Tuesday 5 September 2017

Capitalism Is Not a Rigged System

by Owen Martin

Chris Johns of the Irish Times has recently called capitalism "a rigged system". As usual with these arguments, the problem is not the State, but the free market. And the focus is never on individual choices but rather a system that produces the historic growth in lifestyles we all have today. 
Capitalism is prone to periodic crises precisely because of over-borrowing: we don’t know when the next crisis will hit, or the form the excess debt will take, but the crisis is on the way. We can only hope that it still far in the future.
The reason we still have the risk of over-borrowing is because the banks know the State will bail them out again if things go wrong. So why should they be worried if they act recklessly once again ? 
Most of the article uses Capitalism and Great Financial Crisis (GFC) interchangeably. As if they are the same thing. In USA,  the Federal Reserve, not the free market, kept interest rates low before the GFC. In Europe, the ECB, not the free market, kept the interest rates low before the GFC. This created the unnatural over-lending environment in financial markets worldwide. In Ireland, lavish property tax reliefs were introduced by the government encouraging even more lending. 
So it wasn't capitalism that caused the GFC, it was central planning policy at the beginning (low interest rates, taxation incentives) and socialism (bank bailouts) at the end.  It wasn't capitalism that rigged the system, it was government and central banking policy. 
Capitalism is no more a rigged system than a football league is. Football teams do not create inequality. They simply reveal the difference in footballing ability. The music business does not create inequality, it simply filters the difference in songwriting or singing ability. Capitalism is no different. Certainly there are traits that people are born with such as a good voice, good football skill or intelligence that create differences. But other skills and abilities can be acquired by perseverance and hard work. Which of course requires individual choices. The end product of the football and music businesses are the great players we see on TV and the great records we hear on the radio. The end products of capitalism are the great products we buy in the shops.  Capitalism allows people from poor backgrounds to become wealthy singers or entrepreneurs. By doing so it reduces inequality. 
The inequality that is never spoken about is that which exists in the taxation system. Responsible taxpayers who live healthy lives pay as much (or more) tax as those who smoke for example. There is no attempt to match taxation contributions with use of the welfare or government funded health system (where choice in lifestyle is involved of course).  We all accept this inequality in the tax system. We accept inequality in football and music. Inequality is just a fact of life and has nothing to do with capitalism. 

The less the governments interfere in the free markets, the more level the playing field and the less rigged the system will be. 

3 comments:

  1. We do not have capitalism in Ireland . We essentially have a centrally planned quasi Soviet economy. An economy based on ideology which history tells us always fails. Many objective international economic commentators call it the leprechaun economy. Where economic growth occurs like magic without any policy decisions just reports of fictitious economic activity coming from the CSO. Laughed at by most objective analysts. Reports written by comentators on the Irish Times should be ignored. They are as big a joke as the newspaper itself. The public Ireland of today is just an illusion

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