On Capitalism




1. The long run becomes the here and now

In response to the classical and Austrian critique of his advocacy of state intervention in the economy, J.M. Keynes once uttered the following 'witticism': 'In the long run we are all dead'. The criticism was that government intervention , while possibly capable of alleviating the short term pain of economic downturns for a while, was apt to store up ever bigger problems for the long term. The government could 'paper over' economic crises up to a point by attempting to resurrect an inflationary boom with interest rate cuts and deficit spending, but this would distort the economy's production structure further, until at some point in the future, an economic bust of exceedingly great magnitude would inevitably ensue. In short, payment for foolish economic policies could not be delayed forever; the damage done by government's tinkering with the economy would eventually be revealed.


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The 'year of the financial flame-out' …

… as Bob Prechter has christened 2008, so far proves to be somewhat depressing for supporters of the free market. Not only do we read that sales of Karl Marx' tedious tome 'Das Kapital' are lately taking off, we have also been witness to the depressing spectacle of Krugonomics being found worthy of a Nobel Prize (as an aside, we have no problem with Krugman being a 'Bush critic').


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Greenspan is 'shocked'

WASHINGTON (Reuters) –

Former U.S. Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is "shocked" at the breakdown in U.S. credit markets and said he was "partially" wrong to resist regulation of some securities. Despite concerns he had in 2005 that risks were being underestimated by investors, "this crisis, however, has turned out to be much broader than anything I could have imagined," Greenspan said in remarks prepared for delivery to the House of Representatives Committee on Oversight and Government Reform.

"Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity (myself especially) are in a state of shocked disbelief," said Greenspan, who stepped down from the Fed in 2006. Banks and other financial institutions need public support, such as the recently approved $700 billion bailout package, to avoid a serious reduction in credit, he said.


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