This blog here is my thoughts on the current economic crisis. I believe that the current economic crises resulted from capitalism’s core values. Many people are leaning towards the statement that this crisis is just one more failure of the market economy. I really wouldn’t say that it is one more failure of the market because I’ve learned that markets are usually a good way to organize economic activity in most cases. It is also a good way to regulate competition in the economy because without competition, businesses can charge as much as they want for a product or service, creating a monopoly that can potentially put a nation’s economy in a dangerous situation.
For example, lets say that “Company A” makes the ingredients for corn syrup and “Company A” is the only company in the United States that makes corn syrup. Company A has a great amount of market power and isn’t subject to the competition of other companies. If Company A decides to raise its prices because of the desire to make money (a core value of capitalism), the businesses such as soft-drink companies who use corn-syrup as a main ingredient may have to layoff their workers to remain cost efficient while bearing the effects of the increased price in corn syrup. In addition, “Cereal” type companies also would experience layoffs because of their heavy dependence on corn syrup. As a result also, since production would have substantially decreased in these companies because of their inelastic demand for corn syrup, the workers who drive the trucks for each company or who keeps up with the inventory of each company may be laid-off as well, and as this chain reaction continues, it causes high unemployment rates, inflation, and possible recessions.
Now, I believe that Capitalism’s core values is the root behind the economic crises because the basic purpose of capitalism is to accumulate money or wealth for purposes such as investing, spending, saving, buying, etc. Capitalism allows individuals to own property and decide on what to buy with their money. Capitalism also allows companies to hire who they want, what and how much of a certain product to make without too much governmental interference. I also think Greed is what really failed the market.
Capitalism creates greed and it causes some individuals to do almost anything, whether it’s legal, illegal, ethical, or unethical, in order to maximize their profits while not considering the side effects or future destruction of their actions. Because of these individual’s avarice, these side effects that result may include market failure, which is what the nation is currently experiencing. These individual actions are also referred to sometimes as negative externalities because the actions of individuals that lust after money such as corporations and capitalists causes impact on other individuals or “innocent bystanders”.
One example I will use of a negative externality is the housing market and the loans financial capitalists who were giving “subprime” mortgages to people that could NOT in any way or shape afford to pay for the mortgage. One instance is giving a subprime mortgage to an individual making about $5,000 a year, in which most mortgages costs between about $500/month to about $2500/month or more [not including other bills], so there is no way that individual could afford that loan. However, the greed and avarice of these financial capitalists based on the core values of capitalism such as making/accumulating money, investing, owning property/businesses, etc, is what causes these individuals to distribute these loans to low or no income individuals. These financial capitalists had so much money and was driven by the desire of making more money, they knew that the borrowers were not eligible of paying off the debt, but they gave these subprime mortgages that would have low interest rates that these borrowers could probably pay off for a few years, but would later default on their loans when mortgage rates skyrockets a few years later.
The financial capitalists believed that the value of the borrower’s home would increase and once the borrower defaulted on the loan, the financial capitalists would issue a new mortgage for the same house, but with increased rates and give it to another individual and the cycle would be continuous. However, since housing prices drastically decreased a few years later, these financial capitalists began losing money and the borrowers were stuck with these mortgage rates that after a few years increased two, three, four or more times than their original rates. As a result, many individuals lost their homes and could not afford another place to live.
This would be an example of a negative externality because the actions of some of these financial capitalists and other individuals who had avarice and greed caused a negative impact on “innocent bystanders”, in this case, the borrowers of these subprime mortgages.
This is why I think that the core values of capitalism is what caused the current economic crises because although capitalism gives individuals freedom to accumulate wealth and own property, having too much of anything can actually be a bad thing. For instance, drinking too much water causes water intoxication, consuming too much sodium increases blood pressure levels, consuming too much saturated fats causes obesity, and in this case, having too many core values in Capitalism causes greed and avarice in a free market economy, which could cause potential economic failure.
Currently, “uncertainty” is what is keeping the economy from really moving forward and decreasing unemployment rates. The alleged increase in taxes from the Obama administration is keeping small and large businesses from hiring many or any individuals because they don’t know the effects the taxes will have on their business or the status of the health care plan that’s being proposed by the Administration. Banks are not really lending to many individuals and companies because of the uncertainty that they will receive their money back along with any accrued interest on a loan or borrowed money.
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