Capitalism and Democracy
by Alex Merced
Detractors to Capitalism often will make satire of the idea of "the invisible hand" as if Free Market Capitalist believe there is an actual invisible hand. The Invisible hand is a metaphor for much more beautiful and plausible idea; that the actions and choices of every individual under no coercive influence can best manage scarce resources. I mean to anyone who calls themselves anti-establishment, how can this not be a beautiful idea, the lack of central power, the freedom from a top down world. Detractors will then make arguments about "Market Failure" essentially making claims that the market doesn't achive impossible and often impracticle goals such as EQUAL income distribution.
Proponents such as myself are always glad to point out any problems that do exist tend to often if not always come from the results of barriers to entry through prohibitions and costly regulations that inhibit the amount of choice and diversity that makes a market works to it's best ability. Essentially to believe in Free Market Capitalism is to believe in a sort of Market Democracy where instead of decisions being the votes of all individuals but by the purposeful actions of all individuals.
Detractors will claim that you can't trust people to make the right decisions with their resources and their lives, so of course you need a coercive foce such as government to correct these "failures". In order to choose who sits in government to make these corrections detractors will be proponents of a democratic process... believing that the choices of all individuals will put best people in power, basically a market for government power. My questions then becomes, if you don't believe peoples decisions individually can manage resources then how can you claim that those same individuals decisions on who to manage will be any better?
The counter arument would be "Like the markets, we believe it should be a regulated process", thus comes all the campaign finance rules, ballot access measures, and other regulations of the democratic process. Although, if this is a market process these regulations should achieve the same results we see in the market limiting choice thus limiting the ability for individuals to truly take actions that make the market mechanism work at finding the most valued result.
Bottom line...
If you can't believe in Markets, how can you believe in Democracy?
Showing posts with label Individualism. Show all posts
Showing posts with label Individualism. Show all posts
Wednesday, August 11, 2010
Sunday, April 25, 2010
Free Market Regulation Explained
Free Market Regulation Explained
by Alex Merced
Everyone always assumes that as free marketers that we advocate there be no regulations at all, but the truth is we think there should be no government monopolies of regulation or violence used in enforcing it. Then the response always is, if the government can do it then people won't. Although there are plenty of ways regulation can be done for profit in a way were the regulators have consumer interest more in mind than they do now. You've probably already read plenty of articles of the effects of government regulation as far as eating up resources and raising the barrier to entry reducing competition for the very firms your trying to control so let's take a different approach.
The intended or perceived intention of regulation is consumer protection, and we've seen that this is not always the result for one key reason, any entity is beholden to the people who fund it's operations in this case government. People think of the government as a intermediary of the people but while they are publically elected they are politically motivated. Since they truly hold the DIRECT power to fund these regulators, the regulators are beholden to them and their political goals (Bush, Dodd, Cuomo, Frank w/ lending regs) instead of pure consumer protection. So as politics distorts the mission or purpose of a regulator, consumer protection falls by the way side.
This is also an issue with private sector SRO's since they are usally funded directly by the firms in the industry they are regulating so they are beholden to those firms. If these's SRO's such as FINRA etc. enforced the rules closely on their biggest constitutents (Goldman Sachs) it'd greatly effect the inflow of cash for their operations so once again consumer protection falls by the way side.
The bottom line, a regulator will always be beholden to those that pay their bills, so if you want them to protect the consumer they must be paid by the consumer directly. Even then, a regulator isn't infallible so allowing a market of regulators that consumers can volunteer to pay into and firms can volunteer to deal with to get to those consumers will allow the correct incentives and pressures for the regulatory firm to advocate on their customers behalf (such as for-profit lawyers, you hire them to protect you. Also this structure is similar to AARP or other groups you pay memberships for).
This market of regulators shouldn't have any type special power handed over the government, since we've seen that ever mixing private/public institutions ends in disatrous results (Fannie, Freddie, FINRA, Sallie Mae, etc.). Industry firms will try to strike deals with as many of these regulatory firms as possible to have access to the consumers who hired them as their intermediary, and the industry firms that strike these deal will voluntarily be monitored by these regulatory firms who will then promote and recommend these firms monitored by them to consumers who pay for the regulatory firms services. Everyone who participates in this protection is doing so voluntarily but cause of the pressure created directly by consumers.
Another way to regulate in the free market is through review publications as we see in entertainment magazines that review the music and movies we enjoy. Musicians and Entertainers operate with the pressure of getting good reviews or have their success effected by it, although if one reviewer were to write good reviews for bad movies his audience would shrink and more over to another reviewer putting pressure to remain honest. Also, if one reviewer opinion is drastically different than other, this would also call into question the quality of his review. Although these review magazines are paid for directly by consumers, so they are beholden consumers.
Although in the case of securities rating agencys, giving them psuedo government power by keying legal regulation into their ratings created a perverse incentive to cater to their clients (the buy side) into rating things highly so they can legally leverage them. If there wasn't these coerced limits by government regulation, these rating agencies wouldn't of had the same pressures to rate the Mortgage Backed Securities AAA.
Even without the free market of regultors and review publications there is the ultimate free market regulator, consequence. If consumers and providers feel there are consequences to their risks, and there is nothing mitigating this consequence (FDIC, SIPC, Federal Reserve) then the risk will typically prevent them from taking "Irrational" risks, and those that do will suffer the consequence and serve as a warning to others.
At the end of the day, protection of the individual is the responsibility of the individual. If the individual does not take the time and isn't willing to directly be involved in their own protection the protection they do get will never truly be on their side and the world around them will stagnate from the results. To fix the world you need more aware and active individuals, willing to pay for their own protection, willing to get involved in protecting themselves and truly understanding every individual decision they make.
by Alex Merced
Everyone always assumes that as free marketers that we advocate there be no regulations at all, but the truth is we think there should be no government monopolies of regulation or violence used in enforcing it. Then the response always is, if the government can do it then people won't. Although there are plenty of ways regulation can be done for profit in a way were the regulators have consumer interest more in mind than they do now. You've probably already read plenty of articles of the effects of government regulation as far as eating up resources and raising the barrier to entry reducing competition for the very firms your trying to control so let's take a different approach.
The intended or perceived intention of regulation is consumer protection, and we've seen that this is not always the result for one key reason, any entity is beholden to the people who fund it's operations in this case government. People think of the government as a intermediary of the people but while they are publically elected they are politically motivated. Since they truly hold the DIRECT power to fund these regulators, the regulators are beholden to them and their political goals (Bush, Dodd, Cuomo, Frank w/ lending regs) instead of pure consumer protection. So as politics distorts the mission or purpose of a regulator, consumer protection falls by the way side.
This is also an issue with private sector SRO's since they are usally funded directly by the firms in the industry they are regulating so they are beholden to those firms. If these's SRO's such as FINRA etc. enforced the rules closely on their biggest constitutents (Goldman Sachs) it'd greatly effect the inflow of cash for their operations so once again consumer protection falls by the way side.
The bottom line, a regulator will always be beholden to those that pay their bills, so if you want them to protect the consumer they must be paid by the consumer directly. Even then, a regulator isn't infallible so allowing a market of regulators that consumers can volunteer to pay into and firms can volunteer to deal with to get to those consumers will allow the correct incentives and pressures for the regulatory firm to advocate on their customers behalf (such as for-profit lawyers, you hire them to protect you. Also this structure is similar to AARP or other groups you pay memberships for).
This market of regulators shouldn't have any type special power handed over the government, since we've seen that ever mixing private/public institutions ends in disatrous results (Fannie, Freddie, FINRA, Sallie Mae, etc.). Industry firms will try to strike deals with as many of these regulatory firms as possible to have access to the consumers who hired them as their intermediary, and the industry firms that strike these deal will voluntarily be monitored by these regulatory firms who will then promote and recommend these firms monitored by them to consumers who pay for the regulatory firms services. Everyone who participates in this protection is doing so voluntarily but cause of the pressure created directly by consumers.
Another way to regulate in the free market is through review publications as we see in entertainment magazines that review the music and movies we enjoy. Musicians and Entertainers operate with the pressure of getting good reviews or have their success effected by it, although if one reviewer were to write good reviews for bad movies his audience would shrink and more over to another reviewer putting pressure to remain honest. Also, if one reviewer opinion is drastically different than other, this would also call into question the quality of his review. Although these review magazines are paid for directly by consumers, so they are beholden consumers.
Although in the case of securities rating agencys, giving them psuedo government power by keying legal regulation into their ratings created a perverse incentive to cater to their clients (the buy side) into rating things highly so they can legally leverage them. If there wasn't these coerced limits by government regulation, these rating agencies wouldn't of had the same pressures to rate the Mortgage Backed Securities AAA.
Even without the free market of regultors and review publications there is the ultimate free market regulator, consequence. If consumers and providers feel there are consequences to their risks, and there is nothing mitigating this consequence (FDIC, SIPC, Federal Reserve) then the risk will typically prevent them from taking "Irrational" risks, and those that do will suffer the consequence and serve as a warning to others.
At the end of the day, protection of the individual is the responsibility of the individual. If the individual does not take the time and isn't willing to directly be involved in their own protection the protection they do get will never truly be on their side and the world around them will stagnate from the results. To fix the world you need more aware and active individuals, willing to pay for their own protection, willing to get involved in protecting themselves and truly understanding every individual decision they make.
Thursday, April 22, 2010
How the Government destorys real democracy
When we think of democracy or a democratic process we really think of several individuals acting on their preferences and values, and when this happens large commonalities would steer society. So while any value or preference held by a large number of values and individuals would steer the ship, this only works if everyone else is free and able to voice and act on their opinion, and more important able to form one.
The democratic process occurs in several places, not just government. Eveytime you participate in market transactions and purchase a good or service you are expressing your value or preference for that good or item. When a large group of people purchase the same product, be sure that it will effect whether more or less of that product will be produced. Although our money isn't the only resource we have demonstrates our values and preferences. An individual ca also donate their time to join different groups such as religious groups, activist organization, militias, or any volunteer association.
So you can DIRECTLY effect the the dialogue of values and preferences in society through how you allocate your money and time. Although the less money and time you have then the less your able to DIRECTLY participate in this true democratic process.
- As resources are used for the Government Agenda, taxation occurs and resources are taken from individuals meaning they have less money to DIRECTLY participate
- As the money have shrinks cause of taxation they may have to work more time to make up it allowing them less time to volunteer and DIRECTLY participate
Several laws create other ways in which your money and time is taken from you, which reduces you ability participate democraticly such as the issue with sugar tariffs and corn subsisidies which create for an unhealthy culture and higher healthcare costs. Since the cost of health is higher, once again more time must be worked to make up the rising costs of healthcare meaning less time to participate in the democratic dialogue outside of government. Other rising costs in healthcare, energy, food, and more also put more pressure on your time and money.
After these effects take place then people begin to become dependant on Government as the sole method of expressing values and preferences in society since only a few have the time and money to do it elsewhere. People begin to proclaim the acts of elected officials as "The Will of the People".
First off, the people is made of several individuals all with slightly different views, so there can't be any collective "will of the people". Accepting this, each individuals votes for their elected official for different reasons, so while an official may win an election it's impossible to tell if they had a majority vote cause of a particular view or in spite of it. More than likely they pieced together a majority vote based on several different issues and sometimes votes just to spite the opposition. So winning an election does not determine, "The will of the people".
The only way to have a true to democratic process is for people to have the time and resources to participate in the community, and this can only happen by rejecting government as the sole tool for democratic action and accepting sound economic principles (Austran Economics) for people to have the time and money to participate.
The democratic process occurs in several places, not just government. Eveytime you participate in market transactions and purchase a good or service you are expressing your value or preference for that good or item. When a large group of people purchase the same product, be sure that it will effect whether more or less of that product will be produced. Although our money isn't the only resource we have demonstrates our values and preferences. An individual ca also donate their time to join different groups such as religious groups, activist organization, militias, or any volunteer association.
So you can DIRECTLY effect the the dialogue of values and preferences in society through how you allocate your money and time. Although the less money and time you have then the less your able to DIRECTLY participate in this true democratic process.
- As resources are used for the Government Agenda, taxation occurs and resources are taken from individuals meaning they have less money to DIRECTLY participate
- As the money have shrinks cause of taxation they may have to work more time to make up it allowing them less time to volunteer and DIRECTLY participate
Several laws create other ways in which your money and time is taken from you, which reduces you ability participate democraticly such as the issue with sugar tariffs and corn subsisidies which create for an unhealthy culture and higher healthcare costs. Since the cost of health is higher, once again more time must be worked to make up the rising costs of healthcare meaning less time to participate in the democratic dialogue outside of government. Other rising costs in healthcare, energy, food, and more also put more pressure on your time and money.
After these effects take place then people begin to become dependant on Government as the sole method of expressing values and preferences in society since only a few have the time and money to do it elsewhere. People begin to proclaim the acts of elected officials as "The Will of the People".
First off, the people is made of several individuals all with slightly different views, so there can't be any collective "will of the people". Accepting this, each individuals votes for their elected official for different reasons, so while an official may win an election it's impossible to tell if they had a majority vote cause of a particular view or in spite of it. More than likely they pieced together a majority vote based on several different issues and sometimes votes just to spite the opposition. So winning an election does not determine, "The will of the people".
The only way to have a true to democratic process is for people to have the time and resources to participate in the community, and this can only happen by rejecting government as the sole tool for democratic action and accepting sound economic principles (Austran Economics) for people to have the time and money to participate.
Thursday, April 1, 2010
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