Sonntag, 24. Oktober 2010

Economics and Human Psychology

I am going to talk about Capitalism and Communism.
There are problems with the implementation of each of the systems of course and then there are advantages as explained by their followers. I started out as an Idiot in the middle knowing neither. But I think I have a good idea which side to choose now. Let us bypass the query: "if it is either relevant or essential to take sides", and attack the issue in hand.

Definitions first:

Capitalism: A system of economics demanding free trade. To be clear it means prices of commodities be regulated by Supply and Demand.

Communism: A system of general Hogwash that demands "communal" ownership of capital and the produce thereof.

Why the insulting language in the opening statements? Trust me when I say this: Communism is not clearly defined. Read it up. There is no clear One statement summing it up.


Capitalism is berated for the greed of the capitalist. Since human memory is a fragile, evanescent construct, I am obliged to give you a recent enough example to evoke emotions: The Housing bubble in the US. The short explanation of this phenomenon is that the Greedy bankers sold Mortgages at rates that were overvalued to other companies, who sold them at even overvalued prices to their buyers. Demand and Supply. There was an increasing demand for Housing. This led to increased demand for Mortgages. And that led to increased sells of said mortgages. The original value of the Houses was X. Its anticipated value was Y. And Y was made higher and higher until it reached a limit that was unreachable by the current wealth in the Society then. Bubble finally burst. Yup. Fault of the capitalists. Some people in the higher echelons got more greedy than was reasonable and propelled the entire nation/world in a recession.

Communism in all of its known forms has resulted in Human toll more than any single war of Natural calamity. Any economy bearing the term Communism has never worked well economically anywhere except in China. Blame in this case is normally laid on the implementation of communism, "It was mis-implemented by corrupt people! If it were done correctly it would be heaven on earth!".. is the Typical defense one hears. Lets just write off that Communism in Known history has not managed to work as a fact. China excepted of course. It is built on state capitalism ;) and Human bones.

So. We have Corrupt Capitalists vs. A poor Implementation argument apparently in progress. And this argument, dear reader, is from the Perspective of a Socialist (A capitalist will have an entirely different argument. He would argue something about wealth generation). Now, let my prejudices enter into the fray and break the argument down for you.

Humans are Humans, no matter where you go. Corruption or Stupidity are not unique to Capitalism or Communism. They are all pervasive and all all encompassing. It is NOT the property of a SYSTEM but that of those operating it. The issue in fact ends here, about innate corruption and greed of the capitalist or rephrasing it in an unbiased way, the Corruption of Humans.

I know that the next thing that is going to be argued is that capitalism allows Humans to be way more corrupt. The capitalist can in fact manipulate the economy through Cartels and monopoly to actually loot the wage-laborer and forcing the consumer to buy produce at a price he desires. Since there is no control over him, he CAN in essence do all these things. And Capitalists DID do it in the industrial age in the Europe. They could because there were no laws against them doing it and the Government was unawares.

This argument has been used to harass proponents of capitalism for long enough. What one needs to understand is that Capitalism is a comparatively recent innovation. It could not have been be born with all the laws attached to contain hazards of unjust Human behavior on the part of the Capitalist. Thus with time it was modified to contain Minimum Wage laws, Anti-monopoly acts, Anti-Carteling legislation and Consumer protection, making it better and better suited to benefits to the people living under capitalism. Thus the essential component of capitalism is a Government that regulated NOT the trade directly, but the traders (well, in case of Monopoly it DOES regulate the trade marginally).

But again there is a counter-point! What about Industrial-government complexes? What about lobbies? In simpler terms, what about protection of the corrupt Capitalists by the corrupt Government? You see, Human Corruption has roots that go deep indeed. Perhaps we will have some solution to this problem as well in the near future.

Then there is the problem of Business cycles: Economy WILL go into a periodic Recession no-matter what anybody does. It again has social psychology based reasons behind it! To cut them short, Recessions occur due to inertia of Supply-Demand (remember Newton's first law?) and economies in recesion tend to stay in recession due to people becoming depressed. People have suggested many ways to stay the course of recession or reduce its effects (Keynesian stimulus), but these suggestion assume that economy can be stimulated with money, when the problem is more of Human in nature, thus historically they have never worked. So yes, you have to live with recessions.

So much for the problems in capitalism. Let's now sum its benefits.

One word: Wealth. Capitalism generated Wealth much more efficiently. The reason? Human greed. We are ready to work if there are benefits! on an average People work because they can achieve a better life, get a better pay, a better luxury against their toils. The measure of their success is their work (labor). More the labor more is the produce, more are the per capita taxes for the government, less is the per capita national debt and tax percentage and the better is the infrastructure and its maintenance ( Your taxes pay the national Debt, its the only true source of income for a Government in a capitalist country). Thus you end up getting more for working more. Capitalist countries thus have better Lifestyles and better Availability of resource. Due to a better lifestyle, capitalist countries automatically benefit from better education and better health. What it lead to is a different thing altogether.


End of part 1.

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