Laissez-Faire that never was
This morning I read an article on Forbes.com by Nouriel Roubini contending that Laissez-Faire Capitalism has failed. My only question is where did it exist that it has since failed?
Our economy and markets are highly orchestrated machines, rising and falling through interest rates, changed by among other sources, the Federal Reserve. The simple fact that they change interest rates means that they can change the actual value of the very money in your pocket. Even if that were the only factor, huge amounts of policies make economic tides wax and wane the value of goods at home and abroad.
For instance, let’s talk about rice, something that I can actually comment on with personal experience. One of many U.S. farm subsidies, rice is a staple crop eaten several times a day by the majority of the world–for God’s sake just think of Asia alone. With subsidies, a U.S. farmer can be paid–let’s say 50¢ per unit of rice just to grow rice and not wheat or another crop. Now how does that affect the market? Well, let’s say that all things considered the market cost of a unit of rice is $1 however, any U.S. farmer with a subsidy can sell his rice for 75¢ or even down to 50¢ per unit and still make the same or more profit as an unsubsidized farmer.
My first hand knowledge of this matter came from being in Korea in March 2007, where I saw a massive protest of a trade-negotiation between the U.S. and Korea. The fear, of the unsubsidized Korean farmer is that he will instantly go out of business when “50¢” U.S. rice hits their shores. I think there’s a disconnect in still advocating “voting with your dollars” when talking about our faux-faire economies because when economies are orchestrated with economic weapons such as this, people are left with little choice but to vote with their stomachs.
I find that life is much simpler when based on simple principles. Instead of so many of the lofty, nonsense ideas being thrown around as to why the world is in this economic slump. Let’s put it in plain terms:
Consider kids playing marbles on the playground. Some kids have blue marbles, another red marbles and for fun a third party with green marbles. They like to buy new marbles (or manufacture them) and then trade them for variety. The maker of blue marbles has an advantage because he can create money out of thin air to buy marbles whereas red and green marbles require collateral, let’s say gold or silver to actually get more marbles. Because the blue marbles can become instantly abundant, he can let people borrow his marbles but at a cost of, red marbles–which can be quite valueable. Within the blue marbles, they have such little faith in this borrowing arrangement that they can even make bets amongst themselves that red won’t be able to pay up when it comes time. The same thing with the green faction, she’s betting that red will fail and is even borrowing blue marbles to back the green ones that she’ll lose if red fails. Needless to say red didn’t quite make his debts.
My story is convoluted and ridiculous in its nature, and that’s the point. Children are smart enough not to do silly things like that with their marbles. Laissez-faire marbles would mean that you play with what you have, for what it’s worth as determined by the people you’re selling to–the market. It worked just fine with wampum, frog skins, furs, gold, silver, lots of currencies until central banks got involved, then “like magic” it failed. Liquidity is great, but try building on it.