Thursday, June 11, 2009



Some of my extreme ultra-conservative friends, particularly H, place the blame for the current financial crisis and resulting depression on the Democrats. Some ultra-liberals blame the lax reglation regime put in place by several preceding administrations (Clinton, Bush sr., Reagan, Carter, Ford, Nixon). I don't know whether I should be called an ultra-liberal, a socialist, or a plain liberal, but I think the real fault lies in the nature of the financial and economic system that we have allowed to develop over the past hundred or more years. I think the basic problem is bigness. We have created banks and other financial institutions that are "too big to be allowed to fail." Our automobile manufacturing capability has been consolidated in three big corporations. We have decided that they are not too big to fail but they are too big to be allowed to fail and the manufacturing plants closed and sold for scrap. Consolidation has been concentrated in other fields of manufacturing also. A few large corporations sell such appliances as dishwashers, refrigerators, washing machinens, and clolthes driers. Not only are the manufacturing facilities concentrated in just a few large corporations, but many of these facilities have been moved to China and other places where labor is cheap and compliant.

So much for my view of the situation. What brought it about? I think our system makes it very easy for a sharp operator who wants to make a fortune as fast as possible so that he can retire, like J. Paul Getty, at age 30 as a billionaire. That's the goal.

How does the sharp operator go about achieving this goal of rapid riches? He or she starts a small company, perhaps in a garage. Initial success leads to decisions to enlarge the manufacturing facility. The little company grows and prospers. In a few years it is a very attractive investment for people with money. The founder(s) sell at a very good price. The buyers hire new managers and the company may continue to prosper, or it may fail. If it prospers, the investors can enrich themselves by selling the little company to some giant, like General Electric or Westinghouse or, until recently, General Motors. They get out with nice profits. General Electric, et al., become bigger and bigger and eventually have control of nearly all the manufacturing facilities in the country.

Everything that I have described is perfectly legal. Sharp operators - entrepreneurs who are motivated by the desire to gain wealth quickly - find it easy to start and later sell start-up companies. The process tends toward bigness and concentration. Eventually one of the big firms fails and causes a depression - that is, a situation in which a lot of people are out of work and out of money.

Old-fashioned conservatives - those who aren't looking for political advantage - accept this situation as a consequence of imperfections in our financial and economic system. Being conservative, they are reluctant to make changes. The changes may produce something even worse than what we have now. Some pragmatists want to make a few minor changes in the existing system. Perhaps there should be a smaller incentive to selling out a start-up company by changing the income tax on short-term capital gains. Such a tax could also be applied to the purely financial manoeuvres that are purely speculative; that is, actions which bring sudden increase in wealth to an individual who hasn't done any real work to achieve it. Socialists want to make fundamental changes in the system. If a bank or manufacturing company or service company becomes "too big to fail," it should be taken over and operated by government for the good of the people. Profit should be less important than continuing the service or product, and in particular maintaining the jobs of the workers.

I won't try to solve the problem here and now. I await your comments.

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