of millions of Indians and Chinese who have emerged from poverty as a result of their countries adopting free market policies. Contrast these to countries such as Venezuela and Iran that have adopted aggressively anti-capitalist measures while relying on high oil prices. As this excellent article by Aiyar points out, socialism has eroded their oil producing capability and has seriously eroded their capabilities to diversify. It is precisely these socialist havens that are seeing their fortunes impacted the most.
The US will recover, unless Obama tries the social democratic model that has failed in Europe. American capitalism is about hard work, innovation, and rewarding those who can do both. Thatcher famously said that the conceit of collectivism is "the illusion that government can be a universal provider, and yet society still stay free and prosperous.... The illusion that every loss can be covered by a subsidy. The illusion that we can break the link between reward and effort, and still get the effort." We should remember that before we try to attack the most successful model in history.

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