The Bastardization of Capitalism

I have been meaning to write something about this for awhile now, but seeing this video of Obama speaking to the Chamber of Commerce made me stop studying for my macro test on Wednesday and quickly respond to his comments.

The first words that come out of his mouth are full of arrogance and show a lack of understanding of a market system (most likely because of his hatred of the market system). “But we have to recognize that some common sense regulations often will make sense for your businesses, as well as your families…”

He is basically telling business executives/investors that the government knows better than those who are actually taking the entrepreneurial risk, and then making strategic decisions (through “common sense regulation”) for those executives/investors. In a true market economy, consumers will consume products from the firms that produce the highest quality products for the lowest price. Firms that fail to do so will fall by the wayside and will no longer be able to compete (in the absence of bailouts, of course). Therefore it is in a company’s best interest to fulfill the demand of the consumer. When miles of red tape are wrapped around their legs due to government regulation, companies instantly become more inefficient and cannot serve their customers as well as they could have otherwise. In the end, companies that are not dictated by the government will make better decisions. These decisions will be a true definition of “common sense”, because they will make or break the success of the company, which is dependent on the happiness of consumers.

Consider this:

With the recent move towards environmentalism, conserving resources and protecting our fragile ecosystems, firms are faced with a new challenge: produce for cheaper while potentially harming the environment, or incur higher overhead and variable costs to ensure the minimization of their environmental impact. This shift in consumer attitude has forced companies (at least the smart ones) to cater to consumer demand, which is to stop destroying the environment. The power of true incentives and consumer demand is much stronger than any government rule or regulation could ever be.

Obama goes on to say, “…the benefits can’t just translate into greater profits and bonuses for those at the top. They have to be shared by American workers…”

Investors and leaders of these firms have two possible outcomes of their actions: profit and loss. When capitalism is bashed for producing exorbitant executive bonuses, billions of dollars in profit, and multi-million dollar mansions for business leaders, the other side of the coin (loss) is disregarded. These people took risks that could have just as easily wiped out their personal assets or got them fired by their organizations. While American workers are vital to the production process, they do not incur as much risk as those at the top (by not spending thousands on college, first and foremost), and therefore are not entitled to as much reward/loss. This system spurs innovation, increased efficiency, and the possibility of achieving what we call “the American Dream”.

A true capitalist structure provides an environment where good ideas and innovation are rewarded with success, and inefficiency, laziness, and satisfaction with the status quo are rewarded with failure. Mr. President, please stop bastardizing capitalism, and let firms take responsibility for their own actions and deal with the consequences of those actions.

~ by rfreeland on February 8, 2011.