Free market doomed us all?

Z

Zeal

Still Mildly Glowing
I keep hearing that "free market" was one of the causes for the world newest recession, but how can uncontrolled credit gets to be “free market”?

Wasn’t the credit the principal cause? If so how can increasing the governmental control on democratic markets help?

Please help me here, I know very little of economy, to the point of not being able to define concepts I guess…
 
Free market = sell what you like for whatever people are willing to pay.

It's a fine thing if you're trying to get a system running, but eventually all the capital will merge into big lumps and those will clog the system until it breaks.

Essentially, big companies break the system. That's why monopolies are so unliked.
 
The problem here was that the free market allowed the banks to give credit to people who may not be able to pay the loan back. This has a very high risk factor but also has gain, if these people pay those lones back because they would have to pay very high interest rates. The banks made one big mistake and that was to invest in to many of these loans and didn't balance it out on the other side.

Another thing to keep in mind is that the economy is 90% perception. This means that when people only think a company is in trouble, they start to sell the stock they have in it, making it even more difficult for said company and by doing so, you create a domino effect.

A completely free market (a-let them do what they want-market) is also a bad thing for the consumer. Granted, by competition, prices go down, but it also creates opportunities for companies to make sub standard products and/or include dangerous ingredients in their products.

As in most cases, it isn't black or white. A free market is a good thing. But a totally free market is a bad thing. Compare it this way. If you have a totally free country without government control, you get anarchy and that isn't good either. Therefor a completely free market isn't in the best interest of the consumer. Rules have to be in place because otherwise companies will do everything to increase their profit margin, no matter if they hurt the consumer with it or not.
 
Half the problem was giving loans to idiots. The other half was buying those loans from other banks.

None of the German banks involved ever gave any American a loan. They just bought those loans off American banks thinking they'd make a profit (as the total return would have been larger than the price they paid to the banks).

Essentially, it's gambling. And they gambled at ridiculous odds expecting to win.

It's easy to see why lending was considered immoral for such a long period in our history. The lending itself isn't the problem, though.

As with so many things in our capitalist society, the problem lies with the "no questions asked" dogma of maximising profits. As in nature, the result is that short-term benefits are preferred over long-term benefits even if the former mean bad things will happen in the future.
 
No questions asked is a great way of putting it. Theoretically, if everybody had loads of money an even set of rules could be kept. That's not bad in itself. The problem is when the little guys want to become the big guys, they have to resort to underhanded tactics such as manufacturing unsafe products, violating patents and such.

Some companies are actually quite decent if albeit a bit money grubbing.

My problem with free market is that it allows people with enough money to circumvent laws and buy off government officials to get away with murder scot-free. Melodramatic perhaps but let me posit this case: company of rogues constructs a building violating some of the safety standards and rushing it. After they sell the building, they dissolve the company, thus they cannot be held responsible for what happens later on. After a year, the apartments develop cracks that run through the concrete, evidently they rushed construction and didn't allow the concrete to cure properly. Who is responsible here? The government official who granted the permit? The rogues who paid a bribe to the government official to get the permit? The customer for not researching their purchase well enough? Should a catastrophic fault develop, who is responsible for the possible deaths, injuries and personal damages suffered by the poor sods who lived there?

Think of the Bhopal disaster...who is responsible there? The people? They only lived there and the permit to construct a chemical plant was most likely granted by a corrupt asshole who just wanted his cut. Now the assholes at Dow Chemicals don't want to pay reparations and since they are a transnational, they have the power to get away scot-free.

There has to be rules or else things such as this will become commonplace. To take a fictional example, imagine a world like the Shadowrun one, where companies have extraterritoriality and have hundreds of deniable assets to get away with murder. Is that a perfect Free Market?
 
The market hasn't been a "free market" since the begining of the 20th century. The reason credit got so out of hand was because:

1.)The Federal Reserve loosens the money supply every time the economy gets the sniffles. This means that when the economy has over produced and is correcting itself, the Fed made it easier to borrow money, so people would borrow and spend more to "stimulate" the economy. However, pure spending doesn't stimulate anything. It creates bubbles. It pushes prices up artificially high and they eventually crash.

2.) Nobody's been saving money because inflation has been slowly chipping away at most people's incomes since the 70's. Most people in the US get a 3-4% pay increase every year, barring promotions. However, inflation has been, you guessed it, about the same. So people aren't getting any more money, wages and salaries have stagnated, and people are duped into thinking they're getting paid more. This isn't so much a swindle of a free market so much as it is the employee base being ill-informed. Inflation, by the way, is controlled by the Fed and they seem to like to keep it around 2-4% or so. Most people don't realise this devalues all thier monetary assests though.

3.) Companies have been "too big to fail", and so they get bailed out. In a free market system, those companies should collapse and fail. Instead, we print money, raising inflation (which leads to people going into debt) and dump it into failing institutions. This has lead to nationalization and everything else. It's a travesty.

What creates these bubbles is NOT the free market. It's the manipulation of the markets by governments and central banks. Free markets have thier ups and downs, but we've been tinkering with ours here in the US ever since Woodrow Wilson. We ignore the realities of production, supply, and demand. Then, as it's doing now, it all collapses in our face.
 
SkynetV4 said:
There has to be rules or else things such as this will become commonplace. To take a fictional example, imagine a world like the Shadowrun one, where companies have extraterritoriality and have hundreds of deniable assets to get away with murder. Is that a perfect Free Market?
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On the other hand, there's plenty of fiction where totalitarian and fascist governments are around, and those visions of the future aren't so pleasent either.

The key is to modify corporate law, as to how they can be structured, and to change and enforce liability laws so that people can't get off scott free by maniupulating current laws, like you mentiond in the example.

In reality, monopolies are often unwieldy and stagnant. Thus they don't stick around for long, or people will go elsewhere.
 
With all due respect, how do you see that happening? It might work in theory, but I'm inclined to think that massive deregulation of monolithic financial powerhouses in a situation as unstable as this one is more likely to see them going all-out for their own bottom lines than undertaking any sort of actions that would bring about balance or a greater good on any sort of reasonable timeline.

Or do you mean that it would get us out of this mess in the Strangelovian sense? "I'm not saying we wouldn't get our hair mussed, but no more than ten to twenty million killed, tops, depending on the breaks?"
 
Yamu said:
With all due respect, how do you see that happening? It might work in theory, but I'm inclined to think that massive deregulation of monolithic financial powerhouses in a situation as unstable as this one is more likely to see them going all-out for their own bottom lines than undertaking any sort of actions that would bring about balance or a greater good on any sort of reasonable timeline.
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What do you think they're doing now? The whole problem is that these companies have been going all out for thier bottom line and ignoring anything else, like stability or wise invesment, for years now. So what do we do? Let the bad buisness models fail and purge the system of failed ideas? No, we prop up the whole rotten system with borrowed taxpayer money, stick beauracrats in charge and call it change.

If we really let the free market work, the Fed would have never made credit so easy to get, debts would not have been run up so far, and companies that leveraged so much on bad investments would have tanked and died to be replaced by STABLE firms.
 
Yamu said:
With all due respect, how do you see that happening? It might work in theory, but I'm inclined to think that massive deregulation of monolithic financial powerhouses in a situation as unstable as this one is more likely to see them going all-out for their own bottom lines than undertaking any sort of actions that would bring about balance or a greater good on any sort of reasonable timeline.
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I'm meaning it in the sense that competion creates demandable goods, which if allowed to flow through, will grant a boost to most lands economies. Or are you saying state capitalism would be to prefer?
 
Oh no,I wouldn't dream of arguing for the shaky palanquin of laws and practices that's long been used to prop up the cadaver-puppet of economy. It's just that laissez-faire strikes me as far too easy an answer, and one that doesn't take a good many things into account. That kind of economic policy might help clear out dead wood, but it would also inevitably lead to a caliber of cronyism and abuse not seen since the Industrial Revolution.

What we really need is a re-definition of our business watchdogs' job descriptions, and a great deal of patience. I'm not going to pretend to have any sort of specific answers, and I'm no economist. I just know that it's never a good idea to let the wolves watch the henhouse.
 
free market? Isnt that somewhat anachronism.

A "free" market makes only one free. The supplier.
 
Crni Vuk said:
free market? Isnt that somewhat anachronism.

A "free" market makes only one free. The supplier.
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Yes, because a supplier can continue to manufacture whatever thier product is without ever having to worry about demand, consumer base, or competition. Also, I can't believe how the supplier keeps me down with those refrigerators, cars, computers, medicine, heck, even internet service. Those things are just tools of oppression.
 
1st of all Thank you all for your help.

But how can corruption be attributed to free market? As far as I know there is much more corruption in governmental controlled markets, in totalitarian states in general.

Plus the US (and most countries) has agencies to oversee and control abuses, speculation, bribes, etc. Companies that use toxic materials to make cheaper products are a mainstream in places like china, not the US. And in the case of being discovered in US soil severely penalized, with jail included.

In my naif mind free market was a market directed by people, in the way every citizen is free to choose in what to invest or produce. Portugal last dictatorship controlled what farmers should produce and the quantity, what the factories should manufacture, and so on.

Regarding the credit problem, isn’t it a credit problem? At max we could say that is a very specific problem of free market, and not that free market is a problem.

Right? :/
 
As usual, the answer is not one extreme or the other. Laissez-faire has its drawbacks, and heavily policed state capitalism has its drawbacks. Right now it's definitely leaning too far towards the latter, and it's only getting worse with all this bail-out nonsense.

Pumping money into these failing companies will make things better -- in the short term. In the long-term, it's just propping up a failing business model, and all that money will have just gone to waste, the business will fail anyway, and the effects will just be that much worse later on. Unless of course the businesses actually change to a viable business model, stick to it, and become stable. I wouldn't hold my breath on that one though.

Another big problem is that the whole US economy - if not the global economy as well - has become dependent on unsustainable "bubbles." The philosophy of spend, spend, spend, and get-rich-quick-without-actually-producing-a-damn-thing (playing the housing market by flipping houses is chief among these) is only harmful to the economy in the long run. You can't just spend, and you can't just save endlessly without ever contributing to the economy. You need to do both. Americans don't have a problem spending, but they don't seem to know how to stick a few bucks into a savings account or even put their change into a piggy bank.

Anyway, could go on and on about the economy, but basically it's like this: the economy has to be free enough to correct itself. Trying to stave it off endlessly by having everyone spend every cent they earn (and extending cheap, easy credit so they can borrow to spend assets they don't actually have) is a fool's game. But that doesn't mean it shouldn't be watched and policed to protect against monopolies, excesses, waste, and to protect people from being exploited by the unscrupulous.
 
Zeal said:
1st of all Thank you all for your help.

But how can corruption be attributed to free market? As far as I know there is much more corruption in governmental controlled markets, in totalitarian states in general.
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Corruption is a symptom of a free state in which information is passed and little "innocent" moves are allowed to go unchecked. The free market has nothing to do with corruption. In fact most totalitarian governments are very clean of corruption because of the lack of freedom and the abundance of oversight.

Zeal said:
Plus the US (and most countries) has agencies to oversee and control abuses, speculation, bribes, etc. Companies that use toxic materials to make cheaper products are a mainstream in places like china, not the US. And in the case of being discovered in US soil severely penalized, with jail included.
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Except people are smart and know the law. They find the little holes that let them make money. The little legal things that keep them out of jail. They have the money to do that with. Unlike in Panama where no one cares to do anything about corruption skynet.

The problem in the US is our legal system. We can't do anything about it if they /legally/ haven't done anything wrong. We know they stole the money, but they stole it within the system.

We have no way of voting as a community or country and saying, that asshole is shit lets lynch the fucker. Legally anyway.

Places like Panama, Mexico, and a bunch more countries the people don't care. It's been going on so long that it's normal. Someone on another thread posted "It's like McDonalds, everyone knows it's shit but wont speak up, and they all know what's on the menu."

Zeal said:
In my naif mind free market was a market directed by people, in the way every citizen is free to choose in what to invest or produce. Portugal last dictatorship controlled what farmers should produce and the quantity, what the factories should manufacture, and so on.
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We control what farmers produce. We(the government) give people money not to farm the land, we give people money to plant corn, cotton, grass, ect.

Companies in a way guide us to what we buy. We still have the choice, but we don't make it. We buy garbage from walmart that won't last the year because it's dirt cheap. Or we buy name brand stuff thinking it's better than the generic product. But infact they are usually produced not only in the same factory, but in the same batch.

But we still have the choice. We can choose to educate ourselves and make good product decisions. But companies pay money to hide the information. Companies pay huge sums to advertise the fuck out of your daily life trying to drown out sense. Walk down main street and count how many logos you see on people, just on people. DC, Old Navy, Gap, Apple. You can tell where someone shops by looking at the style.

Zeal said:
Regarding the credit problem, isn’t it a credit problem? At max we could say that is a very specific problem of free market, and not that free market is a problem.

Right? :/
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Credit isn't a problem. In fact it's one of the greatest inventions in history. It allows you to purchase things you could never have bought in a reasonable amount of time.

You can buy a house and the land it sits on. But without credit you'd have to be rich to afford a house.

With credit a company with no current capital can get the equipment it needs to start.

BUT! The tool of credit can be abused just like a drug. With credit you can live like a rich bastard for a few years. Suddenly the collection calls come in and your fucked.

Those giving loans are supposed to be aware of your financial situation and are supposed to use their judgment whether or not you will be able to pay them back.

Our government in the past 4 to 12 years passed bills designed to get the poor into housing.

The bills would give money to lenders who would give out high risk loans. Loans that no honest businessman would ever under any reason give out.

Opportunists grabbed the money, spent some of it on easily approved loans with high interest which were quickly repaid and overpaid. They make more money than god and jump out when it starts falling apart with buckets our tax money AND the money they got from loans that began paying interest.

Honestly if I wanted to break a capitalist system, I couldn't have thought of a better way. It's fucking brilliant.
 
Corruption happens where there is the mechanism for it to happen. My country has a nasty history of corruption and it has gotten worse with the years.

The biggest problem with corruption is that its very difficult to investigate and prosecute; with a few notable exceptions, most of the officials that engage in it have immunity. Legislators in my country? They all have big ass salaries, tax exemptions, immunity from prosecution and are not barred from controlling their own enterprises while working.

How do you prove corruption anyways? Its hard to get a paper trail on, the official can simply have it destroyed by coercing his subordinates to do so and its hard to get people to blow the whistle.

Personally, the only feasible way is through fear. Get caught embezzling, you get shot. Inhumane? Yes, do it enough times and people will understand you mean business.

When the big guy has lots of cash to give away in kickbacks and gratuities, you'll see the Free Market system fail as they have the money to get politicians to pass laws that benefit them.

That's one thing that I like about dictatorships. Sure you lose freedoms but so does everybody else.

One prime example I like to use is Rafael Trujillo, one of the nastiest dictators in the Caribbean. This cat ruled the country with an iron fist: you had to ask for permission to marry, to move in, out and within the country, you either worked for him (he controlled most companies to ensure the smooth running of the country) or you didn't work at all. Abusive? Sure, it is abusive. Yet according to the accounts I have read about him, he wasn't a corrupt man. An blood hungry asshole, yes, but an incorruptible one. The man dies and the country reaches democracy, and it goes to the fucks. The wealthiest Caribbean country became one of the poorest again.
 
Zeal said:
I keep hearing that "free market" was one of the causes for the world newest recession, but how can uncontrolled credit gets to be “free market”?

Wasn’t the credit the principal cause? If so how can increasing the governmental control on democratic markets help?

Please help me here, I know very little of economy, to the point of not being able to define concepts I guess…
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No, blaming the free market is naive. The current crisis is caused by a combination of several different causes. The biggest cause is of course the massive credit expansion, promoted by the FED's bad monetary policy since 2001.

It is natural that the world's economic system is going through this "correction" period. However, I think that the interventions that are being put in practice to deal with the crisis only serve to further misallocate the factors of production in the system.

I think that the government should only do what a sail ship does in a storm: Lower the sails and await.
 
Corruption is human nature; it’s an exploit of the law..

Shouldn’t we cover those loop-holes instead? It seems the problem is the law to prevent abuses not the free market. I always heard that in places like Russia, China, etc, were the corruption ran rampart. Why? Because the ability to acquire certain services and goods is severely limited by the law, so bribes become a part of life.

Corruption is a part of mankind, we keep inventing ways to fight it and people will keep thinking ways to circumvent it, oh the humanity…

A great thing of democracy is the few corruption because everyone can investigate and complain. Same thing don’t happens in china, north corea, etc.

Anyway many countries have free market, not just the US.

We incentive what farmers produce, but you have always the option to be bold and decide to take another path. At least when we had dictatorship you didn’t have that option, my grandfather didn’t. He lived in Alentejo and during that period his leader decided it should be “Portugal barn” and created certain laws. The landscape of Alentejo you see today is a direct result of that time.

Being bold and taking risks sometimes gets you rich, some you don’t. Anyway I was giving an example, you can consider services and industry.

Its that liberty that helps the most technological advances (not including war).

Of course you can only choose according to what exists, but if cheap products exist it’s because there is the need (someone buys them). At least they kept naturally balanced, and im sorry but brand mark even might be made in the same factory but the difference relies in the materials, the longevity, the efficiency, and so on. Im not saying that expensive = good is a law, but in most cases applies (in comparison with same type of product but cheaper).

Well companies spend tons on publicity because... it works. Are you saying that if the market wasn’t free the same problem wouldn’t apply? You cant just have good products that coverage all the need of the people just because the state says so or we wish. Its about resource and manpower, which is not unlimited.

Plus our great way of living is only sustainable because many people in the world lives like slaves.

Im more interested in the unique reasons of free market that made economy went kaboom, since its the accusation.

Yes I agree credit is a great invention, gives the opportunity to achieve goals that we would never be able unless we already born rich. I was talking about credit abuse, again it’s the abuse of credit that hits the spotlight, so why the accusation on free market? Well you don’t need credit in totalitarian systems that tell you what to buy and how to live, that’s a fact.
 
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