Friday, August 26, 2011

Instavision, capitalism and morality

Glenn Reynolds sits down with John Allison, former CEO of BB&T, to discuss the causes of the financial crisis, what it is we are doing completely wrong to recover from it and the moral nature of capitalism.

Understanding what happened in the financial crisis is complex and people are looking for simple solutions; they're looking for solutions like "greed" which is not the cause of the financial crisis. In fact the Federal Reserve is the primary cause of the financial crisis - they printed too much money which resulted in a bubble which is really a massive mis-investment and it ended up in the residential real estate market because of government housing policy: affordable housing, sub-prime lending that was primarily financed by Fannie Mae and Freddie Mac.

In fact, history (shows) that what we've done with government policy always fails. If you look at trying to correct corrections by spending money you don't have to do things that don't need to be done, which is what a stimulus program really is, and try to finance that spending by printing money, it always fails.

So, why do we keep doing it?

Unfortunately, Keynes theory which is the basis of the current actions has got a lot of academic credibility even though it's failed and that's because it gives Congress and the government lots of power; interestingly enough it gives academics lots of power. The answer is the government need not do anything... It's really just a huge power lust for politicians and academics.

There's almost an inverse relationship that you describe between the where the government is most involved, you have the worst consequences (financial sector) and where it's least involved, like (in) technology, you have the best outcomes.

If the Federal Reserve can manipulate the quantity and value of money it makes it very hard to make business decisions.

Capitalism as a "moral" system.

Capitalism is the only moral system, because it's the only system that is consistent with man's fundamental nature as an independent thinking being. And in order to think for yourself and be productive, you have to be free. And capitalism is the only system that allows people to be free to think and innovate and all human progress is based on creativity.


Mutnodjmet said...

History Channel has a series on the 7 deadly sins. For the one on "Greed", they presented that it Capitalism was based on the sin of Greed. Their view of Adam Smith's "Wealth of Nation" was not kind. I turned the program off promptly, erased it from the DVR. I will really need to write them a nasty-gram.

Sadly, as a history junkie, they are one of the few channels I am addicted to. If I said I wasn't going to watch them again, that would be a like. But I can complain, and will.

Dean said...

They confuse "greed" with "desire".

And as Milton Friedman would say, "Who among us is not greedy?"