Thursday, June 18, 2009

Saving Capitalism and the Free Market

by Esteban G. Camacho

The economy is in rapid decline, the government has spent record amounts in an attempt to "fix" the economy, and the country is seeing a rise in unemployment levels. To some, there seems to be no end in sight. According to Ben Bernanke, "2009 will see a rise in unemployment...greater than our last predictions."

With the new administration, this government seems to be taking on a Keynesian stance, and really injecting massive amounts of money into several sectors. Talk by the Federal Reserve of nationalizing large banks have been very real, and government bailouts to large corporations are giving government power over the markets.

In this capitalist, and free market based economy, the notion of more government involvement must stop. The free market system has been able to fix its wrongs before, and it will do it again, if left alone. In addition, the free market system creates an invisible, and indirect method of benefits to all, and is based on the ability of the people to do as they choose in a market. Government exists to establish rules and regulations, and with more government intervention in the market, it is only a matter of time before we see conventional freedoms diminishing.

"Capitalism is an economic system in which wealth, and the means of producing that wealth, are privately owned rather than commonly, publicly, or state owned and controlled." (Arleen J. Hoag, John H. Hoag. Introductory Economics. World Scientific, 2006. pp 43-44.) In order to have capitalism as a form of an economic model, we must have a free market.. Capitalism and the free market model have been proven to work throughout many economies and countries. One example to follow would be post socialist China.

In the present, China's economy is largely a free market economy with individual ownership of business. Before this was the case, China was not an emerging power, and their economy was in slumps. Now, China's GDP growth is much larger per quarter than that of the United States and Japan, growing at a 10% rate per year, compared to the U.S. average of 3.4%. (World Bank, years 2001-2007) This is a great example of how a free market, capitalist system is favorable over one that is state controlled, or with too much government intervention.

Looking at a domestic example, the states of California and Texas can be compared. California has strict regulations on business, emissions, money, and financial matters. Texas, on the other hand, is quite different.. The state of California is currently in such a large deficit, the state government is on the brink of cutting their government workforce, cutting jobs.

Corporations and businesses alike are failing, and therefore giving much less tax revenue to the state budget (even though California has one of the highest tax rates in the Union), this means that California will receive less money from workers and businesses alike.

Texas is in much less of a struggle. As a matter of fact, the state seems to have gained from California's losses. An article published by the LA times on December 18, 2008 says that most people "fleeing from California are moving to Texas, including businesses." (David Pearson, LA Times) This information was gathered by the State from companies like U-Haul, who said that the traffic going to Texas, Nevada, and Arizona is much stronger than any of the other states.

Another way to compare would be to learn a lesson from history itself. the presidency of Jimmy Carter was ran by regulation. The introduction of the Windfall Profits tax, an amended alternative minimum tax, regulation on oil, more power to unions, and many other forms of regulations plagued businesses. The 1970's saw a time of economic uncertainty, with two recessions resulting.

The Reagan administration took office in the 80's and passed ERTA (Economic Recovery Tax Act), cutting taxes across the board by 25%. Reagan put a stop to the windfall profits tax (which created a surge in the price of oil during Carter), and lowered regulations on businesses. This created an economic boom that led well into the 90's. Another good point to be made is the average life of a recession.

The average life of a recession is approximately 6-11 months, if the market is left alone. The last time we saw a recession such as the one we have today was in 1982, when we saw a GDP decline of approximately 6% (2008 saw a growth of 1.4%), due to stock and housing markets. The market was relived of regulation, and it reversed itself in the average time frame.

A question of sustainability of the current economic model has also come into question recently. The fact is that there is no perfect economic model, as there is no perfect model of government.

The ideals brought about by critics of capitalism are unrealistic, and require this country to change the freedoms held by the citizens. Conventional thought would say that the government need manage more of the markets in order to have a more just and fair society. A fair argument to this is in a book by Adam Smith called "Wealth of Nations."

Here, Smith gives an example of three men, which by unintentional means benefit each other by selfish interest. " The Butcher, the Baker, and the Brewer provide goods and services to each other out of self interest, the unplanned result of this division is a better standard of living for all three."

Government intervention of the market gets rid of several things, the most important being freedom of market opportunities. Let the market define wealth, let the market fix the problems it has caused, and let the free market be free.

The public sector and the private sector have no need to be interdependent; instead, allow one to exist without the other. This is because having regulations on the market is the same as having regulations on people.

The market is not comprised of entities, it is comprised of people, and people who own and run businesses. To regulate the market would be to further regulate citizens of the United States of America.

Esteban G. Camacho is a contributor to he was born in 1989 in Bayamon, Puerto Rico. There he lived in a lower class family with his single mother for 11 years before moving to the contiguous states. Esteban became involved with politics when he reached his senior year of high school. When he got to college, he immediately pursued further education in the fields of government and economics. A staunch conservative and an advocate of the free market economies of the world, Esteban spends his time researching political backgrounds, economic titles such as Wealth of Nations, and strengthening his conservative base. Esteban believes in personal responsibility, individual liberty, equal opportunity, and in the American dream. Among his favorite quotes is: "What would you attempt if you knew you could not fail?" Esteban resides in Las Cruces, New Mexico and is currently pursuing a degree in Political Science.

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