More on Laissez Faire Economics

Repost from the old site.

In the comments section, James Schipper makes some interesting comments about laissez faire economics and libertarianism in general. His comments are in italics, mine are follow in normal font.

JS: Laissez-faire usually means short-term gain for a small minority and short-term pain for a large majority, medium-term gain for a larger minority and medium-term pain for a smaller majority and only long-term gain for the majority.

RL: I don’t agree with this at all. The case of neoliberalism seems to show us that the gains never do filter down to anyone below the top 20%. This is what the neoliberal advocates keep saying – “Give it time, give it time.” But no matter how much time you give it, it never seems to work. We are now 28 years into a neoliberal revolution in the US, and have things gotten any better for any larger majority?

Of course not. Things just seem to get worse and worse. Neoliberalism only accomplishes massive wealth transfers from the bottom 80% to the top 20%. It’s designed to do that in perpetuity, since class war never ends in capitalism, even in fascism.

JS: The Chicago boys are actually right in that speculative bubbles are only possible if the government engages in massive monetary expansion or allows the banks to do so. This means that the most essential part of government regulation in a modern economy is the regulation of credit and the currency. Too much money and credit = inflation and speculation.

RL: The problem here is that these Chicago Boys characters have been cheering on every single speculative bubble that ever existed, and they created quite a few of them themselves. Their libertarian project in Chile ended in massive failure such that even Pinochet had to step in with major government intervention to save the economy. Huge intervention by the state was the only thing that saved the economy.

In Russia, the Boys succeeded in looting the nation, transferring the money out of the country, engineering a Depression 3.5 times worse than the US Depression and killing 15 million Russians. The Chicago Boys and their acolytes were behind the Asian Flu crashes in the late 1990’s too.

The only way to prevent speculative bubbles is through government regulation of an economy, and the Chicago Boys apparently oppose all such. The business sector, whom the Chicago Boys represent, always supports a loose money policy during the good times in order to facilitate the cheap money necessary for economic expansion and of course speculation.

Furthermore, the US capitalist class, nor any other capitalist class, would never support the Chicago Boys’ apparent prescription here – getting rid of the Fed’s regulation of the money supply. Business loves and needs the Fed, despite all of its rants against socialism. Anyway, the role of a central bank is overestimated. Even in a state without a strong central bank regulating money, you can still get massive speculative inflows. This was the case with the nations harmed by the Asian Flu.

The Fed itself is run by economists who are themselves working hand in hand with Big Business and are generally followers of Chicago School Economics. The only thing the rich care about is inflation, and business everywhere on Earth has cheered on every speculative bubble that ever existed. They can’t get enough of them.

To blame these bubbles on a reactionary government institution called the Fed, implying the Fed is some kind of socialist institution (though its recent actions have indeed been socialist) is beyond perverse.

What’s deadly to business and the rich is inflation. The rich hate inflation because it cuts into their incomes. Most rich people don’t even work at all. They just kick back and live off rents and equities. Nothing cuts into their lazy money more than inflation. Further, inflation engenders demands for wage increases, which is why business hates it so much. It also increases costs for supplies, which they may or may not be able to pass on.

In order to stop inflation from hurting the rich and business, the Fed fights inflation by throwing millions of Americans out of work, since inflation and unemployment are two ends of a scale. As unemployment gets “too low”, workers start getting “uppity” and demanding wage increases. This is deadly to capitalism, so the Fed responds by deliberately increasing unemployment and throwing millions out of work.

If you take a university course in capitalist economics, they will tell you that capitalism operates on the premise of “the benefits of mass unemployment”. The benefits lie in the disciplining of the worker. The notion that mass unemployment has any benefits at all is enough to turn my stomach against capitalism.

Further, I’m not enamored of any Austrian economist.

JS: Too much money and credit = inflation and speculation.

RL: Problem here probably being that the Fed cares little about speculation (although it does worry about it a bit – witness Alan Greenspan’s famous “irrational exuberance” comments a while back) but cares a lot about inflation.

Speculation does not necessarily lead to increases in core inflation, but it surely runs up some prices. Housing market, oil and dot com stock speculation surely created bubbles in those sectors, but in the case of housing and dot com’s, did not effect core inflation.

JS: As to the New Deal, it was a colossal failure.

RL: I can’t comment on this. The general analysis here in the US is that the New Deal saved US capitalism from Revolution, hence it was painful but worth it. This analysis comes from the more enlightened among capitalist sectors themselves.

Of course Western Europe and the Asian Tigers were not built on laissez faire. Even today that Japan, Singapore and Korea have extreme government intervention in the economy in terms of state planning of the economy. That’s often termed corporatism.

It’s not like Gosplan where the social economy is planned down to the # of eggs you will eat in a year. Instead this sort of economic guidance actually works. Government works with firms to help them compete against foreign sectors, goosing some sectors while letting others wilt.

No country with a mostly private education system and a poor public education system has ever produced any kind of an educated population.

Up here in the Sierra Nevada Mountains, we have many roads that are private. The country never got around to making them county roads. Without exception, they are horrible. In many cases, there are expensive homes and properties lining these roads. The homes sell for about ~$300,000+ now. Most people living there have some money and they are not poor at all.

Thing is, everyone would have to get together to pitch in to fix the road and maintain it. People, even well to do folks, can never seem to get together to do that, so you have a horrific road. It’s really strange to try to drive down a nightmarish road while looking at very nice, fancy houses with new cars on either side.

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