What degree of responsibility does the free market have for current U.S. economic woes?

[Burgold]

It's a funny thing. We always hear about how the government must fix the economy and how the economy is being ruined by the government, but rarely do any fingers get pointed at the businesses that haven't been hiring, that have made horrible decisions, that have chosen to exercise every loophole legal and illegal to avoid paying their due, or have made decisions that they knew were going to explode in their or someone's face soon.

I figure this is because the government is the easiest thing to kick, but the engine of the economy is supposed to be free enterprise. So, I ask, what part of the mess is the responsibility or fault of poor decisions, mismanagement, or maliscious conduct by our captains of industry?

Poll upcoming...

(And to try to forestall stupidity, the purpose of this thread is not to suggest a socialist takeover of all private businesses by the government... I'm just curious how you see the picture)

[No Excuses]

This might be OT to this thread but I absolutely dislike the outsourcing of jobs to other countries. Is there not any kind of limitation to how much a company can take jobs out of our country and have them done by cheaper options in foreign lands?

[Burgold]

Nope, in fact I believe the government still incentivizes companies to ship jobs overseas. Imagine the government paying companies to weaken our economy and lose jobs :crazy:

[Hubbs]

[Burgold]

Should it really be an incindiary question that our market shares some of the blame for economy, Hubbs?

[HailGreen28]

Hell, let's just include Europe and Japan's problems while we're at it, in assigning blame like Obama does....

[Hubbs]

Should it really be an incindiary question that our market shares some of the blame for economy, Hubbs?

You're inferring a lot from a simple popcorn-eating gif.

[Springfield]

I think that there are a number of things that the government can do to make the economy here stronger. I think that a lot of our current problems are due to the "free economy" or "globalization". I'm hardly an economist, but it seems that the free market has been working against us lately.

As far as companies and jobs moving overseas. There must be something that can be done to keep those companies here. More specifically, the jobs that they create. Incentives to keep jobs here would be a start. Some sort of tax break or other advantage to companies that don't outsource jobs. That or some sort of penalty to companies that decide to outsource jobs. The former seems like the best plan to me, but either would force the issue. People don't like calling tech support for an American company and reaching somebody halfway across the globe. Our economy probably doesn't like it either.

As far as illegals. We need some way to fast track them so that they are actually a part of this economy. I realize that many do actually pay taxes but there are the laborers that work for $100 a day who do not. We need to tax all of those folks. Easy work visas, something like that. Something to ensure that the vast majority of the $100 per day that they earn doesn't go right back to Honduras (or any other country other than America). The ability to tax "illegals" or "undocumented workers" or whatever you want to call them will certainly increase revenues.

The two most recent economic busts, the tech bubble and the housing bubble. Both of those can certainly be tracked back to a lack of oversight. Call them greedy dirty companies that were out to make a buck, but if there were better oversight, we wouldn't have had such troubles. Of course hindsight is 20/20, especially when everyone is getting rich because of the lack of oversight... lack of regulation. Now, if you mention that we need to regulate an industry, what does that incite? Discussions of socialism of course. Regulation is an important tool though, to create a fair economy, it's a must. Some politicians will fight strongly against any regulation, and it's a shame. We definitely need more regulation.

So, Burg. Your question is hard to answer for me. Is it the free market's fault because it exploited as much as it could? Is it the government's fault because it didn't prevent such exploitations? Is it the government's fault because we encouraged this free market that in turn exploited as much as it could? It's hard for me to lay blame in either camp, let alone assign a percentage of that blame.

[Burgold]

I'm not suggesting that it is the free market's fault. I'm asking what part in creating this mess we're in has it played? It's clearly a ton of factors, but I thought it might be fun to have an economy thread that looked at something other than government idiocrasy. To me, clearly all sectors of society (government, free market, individuals, etc.) plus external factors like other nations and even natural phenomenon have played a part.

[Springfield]

I'm not suggesting that it is the free market's fault. I'm asking what part in creating this mess we're in has it played? It's clearly a ton of factors, but I thought it might be fun to have an economy thread that looked at something other than government idiocrasy. To me, clearly all sectors of society (government, free market, individuals, etc.) plus external factors like other nations and even natural phenomenon have played a part.

The free market has played a huge part.

Jobs being moved overseas, tech bubble, housing bubble, oil prices, exploitation of cheap labor. It's all the free market. The free market wants to cheat, lie and steal as much as possible. Now, my question is to what affect can the government play a role in preventing or limiting those problems?

America has the highest cost of living (presumably). Why, in a global economy, would a company want to hire an American worker when they could hire an equally skilled worker overseas that works for pennies on the dollar. The only reason is that job can only be performed locally.

[mardi gras skin]

What is the "free market"? We don't operate in a free market (thank God) but I guess you're talking about all the varied businesses based in the US, right?

As I understand it, businesses aren't responsible to the US economy. Their responsibility is to increase their own profits and some businesses have done that poorly. The individual companies that acted irresponsibly in their pursuit of profits should have gone under, allowing those goods and services to be provided by more responsible companies. But some of these irresponsible businesses were too big to fail, apparently, so they continue on despite their failures. I guess these companies that have been bailed out by the US government might have some special obligation to act on behalf of the greater good, but I don't understand the strings attached to their bailouts so I don't know.

As opposed to businesses, State and Federal governments are responsible for their economies, including the businesses generating profits (hopefully) within their economies. They should be regulating their commerce in such a way that it generates a fair environment for economic growth, competition, and innovation. I think governmental failures to regulate properly was the primary cause of the meltdown.

Aside from illegal activity on the part of businesses, I'd say ALL of the responsibility for the economy (as a whole) lies with the government...in up years and down years. I guess you'd also have to account for natural disasters, innovations, wars, terrorist attacks, etc. All those would play a part too, so its not all on the government.

And yes, Hubbs, you know a lot more about this than I do. When you're done with your popcorn, feel free to tear me a new one.

[Burgold]

What is the "free market"? We don't operate in a free market (thank God) but I guess you're talking about all the varied businesses based in the US, right?

As I understand it, businesses aren't responsible to the US economy. Their responsibility is to increase their own profits and some businesses have done that poorly. .

Now, that's a backwards statement. Busisnesses are entirely responsible to the economy. They form the lionshare of it.

[mardi gras skin]

Now, that's a backwards statement. Busisnesses are entirely responsible to the economy. They form the lionshare of it.

Ok. Explain the mechanism by which Apple or Target can turn the economy around. I don't understand how that works. As I understand it, they're responsible to their shareholders, not to the economy of the United States of America.

Trade agreements and tariffs, tax policy, regulation of natural resources, infrastructure improvements (and I'm sure I'm missing several others) are functions of the government that businesses react to in their pursuit of profits. Infrastructure investment, taxes, and regulations decided by the government inform businesses about their boundaries and opportunities. If the government wants businesses to pursue profits differently, the government will have to adjust their policies.

[Darth Tater]

Voted for commie go home but that doesn't really say that the FREE MARKET has nothing to do with the economic "woes", don't confuse how most modern businesses operate IN the free market. The current economic situation is a result of treating the economy as a machine as opposed to the organic thing it is. One of the primary tasks of the free market is to prevent the marginal failures by signalling that no more resources should flow to them. Almost all of what government does economically has been about obscuring those signals so instead of the failure being at a margin where only few are hurt (or maybe just look elsewhere for economic opportunity) and driving that margin to the point where failure is now catastrophic. The government (this includes many businesses who actively take part in creating the pure rent opportunities that are created by taxation, regulation and privatization) have operated on the free market like a pain killer might operate on a person who touches a hot stove. If you touched a hot stove, you'd probably pull your hand back immediately while the person who has taken the pain killer leaves his hand on the stove until he smells his burning flesh.

[ACW]

:chestram: to DT.

[Burgold]

Ok. Explain the mechanism by which Apple or Target can turn the economy around. I don't understand how that works. As I understand it, they're responsible to their shareholders, not to the economy of the United States of America..

They're responsible to their shareholders which means that they are responsible to their community. Each corporation is a piece of the puzzle that generates wealth for the country, for themselves, and makes it possible for each of us to have the quality of life that they do. The idea that a company has no societal responsibility is in part the problem itself. Everyone looks at the world from such a short term, myopic angle and this thinking in the long run kills us. What's worse is that they are very aware that they are killing themselves, but for the sake of the short term high they continue to do so.

The corporation needs America to be healthy to buy its products, to create a safe environment so that they can produce their stock, and this symbiosis is something that seems particularly lost in the worldview I think I am hearing from you at this moment. So yes, Target and Apple do influence the economy in microcosm which in turn impacts the macro.

[mardi gras skin]

What's worse is that they are very aware that they are killing themselves, but for the sake of the short term high they continue to do so.

Apple and Target? I don't think so. Of the tens of millions of businesses in the in United States, how many of them are killing themselves for a short term high?

Aside from the broad brushing, you're falling in to the same trap Greenspan fell in to. You expect an a-moral organization to act morally, then criticize them for acting immorally.

http://www.robertfritz.com/index.php?content=writingnr&news_id=123

Alan Greenspan's Faulty Assumption

I do not join with those who would villainize Alan Greenspan and see his wrong assumption explanation as disingenuous. In fact, I think Greenspan is intellectually honest and is cutting right to the chase. He had made a wrong assumption, partly because of ideology, and partly because of his lack of understanding of the structural dynamics in play.

And what was that assumption? That people, especially those in charge of some of the largest and most powerful financial organizations in the world, would be guided by self-interest.

Well, there is self-interest, and there is self-interest. What Greenspan meant was enlightened self-interest. What actually took place was a more primitive form of self-interest in which the focus centers on personal gain, greed, and power, often to the devastation of the whole. Enlightened self-interest allows for the insight to choose long-term benefits over short-term gain, when they are in conflict.

One thing that Greenspan did not know was that organizations, especially corporations, are a-moral. They are not immoral. They simply do not run themselves by higher aspirations and deeper human values. Left to their own devices, they will always gravitate to the short-term, often to the detriment of the long-term. The short-term focus has driven many corporations to obsess about their quarterly performance. Too often, this myopic view hurts their long-term sustainability. People take actions that are good from a short-term perspective, but harmful from a long-term perspective. That is why over the last number of decades we have seen the oscillating pattern of building up capacity, and then downsizing, and then, later, building up capacity again. The overall impact is to never have an adequate workload/capacity balance, and people within the organizations are worked to the point of chronic stress, strain, and inefficiency.

The Leadership Factor

And here's where leadership becomes the critical factor in all of this. Organizations do not have values. People have values. Left on its own, the organization will lose its way like a ship without a rudder. The leaders job is to make sure that higher organizing principles guide critical decisions, so that the longer-term health and well being of the company can be build on a stronger and stronger foundation.

The great leaders always come to profound critical decision points in which the immediate gain, often very attractive, often supported by Wall Street, must be rejected in favor of higher order values. Great leaders have learned how to say "No" to things that might hurt in the long run.

Greenspan counted on great leaders. What he found was a group of self-serving operatives who could only think in terms of the "now", and had no sense of future. His blindness came from his ideology, as will always be the case with any ideology. Ideologies impose fixed conceptual frameworks on reality, thus making reality hard to observe. Ideologues are impractical because of this factor. They find it hard to rethink reality until they are forced into a crisis of faith. This is true for economic, political, religious, and even scientific ideologies. Greenspan said that he "found a flaw" in his ideology and said that he was "distressed by that."

The structural conflict between short-term and long-term will always be with us. It is built into our organizations, and it is built into our lives. Do we eat the banana split (short-term) or do we stick to our healthy way of eating (long-term?) Do we grant mortgages to people who can't pay for them, especially when the terms change to beyond their means, or do we refuse, even though it might seem we are not doing as well as our competitors?

I have seen great leaders choose higher-order values consistently and consciously. They are not ideologues, but builders, creators, and true leaders. They are practical, visionary, guided by larger aspirations than the mindless mantra of share holder's return on investment. They are tuned into the reason the company has investors in the first place, often to support a good or great purpose. Leaders like Bruce Bodaken of Blue Shield of California (my co-author for The Managerial Moment of Truth), William Brandt of American Woodmark, George Barrar of LaFrance, Bob Swiggett of Kollmorgen, Terry Ortynsky of Ortynsky Automotive, and many more who, time and again, make decisions that uphold the long-term values of their organizations. They are not subject to fall into the pit of short-term folly.

We cannot always count on great leadership, especially in the financial world. This is what we discovered in 1929 when the stock market crashed leading to a world wide depression. The regulations that FDR put into place has lead to stable banking for over 60 years. But the financial institutions that were leading the sub-prime mess were not subject to these regulations. They were free to self-organize. And, as one thing lead to another, they were free to drive off a cliff.

A free market is a nice idea. But as an ideology, it is tragically flawed. Without proper and sensible regulations, some people will put melamine in milk to gain more profit, even though it will lead to illness and death in children. Most towns have building regulations and codes to prevent electric fires, collapse, and harmful materials and to protect people from peril. In America, we have the FDA, which regulates pharmaceutical products and food safety.

A society has a right to protect itself from harm. Yet its ability to do so diminishes when ideologues gain control. This may be the shocking lesson that Alan Greenspan has come to learn. Too bad the rest of us must pay the tuition.

[Tulane Skins Fan]

The free market is as responsible as any other singular entity. Greenspan admitted that the free market failed in a way that he never imagined possible.

[isle-hawg]

Biggest part is we have gone from a manufacturing giant to a debtor nation who makes next to nothing and buys most products from others nations (who hate us - see middle east and china) while borrowing from them at the same time. Add in most Americans would rather purchase their **** for less dollars then paying a few extra dollars to employ a fellow American - yeah that part of the free market is not working so well for us.

[DRSmith]

Biggest part is we have gone from a manufacturing giant to a debtor nation who makes next to nothing and buys most products from others nations (who hate us - see middle east and china) while borrowing from them at the same time. Add in most Americans would rather purchase their **** for less dollars then paying a few extra dollars to employ a fellow American - yeah that part of the free market is not working so well for us.

But keeping jobs away from union thugs and being able to buy all sorts of stuff at dollar stores and Walmart is good for making the dollar stretch further.

Who cares if moving jobs overseas hurt the country in the long run in the short term it lowered the cost and helped people get quarterly and yearly bonuses.

We need to do more to help the job creators of jobs over seas and minimum wage jobs in America

[twa]

The free market is as responsible as any other singular entity. Greenspan admitted that the free market failed in a way that he never imagined possible.

Right after we bailed them out, there is no free market as a single entity and to try to assign blame to a whole is foolishness

You want degree of blame for individual units?...start naming names,it's a long list

I agree with Mardi

[Burgold]

and that's why they continue to get away with it... whether you call them Enron or Lehman Brothers, or AIG, or Fannie and Freddie or Bank of America or Target, etc. etc. etc.

We decide to give them a pass because they're either too big to grapple with or we don't want to mess with the cheap stuff... or because we're trying to go along for the same ride. Everyone is a part of this and our captains of industry have been robber barons of late.

[zoony]

I blame Obama, socialized medicine, and the national debt.

[twa]

Everyone is a part of this and our captains of industry have been robber barons of late.

?

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest"

They are to blame when we and the govt (as a extension of we) do not protect our interests?

It's hard to scam an honest man,but easy to play a victim afterwards if ya bite.

[Burgold]

I would argue that they are to blame, we are to blame, and the government is to blame. A triangle is a very powerful shape, but if you keep forgetting one leg, it is not nearly as good a structure to use in construction.

And honestly, it's really easy to scam anyone (in the short run)