Many talking heads and politicians try to sell their policies of allowing large market players to take profits by prevent markets from functioning properly as capitalist. They are not. Unless liaise-fare capitalism throws out the primacy of free markets being used to aid society by allocating economic resources efficiently it isn’t either. If it does, using the word capitalism is just obfuscation, because it isn’t capitalist.

Crony capitalism is a better phrase for what we have been practicing. Though using the word capitalism is misleading. Even better would be politically supported corporate cronyism. We have elected those that pursue this anti-market approach. And we watch them in great numbers on TV based on what is supposedly popular. But I really hope we can turn away the claims of capitalism somehow being consistent with the crazy things people have done.

Pushing a political desire that anti-government and calling it capitalism doesn’t make it so. Capitalism at the core is about a system that allows markets to efficiently allocate resources to provide the greatest societal good. It is based on markets working. Capitalists know market players will try to prevent markets from working to gain themselves. To support capitalism you need to design systems that deal with this weakness otherwise you are not talking about capitalism you are talking about something else. Something that where anti-market forces which undermine the basis for why capitalism is a useful method for societies to gain economically is subverted to a desire to support those that can buy political power.

I have written about this some, as I care about it: Economic Consequences Flow from Failing to Follow Real Capitalist Model and Living Beyond Our Means – A Free Market is not One with Monopolies and Oligopolies – Mis-representing Capitalism

It is very simple. Adam Smith understood it and commented on it. If you allow businesses to have control of the market they will take benefits they don’t deserve at the expense of society. And many business will seek every opportunity to collude with other businesses to stop the free market from reducing their profits and instead instituting anti-competitive practices. Unless you stop this you don’t get the benefits of free market capitalism. Free markets (where perfect competition exists, meaning no player can control the market) distribute the gains to society by allowing those that provide services in an open market efficiently and effectively to profit.

Those that conflate freedom in every form and free markets don’t understand that free markets are a tool to and end (economic well being for a society) not a good in and of themselves. Politically many of these people just believe in everyone having freedom to do whatever they want. Promoting that political viewpoint is fine.

When we allow them to discredit free market capitalism by equating anti-market policies as being free market capitalism we risk losing a great benefit to society. People, see the policies that encourage allowing a few to collude and take “monopoly rents” and to disrupt markets, and to have politicians create strong special interest policies at the expense of society are bad (pretty much anyone, conservative liberal, anything other than those not interested in economics see this).

When people get the message that collusion, anti-competitive markets, political special interest driven policies… are what free market capitalism is we risk losing even more of the benefits free markets provide (than we are losing now). That so few seem to care about the benefit capitalism can provide that they willingly (I suppose some are so foolish they don’t understand, but that can’t be the majority) sacrifice capitalism to pay off political backers by supporting anti-market policies.

Allowing businesses to buy off politicians (and large swaths of the “news media” talking heads that spout illogical nonsense) to give them the right to tap monopoly profits based on un-free markets (where they use market power to extract monopoly rents) is extremely foolish. Yet the USA has allowed this to go on for decades (well really a lot longer – it is basically just a modification of the trust busting that Teddy Roosevelt tried). It is becoming more of an issue because we are allowing more of the gains to be driven by anti-competitive forces (than at least since the boom trust times) and we just don’t have nearly as much loot to allow so much pilfering and still have plenty left over to please most people.

I am amazed and disgusted that we have, for at least a decade or two, allowed talking head to claim capitalist and market support for their special interest anti-market policies. It is an indictment of our educational system that such foolish commentary is popular.

Free Texts Pose Threat to Carriers

This is exactly the type of behavior supported by the actions of the politicians you elect (if you live in the USA).

It is ludicrous that we provide extremely anti-market policies to help huge companies extract monopoly profits on public resources such as the spectrum of the airwaves. It is an obvious natural monopoly. It obviously should be managed as one. Several bandwidth providers provide bandwidth and charge a regulated rate. And let those using it do as they wish. Don’t allowing ludicrous fees extracted by anti-free-market forces such as those supporting such companies behavior at Verizon, AT&T…

Related: Financial Transactions Tax to Pay Off Wall Street Welfare Debt – Extremely Poor Broadband for the USA (brought to us by the same bought and paid for political and commentary class) – Ignorance of Capitalism – Monopolies and Oligopolies do not a Free Market Make

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The current frustration with economic conditions in the USA and Europe has at its core two main elements. First the anti-capitalist concentration of power in a few monopolistic and oligopolistic corporations (along with the support and encouragement of governments and the governments failure to regulate markets to encourage capitalist practices). And second the consequences of living beyond our means finally becoming much more challenging.

What we have had has been very questionably capitalist. The largest reason for this “questionable” nature is not related to labor but instead to the inordinate power given to a limited number of large corporations. The corporations are suppose to not have “market power” in real capitalism. They have huge and growing market power. To me the main problem is that power disruption to the functioning of capitalist free markets.

There is also the problem that we have been living far beyond our means. This has nothing to do with capitalism or not capitalism. It is as simple as you produce 100 units of goods and use 110 that can’t continue forever. The USA started building a surplus in the 1940’s, I imagine Europe did in the 1950’s. Since about the 1980’s both areas have been living far beyond their means. While they were consuming what they saved over the previous decades it wasn’t so bad. While they mortgaged their future to live lavishly today that was worse. We continue to live beyond our means and are beginning to see some consequences but we haven’t come close to accepting the lavish lifestyles we enjoyed (while Europe and the USA lived off past gains and off very advantageous trade with the rest of the world) is not possible any longer. We can’t just have everyone in Europe and the USA live exceeding well and the rest of the world support us. Eventually we have to realize this (or in any event we will experience it, even if we don’t realize it).

Those 2 factors need to be addressed for our economic future to be as bright as it should be.

Related: Too big too fail, too big to exist – Using Capitalism in Mali to Create Better Lives – Creating a World Without Poverty

The USA has extremely poor broadband service (compared to other rich countries). It is slow and expensive. Those that support economic policies more in line with the USA than other nations have a great deal of explaining to do about why the options are so bad. It is similar to the broken health care system.

Those that support politicians leading to this state for broadband say they support “free markets.” In actuality, they support anti-competitive practices by extremely large companies (oligopolistic behavior). Free market theory (the original form) requires that no individual company can dictate to the market. You have free competition – no barrier to entry, no restraint on entry, customers can buy where they want… But the politicians we elect instead support policies and practices that restrain free trade and prohibit good solutions in order to benefit those that pay the politicians well. And then we vote for those politicians.

Those wanting the anti-competitive markets have won in our political system. The main thing I wish was clearer was that we stop pretending these people have some capitalist leaning. They are anti-capitalist. If they want to support the policies they do I wish they would be required by the voters to at least be honest. Unfortunately the voters elect them with their dis-honest representations. If the politicians were honest they would have a more difficult time being elected (because voters want to pretend they like capitalism even while voting for politicians that just seek to give special benefits to those that pay the politicians. And then the politicians claim to support markets, and business and consumers when really they just favor making anti-market legislation and regulation to favor their contributors. As long as we vote for people that claim to support capitalism but undermine it at every step to help their friends we do deserve to suffer. I just wish we could convince enough of our fellow citizens that flashy propaganda and repeating lies over and over isn’t the same as facts and truth.

1Gbps fiber for $70—in America? Yup.

Given the anti-competitive policies in the USA, if they have much success they will probably just be bought (or maybe as others suggest fought in other anti-competitive ways, but buyouts are normally easiest for actually strong competitor) to allow anti-competitive pricing and service to continue. The only real hope is someone with actual power sees it in their interest to fight against the entrenched interests. Google is the best hope I think. It isn’t that Google has nearly as much political power as those interests but they are smart and have the advantage of just having to expose the anti-competitive behavior and apply pressure.

The narrative the politicians and voters say they support is capitalism. But the reality is just those with the gold make the rules. But when this is made obvious and continually pressed by someone with power, clout, intelligence and political savvy it makes politicians and regulators hesitant to continue business as usual. Normally they just delay for a few months and then continue the corrupt practices. Google, plus others, plus lots of individual interest can fight that off – but it takes perseverance.

Related: USA Broadband is Slow. Really Slow. – Plugging America’s Broadband Gap – Eliminate Your Phone Bill – Net Neutrality: This is serious

I read various things stating that the USA is behaving in socialist (or similar ways). And there are often attempts to state that what the writer desires is capitalism and what they don’t like is an attack on motherhood, apple pie and capitalism.

I’m not sure when or where those writers would say capitalism did exist. It is true we have corporations using their power (political power and market power [oligopolies, monopolies]) to serve their interests. This would not surprise Adam Smith at all, from the Wealth of Nations:

He knew that is what they would attempt to do and said they had to be regulated to allow capitalism to function (but many that say they want capitalism don’t want any regulation of the sort they don’t want). Some seem to agree that some regulation is needed but any regulation they don’t want is seen as “socialist” or “anti-capitalist” or… At least the Libertarians are very consistent about practically no regulation – I question that being capitalism, but at least I understand their position.

Maybe the amount of direct cash payments and sheer amount of not very indirect subsidies (free money from the Fed, huge government contracts to political friends, tax breaks for big contributors [hedge fund managers, corporations using offshore tax havens…], quotas to aid political contributors) have been very high recently. But those changes are more a matter of degree than a qualitative change from the few years before that and few year before that and so on.

I am not sure if people are thinking back to the days when we had large trusts as “capitalism”? Some people equate “capitalism” with essentially no government (no FDA, no SEC, no DoD, no FDIC, no EPA…) – so then maybe the wild west or Afghanistan today is capitalism. I don’t. I would say that we have been become less interested in maintaining a free market (allowing oligopolies and monopolies to exist and distort markets) and an excessive amount of letting those with gold pay politicians to get special deals lately (the last 20-30 years). But it is really just a matter of being worse in those areas not some huge qualitative change.

We broke up trusts for awhile but lately have been supporting those with lots of clout using the clout to prevent competition.

Of course perfect competition is not really reasonable to expect in many markets in the real world. But the aim of shooting toward open and competitive markets is just not something we seem to have paid much attention to for decades. I’m not sure when we did. And paying attention to sensible things like externalities is still very weak. Even in the trust busting era the actions (to move toward a more capitalist economy where markets could function more freely) were fought by many. And while the efforts made a huge difference, it isn’t as though they went to anything close to perfect competition.

Countries like Hong Kong (questionably a “country”) and Singapore do lots of things that are nice capitalistic practices. But they have plenty of practices that are not very capitalistic. I’m not really sure what paragons of Capitalism those that appose regulating markets suggest as better models than the USA. Perhaps they believe the USA is the most capitalistic but it is still not capitalistic enough. A perfectly reasonable positions, I would think, but I am not sure if that is their belief or not.

Related: Ignorance of Capitalism – USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007

I made 6 more loans to entrepreneurs through Kiva today, including the 2 mentioned below. I have now made 227 loans through Kiva.

Christopher Kibubi Wahinya (in photo), Nairobi, Kenya, buys old computers, which he repairs and sells to the local people. He has been in this kind of business for the last four years and he says that the business is profitable. He is using his loan of Kes 50,000 to purchase old computers, repair them and sell to the local people. He plans to grow his business by moving to the ground floor of a busy building where he will stock all computer accessories and later own a computer showroom.

Carlos Alberto Pereira Granados is 43 years old and resides in the town of Cojutepeque, El Salvador. He has a workshop where he repairs sewing machines and sells all types of related parts. His business is located at the municipal market. Carlos Alberto works Monday through Sunday repairing the machines of his customers. He is requesting a loan so that he can buy sewing machines wholesale as well as parts such as bobbins, belts, hooks, and other items so that he has everything required to perform his work and attract more customers.

Kiva is a great way to support entrepreneurs. I try to focus on loans I think will benefit the borrower and grow the economy (not always easy). One of the things I try to watch is the “portfolio yield” (which is similar to Annual Percentage Rate) – the lower the better. Some banking Kiva partners are charities or partially funded by charities and therefore can 1) fund some of the administrative expenses of the bank and 2) are focused on helping the customers not making a profit. I would rather have my money used where it most helps entrapranuers so the lower the rate the better.

I encourage you to join me: let me know if you contribute to Kiva and I will add your Kiva page to our list of Curious Cat Kivans. Also join the Curious Cats Kiva Lending Team (the team has now lent over $7,500).

Related: Micro-credit Research – 100th Entrepreneur Loan – MicroFinance Currency Risk

As I have said previously, capitalists support the estate and inheritance taxes. Not those that see themselves as nobility, and call wish to be called capitalists, that want to reward the children of the wealthy (because we all know they need more advantages than they already get). While the Democrats voted in favor of capitalism (letting those who earn wealth prosper) instead of supporting nobility, as has been the recent trend, they did so only for the richest few. So they decided Kings and Queens should not pass all their wealth to the kids (still they can pass more than 50% of it – oh don’t you feel sorry for those poor kids you might have to get just $3.85 million instead of the $7 million they “need”). So the Democrats decided all the children of Lords, Dukes, Earls… should not have to have their trust funds impinged in any way.

Isn’t it amazing how little the children of wealthy are asked to share in the huge inheritances they get. But until the economic literacy of the country improves they are able to pretend noble blood lines passing down huge fortunes are not just those with the gold making the rules.

You might notice the government is in pretty desperate need of money. But some still think asking the kids of the super rich to part with some of their inheritance is too much to ask. I wish they would learn about economics. It is not capitalist to reward being born in the right house with more cash than than many will every earn working 40 plus years (a 50% inheritance tax on the super rich is less than it should be – and it shouldn’t be just the super rich that pay inheritance tax). Maybe exempt $1-2 million and index that. The next million at 50%. Then increase the rate 5% every million. I don’t really see any need to give some kid $100 million because they happen to have been born to a rich parent. Capitalism is about rewarding economic productivity not the birth lottery.

Related: Rich Americans Sue to Keep Evidence of Their Tax Evasion From the Justice Department – Killing Capitalism in Favor of Special Interests – Ignorance of Capitalism – Charge It to My Kids – Buffett on Taxes

Two Professors Argue About the Invisible Hand – And Both Get it Wrong too

Related: There is No Invisible Hand – Myths About Adam Smith Ideas v. His Ideas – Not Understanding Capitalism

Peet’s Coffee: In Africa, Brewing Good Works by Steve Hamm

A good effort. Real world issues confront you when you take steps to build the capacity for capitalism to help people live better lives. We need more such efforts to help capitalists make better lives for themselves around the world.

Related: Bill Gates: Capitalism in the 21st Century – International Development Fair, The Human Factor – Helping Capitalism Create a Better World – Frontline Explores Kiva in Uganda

photo of Cesar Augusto Santamaría Escoto in his welding workshop, Chinandega, Nicaragua.

I made my 100th contribution to a micro-loan through Kiva last week. Participating with Kiva is a great antidote to reading about the unethical “leaders” taking huge sums to run their companies into the ground (or even just taking obscene sums to maintain their company). The opportunity to give real capitalists an chance at a better life is wonderful.

Kiva allows you to lend money to entrepreneur (in increments of $25). The most you get back is the amount you loaned, and if the entrepreneur, does not pay back the loan then you take a loss. This is something you do if you believe if giving people an opportunity to make a better life for themselves through hard work and intelligent economic choices.

I encourage you to join me: let me know if you contribute to Kiva and I will add your Kiva page to our list of Curious Cat Kivans. Also join the Curious Cats Kiva Lending Team.

My loans have been made to in 32 countries including: Ghana, Cambodia, Uganda, Viet Nam, Peru, Ukraine, Mongolia, Ecuador and Tajikistan. Kiva provides sector (but I think this data is a not that accurate – it depends on the Kiva partners that are not that accurate on identifying the sectors (it seems to me). A large number of the loans are in retail, clothing and food. I like making loans that will improve productivity (manufacturing, providing productivity enhancing services…) but can’t find as many of those as I would like (8% of my loans are in manufacturing, 11% agriculture, retail 18%, 23% food, 25% services (very questionable – these are normally really retail or food, it seems to me).

Some examples of the entrepreneurs I have lent to: welding workshop (Nicaragua), expanding generator services business with computer services (Cambodia), food production (Ghana), manufacturing nylon (Nigeria), internet cafe (Lebanon), electronics repair (Benin), new engine for mill (Togo), weaving (Indonesia) and a food market (Mexico).

Related: Financial Thanksgiving – MicroFinance Currency Risk – Creating a World Without Poverty – Provide a Helping Hand

21 of my loans have been paid back in full. 3 have defaulted. Those figure give a distorted picture though (I believe). There was a problem with a Kiva partner (they partner with micro-finance banks around the world) MIFEX, in Ecuador. Kiva discovered that MIFEX (i) improperly inflated the loan amounts it posted for entrepreneurs on the Kiva website and (ii) kept the excess amount of the posted loan to fund its own operational expenses. Kiva does not expect any further payments on these loans. I had 2, so I think those 2 give a fair impression. The 3rd default is from Kenya. That loan was to a business selling bicycle parts. In 2008, in Kenya, the prevailing political crisis deteriorated and businesses have either been destroyed or closed in fear of looters. Technically the loan did default, however, I was paid $71.50 out of $75 loan (so the defaulted amount was very small.
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