-- the nation's vital infrastructure in a deplorable state;
-- 3.5 million or more homeless and heading higher in the wake of subprime defaults;
-- the standard of living of most in the country declining; and,
-- the nation, in fact, bankrupt according to a 2006 study for the St. Louis Fed.
Clearly, something is wrong with the "pencil miracle" working for some but not for most. Friedman no longer can respond and his acolytes won't.
The Myth that Markets Get It Right and Operate Efficiently
Economist Hyman Minsky was mostly ignored while he lived, but his star may be rising 11 years after his death in 1996. Some described him as a radical Keynesian based on the theories of economist John Maynard Keynes who taught economies operate best when mixed. He believed state and private sectors both play important roles with government stepping in to stimulate or constrain economic activity whenever private sector forces aren't able to do it best alone.
It's the opposite of "supply-side" Reaganomics and its illusory "trickle down" notion that economic growth works best through stimulative tax cuts its proponents claim promote investment that benefits everyone. It was Reagan-baloney then and now, and so is the notion markets are efficient and work best when left alone.
Minsky explained it, and people are now taking note in the wake of current market turbulence. His work showed financial market exuberance often becomes excessive, especially if no regulatory constraints are in place to curb it. He developed his theories in two books - "John Maynard Keynes" and "Stabilizing an Unstable Economy" as well as in numerous articles and essays.
In them, he constructed a "financial instability hypothesis" building on the work of Keynes' "General Theory of Employment, Interest and Money." He provided a framework for distinguishing between stabilizing and destabilizing free market debt structures he summarized as follows:
"Three distinct income-debt relations for economic units....labeled as hedge, speculative and Ponzi finance, can be identified."
-- "Hedge financing units are those which can fulfill all of their contractual payment obligations by their cash flows: the greater the weight of equity financing in the liability structure, the greater the likelihood that the unit is a hedge financing unit."
-- "Speculative finance units are units that can meet their payment commitments on 'income account' on their liabilities, even as they cannot repay the principle out of income cash flows. Such units need to 'roll over' their liabilities - issue new debt to meet commitments on maturing debt."
-- "For Ponzi units, the cash flows from operations are (insufficient)....either (to repay)....principle or interest on outstanding debts by their cash flows from operations. Such units can sell assets or borrow. Borrowing to pay interest....lowers the equity of a unit, even as it increases liabilities and the prior commitment of future incomes."
"....if hedge financing dominates....the economy may....be (in) equilibrium. In contrast, the greater the weight of speculative (and/or) Ponzi finance, the greater the likelihood that the economy is a deviation-amplifying system....(based on) the financial instability hypothesis (and) over periods of prolonged prosperity, the economy transits from financial relations (creating stability) to financial relations (creating) an unstable system."
"....over a protracted period of good times, capitalist economies (trend toward) a large weight (of) units engaged in speculative and Ponzi finance. (If this happens when) an economy is (experiencing inflation and the Federal Reserve tries) to exorcise (it) by monetary constraint....speculative units will become Ponzi (ones) and the net worth of previous Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to (sell out). This is likely to lead to a collapse of asset values."
I am a 72 year old, retired, progressive small businessman concerned about all the major national and world issues, committed to speak out and write about them.
Libertarians like Friedman have to believe people are angels for their market hokum to work. We know that is not true and, more important, the lack of any "factor" balance (labor v. capital) in societal and economy corrupts both market theory and reality.
See more on factor balance at TheCenterForBalance.org
Kent Welton,
OligarchyUSA.com
PublicCentralBank.com
& more
by
Kent Welton (49 articles, 0 quicklinks, 0 diaries, 37 comments)
on Friday, August 24, 2007 at 1:25:22 PM
Its great to see people contradict Friedman's free market ideology. This free market crap is just propaganda spit out by corporate interests to use as an excuse when the implement business practices that are unethical and heartless. Outsourcing and the elimination of labor and environment standards has been passed off as well Adam Smith says if you don't let business run wild the economy will just collapse.
Whats really sad is these outsourcing free trade preaching corporations often recieve huge sums in government subsidies. Basically they want free trade and government to stay out of the way, unless they need some of uncle sams tax money.
A good example of how American corporations are ran today is perfectly demonstrated by the current Bush administration. The Bush administration is completely controlled by corporate interests and believes in Friedman's theories. What you will find is gross incompetence, favoritism, dishonesty, complete lack of ethics, short sightedness, unrelenting greed, no conscious. and placing profit over national interests.
If libertarians got their wish in a few short years our economy would be devasted as large corporations would leverage their power and take control of market segments, destroy competition and price gouge. Kind of like the oil companies only much worse.
by
Gary Denson (2 articles, 0 quicklinks, 1 diaries, 197 comments)
on Friday, August 24, 2007 at 4:35:39 PM
