capitalism busting the myths
Post on 25-May-2015
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CapitalismBreaking the Myths
Myth 1 Free Markets are immoral
Markets make people selfishDriven by greed and profit
No concern for others
This is a morally false claimAll transactions are voluntary exchange
Cooperation for Mutual benefit
Markets work on principles of Justice
Success depends on customer satisfaction
Both Altruists and the Selfish operate in peace
Myth 2: Markets lead to monopoly
Free markets create monopoliesA few big firms would control all all markets
Small producers would be squeezed out
Do Free markets promote monopolization?No evidence to believe, no concrete examples
Free markets allow free entry into markets
Huge rise and fall of great corporations
Governments promotes monopoliesThrough licenses, Tariffs, special status etc
Government itself is a monopoly
Myth 3: Complex modern society
Modern society is too complex for markets and needs government intervention
If anything the opposite is true
A tribal society can work on centralized power
Complex society requires Extreme levels of information
High level of decision making
Only Markets can handle
Government bureaucracySlow decision making
Red tape, populism, etc
Myth 4: Not for Developing Nations
Markets requireDeveloped infrastructure
Well developed legal systems
Hence developing countries require state direction
Markets are the solutionAll wealthy countries were once poor
Wealth is created through incentives for people
Create strong Legal systems with property rights
Wealth creation requires & leads to infrastructure
Myth 4: Not for Developing Nations
State control is the problemState control and rejection of free markets
Lack of incentives to create wealth
Poor quality of decision making, delays
Freedom to cooperate for mutual benefit
The SolutionCreate strong legal foundations
Limit the powers, budget and reach of state power
Myth 4: Economic cycles & Recessions
Markets lead to Boom and Bust cycleOverconfidence and asset bubbles
Recession: production & employment contraction
Wrong againMarkets have inbuilt self correcting mechanisms
Economy wide bubbles are not a free-market phenomenon
Free markets redirect investments between sectors
Myth 4: Economic cycles & Recessions
Government: Cause of bubbles and recessionsFoolish manipulation of monetary systems
Subsidies and protection to unviable industries
Interference and distortion of Currency markets
Great DepressionCheap credit and monetary expansion
Sudden contraction of money supply
2008 CrisisExcessive liquidity and low interest rates
Eurozone CrisisHigh FD’s and separation of Monetary/Fiscal policy
Myth 5: Rich get richer Poor get poorer
Only those with Money & Education benefit
Free Market is not a zero sum gameVoluntary exchanges benefit both parties
Maximize opportunity for growth & Social mobility
Poor People emigrate to free countries
Income growth across all categories
Rich get richer and Poor get PoorerApplies to rigidly controlled markets
Access to Power determines wealth
Myth 6: Free markets tend to raise prices
It is competition that keeps prices downFocus is to offer more value at lower prices
Increase productivity and efficiencies
Regulation can keep prices lowDirect or Indirect subsidies
Price controls distort markets Black markets and corruption
Production shortfalls and low wages
Labor Productivity and wagesHigher in free market economies
Price of items/wages is low
Myth 7: Mixed economy
Combines best of Free markets and socialismThe diversified portfolio approach
Policies need to be focused, not diversifiedIndian experience is worst of both
The evidence is clear: Market economies Higher GDP growth and per capita income
Lower unemployment, better healthcare
Every parameter of human development
Myth 7: Mixed economy
There is no middle pathState interventions in market
Distortions and crises – Excuses for intervention
GovernmentsBy nature seek more control
Tend to blame private players
Bad policy – Perpetuated by vested interests
Politicians – Crony Businessman
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