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Guest Post: Free Market Capitalism Made America Great, not Socialism

November 18th, 2008 by Halli

By Richard Larsen

For some inexplicable reason, even when a “better mousetrap” is created, there are those who cling stubbornly to their old inferior system of rodent extirpation. When a better technology for accomplishing specific tasks is developed, some people unabashedly defend their old inferior system. So it seems to be also in economics, that even though socialism has failed everywhere it’s been tried and capitalism and the free enterprise system has succeeded wherever it’s been applied, that there are those who tenaciously advance the failed notion that attempted equality trumps freedom.

This issue rose to preeminence during the recent presidential campaign in large part because of a common “Joe” who asked about Senator Obama’s taxation system that would adversely affect Joe’s ability to buy a plumbing business. The Senator’s response was that it’s better if we “spread the wealth around” to those who don’t earn it.

In the midst of the national and international financial crisis now fomenting global financial markets, the lines of demarcation between free markets and socialism have been blurred dramatically. Congressional passage of a massive nearly one trillion dollar “bailout” of troubled financial institutions has added fodder to those who claim unbridled and deregulated capitalisms’ failure has brought us to this point.

Free markets often ride waves of profitability or anticipated profitability to excess, before the markets correct and return to more realistic valuations. The dot-com era of “irrational exuberance” is a case in point, where excessive valuation of anything having to do with the internet was priced to extreme levels, only to be brought back to earth after that bubble burst. The artificial burgeoning of real estate valuations of the past decade are no exception. Market values cannot simply continue to increase unabated. And with the increasing number of mortgage defaults by those who couldn’t afford their homes, facilitated and encouraged by bad governmental policy, it was inevitable that a correction in real estate valuations would occur. And it has.

In part due to global economic slow-down, but mostly in anticipation of more onerous regulation and taxation of the producers in this country, the U.S. markets had their worst post-election decline ever, for a week. Only on Thursday when President Bush spoke on the eve of the G-20 World Economic Conference about the successes, viability, and necessity of free-market capitalism was the decline reversed, with an intra-day swing of over 900 points on the DJIA.

Markets cheered as Bush reminded global leaders, “At its most basic level, capitalism offers people the freedom to choose where they work and what they do … the dignity that comes with profiting from their talent and hard work. … The free-market system also provides the incentives that lead to prosperity — the incentive to work, to innovate, to save and invest wisely, and to create jobs for others.”

The President explicated further, “Free-market capitalism is far more than an economic theory. It is the engine of social mobility — the highway to the American Dream. And it is what transformed America from a rugged frontier to the greatest economic power in history — a nation that gave the world the steamboat and the airplane, the computer and the CAT scan, the Internet and the iPod.”

Empirically capitalism has done what socialism could only dream of: cumulatively lift billions of people from abject poverty to a standard of living that exceeds any in human history. American poverty, as defined by our government, affords a quality of life that is the envy of any living in poverty elsewhere in the world. U.S. Census data indicate that those living below the poverty line in America have a home (rental or own), at least one car, at least one television, a DVD player, and still work less than most generations have had to for sustainability of their standard of living. It’s not socialisms’ promise of equality that made the U.S. the global economic leader that it is, but rather capitalisms’ equality of opportunity.

Even while realizing that government doesn’t produce anything, or do anything to increase productivity, but is perpetuated because of its ability to extract funds from those who do produce, government does have a role in a free-market system. It should foster policies and levels of taxation that are not debilitating to the growth and success of the economy, and it should properly and wisely regulate for the protection of the public it is supposed to serve. As the Constitution states, government is to “promote the general welfare,” not pay for it.

Contrary to what we have been told throughout the past election season, our financial market failures are not due to deregulation, but rather due to improper regulation. Continued efforts to reform Fannie and Freddie were rebuffed by their protectors in Congress. Sarbanes Oxley, designed to prevent another Enron fiasco, is the most onerous regulation placed on American commercial enterprises, yet it intentionally excluded Fannie and Freddie, again because of their protectors in Congress. Governmental efforts to pressure banks into providing mortgages for those who couldn’t afford them created the “subprime” mess. Government has done more to destroy our economy in recent years, than it has to promote and expand it.

Freedom is the heart of capitalism, and we should be vigilant over the next few years to ensure that free market capitalism, which made America great, isn’t sacrificed at the altar of “change” to the chants of “fundamentally transforming America.”

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