Tag: economy

Why Does Socialist Economy Always Fail?

~ Clarissa ~ 2 Comments

Readers, please feel free to leave reading recommendations in the comments but I’ll save you the time and explain it myself and then you can go to the recommended books for more detail.

In a socialist economy, the means of production are owned by the government. In order to manufacture absolutely any product, the government must plan in advance how much of everything it will manufacture. The entire economy has just one owner, so there can’t be a business that fails. This is called “planned economy.”

To make this single-owner machinery work, you need an entire apparatus that will figure out how much of everything – shoes, armchairs, hammers, eggs, planks of wood, etc – needs to be made (or imported, if there’s money for that) every year. Just imagine the level of planning even for a tiny country. Try to figure out, for instance, how many pairs of shoelaces you need to manufacture in a year. And in what color. And what length. And thickness. And you need to make sure that you’ve planned enough (but not too much) of the raw materials and components of the shoe laces. And the packaging. And so on. You’ve got to fixate on the quantity and disregard the quality to make this even kind of possible. Since you have no competitors, quality doesn’t matter. The whole market is yours.

In a market economy, there are many different producers for every item. Quality becomes majorly important because you don’t own the entire market. At the same time, your calculations of what you need to produce in a year are easier to make because you don’t have to cover every single need of everybody. You just do what’s realistic because if you don’t manage to produce every shoelace the country will need, there will be enough companies to pick up the slack. You also have the freedom to hire, pick and fire workers, adjusting the labor force according to need. This isn’t possible in a socialist economy because the social need to have everybody employed trumps the economic need to adjust the number of employees.

The socialist economy always fails because it’s just simply not possible to plan out as enormous an enterprise as a country. You’ll always end up miscalculating on a significant percentage of your predictions. Workers are not motivated to produce, or to work at all, to be honest, because their performance doesn’t impact the remuneration. No advantage accrues to you if you stay up nights and invent a process to manufacture shoe laces faster and more efficiently. To the contrary, your initiative puts a wrench into the system where everything is already planned. You are messing with everybody’s process unnecessarily. Everything will be done to discourage you from this unnecessary initiative.

So what have we seen in this very basic explanation I’ve given?

Poor quality, lack of innovation and shortages are imminent in a socialist economy. They are baked into the system. Human creativity is suppressed because it threatens the system.

In a socialist economy, the struggle is to make sure that everybody has enough of the very basics. And even that is never really achieved. In a capitalist economy, there’s no under-production. There’s overabundance, overproduction, a glut of everything. This has its own problems but it’s clear which system is more natural to the enterprising, inventive, competitive human spirit.

A Reasonable Evil-Doer Versus an Unreasonable Good Person

~ Clarissa ~ 13 Comments

Now let’s forget about 2007 for the moment and look at what’s happening today.

What are the banks that are still handing out zero-downpayment loans thinking? That no matter what happens, they will be bailed out on the public dime and get huge bonuses as a result. And they are right because that’s exactly what happened in 2008 and what will happen again. It’s extremely cynical, totally disgusting and just vile on their part. But it’s reasonable in the sense that they know they’ll make out like bandits and suffer no consequences. They are bad people but they are reasonable.

Now can anybody explain to me what those folks who keep taking out those mortgages right now are thinking? There has got to be some reasoning going on. They’ve been around for the past few years, have watched TV, probably even seen a couple of newspaper reports. So how do they justify this to themselves? They have got to know that nobody will bail them out, that if they sink nobody will care, that no politician will care about them and champion their interests. I’m sure they are all good people but what they are doing is not reasonable. And this complete lack of reason terrifies me a lot more than any purposeful badness.

When you are dealing with horrible people who are still being guided by reason, you can at least figure out what reasonable principles guide them and adjust your behavior to minimize being damaged by them. But people whose logic I cannot grasp scare me even if their intentions are good, kind and wonderful.

How to Stop the Borrowing Craze?

~ Clarissa ~ 55 Comments

From an article by Matt Taibbi in The Rolling Stone kindly shared with us by reader Stringer Bell:

Anyway, there’s is a massive gap between making a bad decision with one’s personal finances and committing criminal fraud in billion-dollar amounts. Morally, the two acts are not even in the same universe.

Homeowners who took on those bad loans did so for a variety of reasons. Some were coaxed into adjustable-rate loans when they qualified for fixed-rate loans, for the simple reason that the ARM loan garnered a bigger commission for the seller. Others were told by their brokers that if interest rates went up, or they couldn’t make their payments, they could just sell their homes, or come back to the same broker for a refinance.

This is precisely the part of the Liberal argument that I can’t get behind. “They were coaxed, they were told, oh, poor little victims”. I find this idea that if a broker tells one something, one simply can’t exercise any judgment and resist to be absolutely insulting.

If at least this whole borrowing craze were in the past, then I’d say “who cares about apportioning blame? Let’s just make sure bank regulations are put back in place and move on.” But the problem is that it isn’t nearly over. The insanity continues and it’s as strong as ever. Zero-downpayment mortgages are being handed out next door right this moment. And the only way I’m seeing that the borrowing obsession can be curbed is by making heavy borrowing socially unacceptable. When it becomes shameful to be in debt (rather than NOT to be in debt, as it is right now), we will have a hope of changing things.

For now, people don’t even think of mortgages as debt. They talk about a house on which they haven’t paid a dime as “their house.” I have now stopped discussing my living arrangements with people altogether because I’m sick and tired of being treated like an idiot because I don’t want to take out a huge loan to pretend that I “bought” a house and prefer to rent. Even a manicurist I visited recently (a complete stranger, mind you) literally scoffed in my face when in answer to her question I responded that I rent.

I’ve now repeated the sentence “I’m not imposing this on anybody, I’m not criticizing anybody, I just don’t believe in borrowing” so many times that my jaw hurts. I’ve even considered lying to people and telling them that it’s some sort of a cultural thing not to borrow huge amounts from banks because I’m so tired of being labeled an idiot for simply wanting to live a debt-free life.

Mind you, I’m not being pressured to go into an insanely huge debt by brokers or bankers. I don’t meet any brokers and bankers and I have no idea where all those folks Taibbi says were bamboozled by them managed to encounter them socially. (Might they have gone to visit the brokers and the bankers of their own free will? Hmm…) I’m being hounded (sometimes to the point of feeling bullied) about not wanting to borrow by friends, relatives, and colleagues. And if you think it’s easy to be pressured about this on a regular basis by your boss and by people who will be on your tenure committee, think again. I can repeat until I’m blue in the face that I’m committed to my university. People don’t believe me, though, because I haven’t offered them the ultimate proof of “being serious about this job” by getting into a huge debt to “buy” a house in the area.

How is it normal that a person who takes out a loan that is 10 times bigger than their yearly income is considered more reliable and stable than a person who doesn’t want to be in debt? Such people don’t get grilled on their choices by everybody they know the way I get grilled on mine. A high-ranking administrator does not ask a happy borrower, “But you are planning to pay down this debt soon, right?”, while he does ask me, “But you are planning to buy (obviously meaning “take on a huge mortgage”) soon, right? Maybe next year?”

Say what you will, folks, this is just wrong. The idea that the only normal response to getting a good job and a respectable, more or less stable income is immediately to go into debt is hugely mistaken and extremely dangerous. And until this mentality changes, I don’t think that even the best bank regulations in the universe will put our economy on the right track.

Contempt for Human Beings as a Political Stance

~ Clarissa ~ 42 Comments

Have you noticed how much certain Liberals despise people? Here is a very vivid example provided by somebody who was incensed at my review of Frank’s Pity the Billionaire:

The argument that we should blame people for taking a loan that’s shoved in their face I find to be disigenuous. We all have a dream of home ownership. These loans were hawked by those who simply wanted to pass them off. I don’t believe the Tea Party argument deserves any credibility whatsoever. OF COURSE people will snap them up. Who can resist the “Free” Market. The Tea party notion that it’s ACORN’s fault that we had the housing collapse is utterly absurd, yet that is what this argument implies and it is completely and utterly false on every ground. Stop blaming the victims. If someone wants to sell something for free….they’ll find buyers.

See how this commenter despises his fellow human beings? If a loan is “shoved into your face”, there is absolutely no way you will be able to exercise your good judgment and make a rational decision not to take it. People are like dogs who “snap up” any old bone that you throw to them. They are as incapable as dogs of seeing that there is a piece of string tied to the bone, a piece of string that will drag them right to the slaughter-house.

This commenter sees people as “victims.” They fall into the category of a victim simply because they exist. You are born human? You are victim! From now on, pseudo-Liberals of this ilk will keep harping on the idea that you are not responsible for anything that happens to you. Buy a lot of useless garbage, take on loans it is mathematically impossible for you even to begin paying off, screw up your life in every possible way? Don’t worry, there is always some pseudo-Liberal out there to tell you how the helpless, pathetic little you is not responsible for anything.

Of course, Conservatives despise people, too. Just like many Liberals don’t believe that human beings are capable of being in charge of their own finances, the Conservatives can’t deal with the suggestion that humans can manage their own bodies without the guidance of politicians and religious leaders.

As I shared recently on this blog, I got into debt when I was a student. This created all kinds of problems for me (the debt is in Canada, I’m here, paying Canadian debts from an American bank account is extremely complicated, etc.). This entire issue tortured me for years. But if somebody told me that it wasn’t my fault, that I was a victim, that I couldn’t have been expected to resist the credit line that was “shoved into my face”, that I didn’t have a choice but to “snap it up”, I’d be as insulted as I am when I see politicians who try to police my uterus.

I am an adult. I am completely and totally responsible for my finances and my body. I manage them the way I see fit. And anybody who wants to dispute that responsibility is a person who despises me and infantilizes me. And I don’t respond well to that.

So here we are stuck between two political groups, both of which cannot bear the idea that human beings should have the right to make their own decisions and bear responsibility for them. Both Conservatives and Liberals often proceed from nothing but contempt for others.

We keep hearing about how this country is torn politically between two opposing camps. I used to think that, too. However, the more I observe this country’s Liberals and Conservatives (or, at least, the most vocal representatives of these groups), the more I am convinced that any differences between them are merely superficial.

P.S. Another pseudo-Liberal in the same thread just had the gall to compare the irresponsible borrowers to slaves or rape victims:

That mentality where the victim is made to believe that he/she is at fault for the predicament they are in is evidence of mental subjugation comparable to that of the slave or the rape victim.

What did I say about contempt?

Thomas Frank’s Pity the Billionaire: A Review, Part II

~ Clarissa ~ 21 Comments

In his analysis of the housing market’s crash of 2008, Frank keeps discussing the irresponsible lenders and traders who caused the crash. He is absolutely right in that their actions deserve to be investigated and condemned. However, Frank avoids the discussion of the other side of the equation, namely, the irresponsible borrowers. Unless we recognize that the Tea Partiers express a legitimate grievance of many against those who borrowed huge amounts of money they had no hope of repaying, there will be no opportunity to address the economic and political situation in this country in any productive way. When a very well-paid professional whose job it is to analyze finance drives himself into bankruptcy by irresponsible borrowing just because he needed to feel “gangsta”, can we really condemn those who work hard and try to live debt-free for feeling outraged?

The irresponsible lending goes on. In my neighborhood it definitely does and it horrifies me to imagine into what fresh round of drama this will lead us. But my neighborhood bank would not have been able to hand out the record number of zero-downpayment mortgages last month, had there not been people willing to snap up these loans. “The Bad Neighbor Doctrine” of the Tea Partiers that Frank condemns makes a lot of sense to me, a passionate Liberal.

If anything, Frank’s Pity the Billionaire made me feel an unexpected affinity with the Tea Partiers. He works hard to refute any accusation of racism and religious fanaticism that might be directed at the Tea Party. According to Frank, a regular Tea Partier is an educated, polite, blog-reading and blog-writing fan of Ayn Rand who believes that small businesses are the backbone of the economy and who deeply respects the entrepreneurial spirit of the Americans. Does this description remind you of anybody? Right you are, Frank’s typical Tea Partier is . . . me. There has got to be something wrong with the kind of analysis that does not distinguish between ultra-Liberal Progressives like myself and the followers of Glenn Beck.

The part of the book that I found the most disturbing is Frank’s profound and inexplicable hatred of small-business owners. According to Frank, they are so bogged down in their puny little concerns that the larger picture always eludes them. Small-business owners, Frank suggests, contribute nothing of value to the economy while, politically, they represent very regressive forces for the simple reason that they are too stupid to understand any complex phenomenon.

I am one of those ignoramuses who believe that small businesses (and, of course, small business loans) are, indeed, crucial to any healthy economy. What’s more, my barbarity is such that I see the American entrepreneurial spirit as not only unique but also profoundly admirable. Probably this is why I didn’t like Thomas Frank’s new book at all.

Thomas Frank’s Pity the Billionaire: A Review, Part I

~ Clarissa ~ 7 Comments

I’m a huge fan of Thomas Frank. His What’s the Matter With Kansas was absolutely brilliant. Since I discovered that great book, I’ve been following his articles and interviews and eagerly awaiting his new book.  You can just imagine how happy I was when I got the chance to read the proofs of his Pity the Billionaire, a book that analyzes the reasons behind the rise of the Tea Party movement. The book strives to answer the crucial question: how is it possible that the Americans’ response to the global economic crisis that happened as a result of unbridled free market practices led them to form a movement that would defend the free market rather than to a movement that would ask for regulations?

The book, however, turned out to be a massive disappointment. Frank’s trademark wit is gone. Aside from a few forced jokes, the book is written in a plodding, unimaginative style that I had no idea this author was even capable of.

His analysis of the “right renaissance” is also unimpressive. People who have been reading my blog for a while know that I’m no fan of the Tea Party. Still, I have to recognize that Frank is being intellectually dishonest in his characterization of the Tea Partiers. For instance, he blames them for the apocalyptic tone they often adopt and the doomsday scenarios they enjoy generating. This, however, is not a distinctive trait of just the Tea Partiers. It is just as present among the Progressives. The Liberal blogs I read are filled to the brim with endless apocalyptic scenarios. By the way, Slavoj Zizek’s 2009 book is titled Living in the End Times. You don’t get either more apocalyptic or more progressive than that.

Another fault that Frank ascribes to the Tea Partiers is that they erase the class distinctions and see no difference between a share-cropper and a small-business owner. Does this remind you of anything, by any chance? Yes, right you are, the #Occupy movement that lumps everybody who is not a billionaire into the imaginary downtrodden 99%.

Frank then proceeds to blame the Tea Party for its rhetoric of self-pity:

[They] advance their war on the world by means of a tearful weepy-woo. Self-pity has become central in the consciousness of the resurgent Right. Depicting themselves as victimized in any and every sitiation . . . is essential to their self-understanding.

Again, #OWS, anyone? Remember this statement from a prof with no debt, a house of his own and a wonderful life, who wallows in self-pity because his life is so complicated and anxiety devours him? So why do the Tea Partiers get blamed for their weepy-woo while Liberals don’t?

[To be continued. . .]

On Soviet Economy

~ Clarissa ~ 39 Comments

I have a feeling that I’m not making myself clear on the subject of the so-called Soviet economy. So let me put it this way:

The lifestyle I, the daughter of a linguist and a school teacher and a grand-daughter of a famous doctor, a corporate lawyer, a school-teacher, and a World War II veteran, enjoyed while growing up in the Soviet Union is the kind of lifestyle that a kid has today in the US if her mother is a drug-addicted prostitute and her father is a convicted criminal who hasn’t seen the outside of a jail in a decade.

My parents only had 2 kids, didn’t drink or smoke, and worked all day and well into the night to the point where we barely saw them. And the result of all that industry was that I saw a piece of cheese maybe once a year if I was lucky, only wore hand-downs, and couldn’t visit my friends’ birthday parties in winter because – other than my school uniform – I had no clothes to wear outside. My cousins (both boys and girls) had to wear my and my sister’s used underwear. Where my underwear came from is also a very interesting question. That’s how we lived. And that’s just a small part of it.

The children of the party apparatchiks, decked in diamonds and furs and lighting cigarettes with a bill that represented my father’s entire monthly salary, lived differently, of course.

But yes, we all had security. We could all be completely secure in the idea that, as long as the USSR persisted, every generation of us, lowly doctors, teachers, academics, lawyers, etc., would live exactly the same abject lifestyle where the greatest achievement you could hope for was to wrestle a piece of butter from the hands of equally desperate and pathetic individuals beating each other up in stores over basic food-stuffs.

Is it a little clearer now why steam starts coming out of my ears whenever anybody says anything even remotely positive about the Soviet Union?

How Can a Child Be in Debt?

~ Clarissa ~ 29 Comments

I’ve been staring at this photo for two days but I honestly don’t get it. How can a child be in debt? Do banks lend money to small children? Can anybody explain?

I have to confess that I find the banking system in this country to be very mystifying.

I found the photo here but the accompanying post provides no explanation for it.

Does the “99% vs 1%” Slogan Make Sense?

~ Clarissa ~ 40 Comments

Reader n8chz says on the subject of whether the “99% vs 1%” slogan makes sense:

I take it as a political statement that the middle class have more interests in common with the lower class than with the upper class.

My question is, really? Is this a convenient myth we are telling ourselves, or is this actually true?

There is a grievous lack of a social safety net in this country. Let me remind you, however, where the money for this social safety net comes from in the countries of Western Europe and in Quebec that have it. It is financed by the very high taxes paid by the middle class.

In Sweden, the income tax rate is 57.7%. In Germany, it’s 42%. In Belgium, it’s 50%.

We like to pretend that if we prevent the hedge fund managers from paying smaller taxes than they should on their investments, that is going to make a massive difference to the economy. It’s all a convenient illusion, though. Every more or less socialist system in existence right now is based on taxing the middle class heavily.

This is precisely why the #Occupy movement is so invested into promoting the myth that we are all 99% and that we have the same interests and goals. You can nationalize every single private jet and every single private island in this country outright, however, and that is not going to finance a passable social safety net even for as short a time as the next 50 years.

It’s so much fun to protest and wave catchy slogans on Wall Street while feeling like you are bravely fighting for the cause of the dispossessed. It is a little harder, though, to agree to be taxed at the same rates that one’s Western European and Quebecois sisters and brothers do.

I have a question for my middle class readers. Are you willing to give away between 50% and 60% of what you make in taxes to pay for the universal free healthcare, very cheap or free higher education, very high unemployment benefits, free amazing daycare for the poor, etc.?