I sometimes wonder whether journalists have the slightest idea of how capitalism works.
In recent weeks, we’ve seen breathless reporting on the $2 billion loss at JP Morgan Chase, and now there’s a big kerfuffle about the falling value of Facebook stock.
In response to these supposed scandals, there are all sorts of articles being written (see here, here, here, and here, for just a few examples) about the need for more regulation to protect the economy.
Underlying these stories seems to be a Lake Wobegon view of financial markets. But instead of Garrison Keillor’s imaginary town where “all children are above average, we have a fantasy economy where “all investments make money.”
I don’t want to burst anyone’s bubble or shatter any childhood illusions, but losses are an inherent part of the free market movement. As the saying goes, “capitalism without bankruptcy is like religion without hell.”
Unlike today’s chattering class, King Canute understood limits to power
Moreover, losses (just like gains) play an important role in that they signal to investors and entrepreneurs that resources should be reallocated in ways that are more productive for the economy.
Legend tells us that King Canute commanded the tides not to advance and learned there are limits to the power of a king when his orders had no effect.
Sadly, modern journalists, regulators, and politicians lack the same wisdom and think that government somehow can prevent losses.
But perhaps that’s unfair. They probably understand that losses sometimes happen, but they want to provide bailouts so that nobody ever learns a lesson about what happens when you touch a hot stove.
Government-subsidized risk, though, is just as foolish as government-subsidized success.
I think most journalists would be hard pressed to succinctly describe the difference between a stock and a bond. The form, function and rules regarding puts and calls would be beyond them, and a hedge is something you pay someone else to trim.
Reblogged this on Gds44's Blog.
It’s far worse than you imply. They are trying to get their own failed in the market place mouths on the government teat.
Per Ezra Klein at The Washington Post: “My long held belief is that newspapers should be funded by direct government subsidies” (July 2009).
Per U.S. News: “The idea of a media bailout…it’s something that has been discussed for a little while, but support for the idea seems to be building all the time” (August 2009).
Jon McTaggart, CEO of the American Media Group, openly stated that as a civil society, we don’t trust the free market to provide valuable services, and neither should the media be allowed to suffer because of market forces (December 2009).
Josh Silver, executive director of Free Press, said that the country has no choice but to move in that direction in order to halt the “significant erosion of the fourth estate” (December 2009).
This was discussed not just on the media side of the fence, but on the government side as well. In June 2010, the Federal Trade Commission (FTC) released a draft proposal on bailing out the media as well as potentially using antitrust and copyright laws to shut down the alternative media.
Read more: http://www.americanthinker.com/2012/05/the_media_mess_of_pottage.html#ixzz1vijf33TD
http://www.americanthinker.com/2012/05/the_media_mess_of_pottage.html
I think I just committed a blog faux pas, the first sentence is mine, everything else I lifted from The American Thinker, and in no way do I claim to have written it.
I included the URL (twice) but I wanted to make the source clear.
I like Russ Roberts’ saying (or whomever said it): “Capitalism is a profit and loss system. Profits encourage risk-taking. Losses encourage prudence.”
Makes it easy to see what happens when you remove losses.
I think it’s not only ignorance, but the liberals were probably waiting for just such an excuse to launch a slew of regulations to benefits friends and punish enemies.
Addendum to my comment. I was reading Russ Roberts’ paper on the mortgage crisis and he credits the capitalism statement to Milton Friedman.