The Falsehoods of Neo-liberal Economics

Posted on Tuesday, 19th April 2011 @ 05:06 AM by Text Size A | A | A

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Even in the aftermath of the near collapse of the U.S. financial society, and the evidently stagnant economy that is benefiting a few at the expense of  the many, a large number of politicians and ideologues are pushing for increasing deregulation or at the very least resisting increased regulations. The very same conditions and policies that nearly brought down the world financial system go largely unregulated as certain politicians and armies of lobbyists are fighting tooth and nail to ensure that no real regulations are passed to limit the rampant greed in our financial system. This is insane, but before I dive into that, let me say a few words about myself.

I am not for welfare states. I am not for massive wealth redistribution, or high taxes, or punishing those who work hard. I am a Radical Centrist, and I support increasing freedoms and reducing red tape for individuals and companies. At the same time I believe that to be truly free we must also have access to opportunity and that the current design of the American economy and political system is denying opportunities to millions of working class, middle class, and minority individuals. I support a government that increases opportunities for people across the board and sets conditions that result in self-sustaining, hard-working communities.

I also do not believe that an unregulated market system driven solely by greed will result in the most efficient allocation of resources, as argued by neo-liberal economist. Greed begets greed and markets have proven time and time again that they cannot regulate themselves.

Without environmental regulations companies will pass on the costs of pollution to the general population by polluting our land, rivers, and air. Without a sound rule of law too many people will be attempted to misreport information and engage in other fraudulent activities. Without sound, but simple and clear, financial regulations banks will squeeze and squeeze profits until they eventually squeeze too hard and collapse.

This already happened in the most recent financial crisis in which banks undermined the system and their own selves in their quest for short term profit. The result? A near trillion dollar tax payer bail-out of the financial system. The pay back? Bank executives wrote themselves massive bonuses all while foreclosing on millions of American homes. Yes, many of the same people who bailed the banks out with their tax funds also watched the very same banks confiscate their homes. Ironically most people were forced into foreclosure because they lost their jobs and savings in the financial crisis created by those very same banks. It was a win-win-win for the banks, and a loss-loss-loss for the American people.

These oppressed taxpayers were forced into a bailout because the entire global economic system was threatened with collapse. A self-regulating market requires a large number of sellers and a large number of buyers. This way, when a seller or buyer fails their collapse does not threaten the market as a whole. Under the current system, however, most markets are ruled by a handful of companies with a resulting oligarchy in which the collapse of a single company could drag down an entire market. Even on the purchasing side, if a company collapses the lose of purchasing from said company could result in a market collapse. One of the main arguments for propping up GM and Chrysler was that if they failed the entire auto-supply chain would collapse, which would threaten Ford and other automobile companies that were not on the verge of immediate bankruptcy.

Further, neo-liberals tend to assume that all people are perfectly rational, and are by-and-large moral actors. Sadly, neither is true. No human is perfectly rational, or even close to being completely objective. The world is complicated and no one, this author included, can make sense of all of the complex phenomena interacting and intertwining in the globalized economy. Beyond which it seems like each year a new Enron, or Worldcom, or Madoff scandal is revealed. Time and time again humankind has proven that if left solely to regulate themselves some people will attempt to bilk the system, and their frauds can often threaten the entire economy.

What the U.S. needs is an efficient and effective tax and regulatory system that encourages entrepreneurship and innovation but also one that is effective in making sure that our society continues to reinvest in its education and technology infrastructure while also providing protection against the wanton greed that is too often displayed in the ruling corporate oligarchy. This system must be built pragmatically, not ideologically and must address problems as they actually exist. In the current political climate politicians do not ask how to solve a problem, but instead ask what their ideology tells them about the problem and corresponding solution. Only when politicians learn to set aside their trite ideological beliefs will they be able to formulate effective laws and regulations.


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