Capitalism is not the villain, but government is

Over the past couple of weeks Americans have witnessed a protest called Occupy Wall Street go rampant throughout the nation. These protests are relatively unorganized and protestors have different reasons to go to the street,  but most of them focus on holding corporations accountable, stopping greed and blaming capitalism for the recession in 2007and its aftermath.

Should private sector shoulder the blame for the recession and the sluggish recovery over the past few years? If a layman sees free market generating tremendous income inequality, banks granting people who lack credit history mortgages with low interest rate, and money managers like Madoff playing Ponzi schemes, then he may answer yes. Yet the history of capitalism is crystal clear that huge fraction improvements in standard of living have come because private businesses had created new products, given people jobs, generated profit that raised people out of poverty and allowed them to live fruitful and productive lives. We can have much more of that and beneficial effect around the world if we take a step back from excessive government regulations.

Greed is the core component of capitalism. This world runs on individual pursuing their own interests, directed by the famous “invisible hand”. The central idea of capitalism is to make sure that businesses compete vigorously against each other benefiting consumers. Competition creates constant struggles for business, and they must work very hard to succeed in the marketplace. So many businesses understand this and they hate capitalism. Thus they go on seeking government regulations and restrictions of entering industries in their interest instead of in consumers’. On its face, businesses might become more accountable and less greedy subject to a wide range of regulations and restrictions. However, the reality is totally the other way around.  With regulations, businesses are able to fend off competition, manage to lobby law makers to gain more unfair advantages over other competitors and exploit consumers as much as possible.

Protestors again go astray when it comes to the accusation that capitalism was responsible for the financial turmoil in 2007 and the recession afterward. In fact, capitalism was just a scapegoat for government intervention on capitalism at this point.  No one can deny that there had been enormous government intervention of lowing interest rates that encouraged overinvestment on housing even before the subprime mortgage bubble busted. With an incentive of government subsidies, private sectors responded by taking excessive risks and overinvestment in housing. Whenever government bailed out people who took excessive risks, it encourages people to do that more in the future. Thus private sectors were completely absorbed and involved in the bubble, which was caused by a bad policy, instead of capitalism and private sectors. Unfortunately the way adapted to tackle the problem is still on that direction by the Federal government’s and the Federal Reserve’s policies, which helped Wall Street and risk takers not pay the true price for all the excessive risk taking behavior.

In the history of the world, when a society begins stirring up angers toward private businesses, it’s usually a warning sign of revolution by shifting a society to the left, which gives government more power to intervene thus destroy capitalism. Given that government intervention is the root of most economic crises, please hold government more accountable ahead of laying the blame on capitalism.

 

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