How the Government Screws up Capitalism

On the surface I think it is a no brainer that it is a good idea for the rich to give to the poor.  For their to be greater social equality.  That everyone deserves healthcare.  That the world is a better place when even the poor have access to education, food, shelter, etc.  However, the real question is: Are those goals met best via free markets (capitalism) or via government intervention?  I say, in almost every situation that we are best suited by letting the market decide, maximizing liberty, and minimizing government intervention.

Housing is a prime example of government intervention for an apparently just cause going terribly wrong.  When the government has the power and the desire to effect markets we’re in big trouble.  When you take into account that every loan a bank gives out is a business decision, a risk, that the borrower will not pay them back – it makes since that not everyone can or should be trusted with a loan – especially one large enough to buy a house.  It is just human nature, I’m sure you have a few friends or family members that you wouldn’t trust a $200,000 loan to!  The government took all risks away from the banks though and gave them free reign to give loans to virtually anyone – and the promise on profit even for bad investments.  The banks via the government intervention basically loaned out your money.  When the housing bubble burst – we all wondered why it happened.

According to Judge Andrew Napolitano,

“It was the givernment that created the Department of Housing and Urban Development (HUD), which guaranteed billions of dollars in loans.  And, of course, if a loan is guaranteed by the government, there is no reason for a bank to look at the borrower’s ability to return the money.  Slowly, too, HUD lowered its standards, and the government’s approval for granting mortgage insurance became almost automatic.  Such guarantees brought about new banks, like Countrywide Financial, which were opened around the nation, centered on serving that portion of the population that could not get “prime” loans because of poor credit history, and providing them with “sub-prime” mortgages, sometimes with no money down, to by houses they could ill afford…

[After the housing collapse] Many of those who had invested were investment banks, which then had losses of billions, and they collapsed as well.  The market went into free fall, largely because the government induced and forced banks to loan to people with poor credit, because it felt that everyone deserved affordable housing and so it had to provide it, through any means necessary. But what the government tends to forget is that there is no such thing as a free lunch.  So now, we will soon be paying in higher taxes and inflation for the so called “affordable housing” that the government was desperate to provide.”

Basically, what we saw was government intervention that lead to business failure – it ultimately hurt the very people we were hoping to help. When the market crashed did the government bail out those folks who were losing their homes? No. The businesses were the only ones who profited from those type of lending practices, profited from the failures, and continue to profit today. All to extend the dumb idea that it is a right to own a home! As the Wall Street Journal put it “their profit is privatized, but their risk is socialized.”

The market does not need the government to ensure prosperity – the market has the people and profits to stabilize it. The only role of the government is to ensure fair play (prevent predatory practices, bribery, etc.). Those companies with the best products and business practices will succeed and prices will naturally be driven down, product quality be driven naturally up, and all without the government interfering with tax dollars.

For example, The United States Post Office has a monopoly. If a competitor was allowed to enter the market prices would be driven down due to competition and quality driven up. The only role the government has is to ensure fair play, that is, that one company didn’t illegally threaten the other (like with violence) and that they are not harming the people (like with nuclear radiation or something). Instead we have prices set artificially by the government, no competition, and quality suffers! There is no risk in providing bad quality because there is no competition, no innovation because there is no incentive to innovate.

The fact is, it is the Governments job to protect the people and promote fair play – NOT to artificially affect the markets. That type of intervention always fails! Require power companies to be safe to the environment and the people, require Pharmaceutical companies to test and produce reasonably safe drugs (or at least be honest with the people), require banks to disclose with honesty their financials and prevent fraud, but dear Government STAY OUT OF THE MARKETS.

The government, in the long run, hurts the poor – not help them. Tax dollars are inevitably used on War – which recruit the poor and uneducated to do the worst of the fighting. Tax dollars inevitably bail out the rich bankers – and leave the poor as house-less as they started. Government programs ultimately become a drug that the poor are dependent on like drug users – and they never get off. Free food and money is an incentive to never better yourself, to never gain skills, and to stay down – right where the rich government wants you!

Having said that – all government programs are not evil. Such as public education (while flawed). I know I wouldn’t be the man I am today had I not had a public education – my parents just didn’t value education like I do today. Other programs, like welfare, undoubtedly provided incentive for my parents not to work. I guess, in the end, all one can do is give those who will a chance to succeed.

I’m open to your thoughts about the role of government.


2 thoughts on “How the Government Screws up Capitalism

  1. jon

    I’m basically with you on this Att. Not everything is a government responsibility – and like you say, individual choice can be encroached upon by even well-intentioned government programs. On the other hand, I’m grateful for interstate highways (and glad there weren’t a bunch of profit-motivated individuals all trying to f**k up each others’ private highways. 🙂 I’m willing to forgo some individual liberty in order to have a rational highway system. But definitely, as you say, the government should mostly be ensuring opportunity (anti-trust, etc) rather than ensuring prosperity.

    1. Atticus Finch

      Yeah, the government has its role, no doubt about that. I enjoy my public parks, highways, and even a strong national defense. On the other hand the Government often hires subcontractors to plan public parks and build roads, so there is a balance there too.

      Things that effects everyone (i.e., the air we breathe, the water we drink, the highways) are tricky issues that a governing body should probably have some say in.


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