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Joined: Jun 2016
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Central banking has been both a blessing and a curse for capitalism. Socialism is just an out and out loser. Capitalism and central bank blessings: An explosion of real wealth in the world. Just a hundred years ago the automobile industry, electric power, flight, radio and many others were all in their infancy. Competitive capitalism fed by central banking fueled ever increasing capabilities at lower costs. True productivity enhancements. Now newer technologies such as robotics, 3D printing, artificial intelligence, genetic engineering are promising a world of abundance that would make some people believe in a socialist utopia. While some of our readers decry the "inflation" central banks have produced they fail to give credit to offsets from the growth of wealth and productivity. On a recent trip to Cape Town, South Africa we were given a tour of some of the "township slum areas". Electric Power was everywhere, as were cell phones, air conditioning, and satellite TV. 50 or sixty years ago, my middle class American upbringing had only the electric power and primitive telephone capability. Even though wealth can be concentrated in the few and the difference between the riches and poorest in the world can seem incomprehensible, the truth is the rising tide of wealth is lifting all ships. Central Bank curse: Rapid military expansion with ever increasing capabilities has led to two world wars and unending regional conflicts with horrific casualty rates. We are very capable of miscalculating ourselves into a global catastrophe. Some say no rational leader would allow us to go down that road. However the world has seen numerous irrational ones - or ones that have a peculiar calculus with blinders to collateral effects. More important is that rational decision making is based on accurate information. Very seldom in a rapidly developing crisis / situation will complete and accurate information be available to decision makers. Central Banker Fallacy: Central bankers are often the most highly trained economists in the world. The reality is that economics is still a very immature science. A lot of what central bankers do is guesswork based on incomplete and inaccurate information. Worse they possess the hubris that they know what they are doing and have a sense of infallibility. The reality is that they fail all the time. The secretiveness of this high priesthood leads many to mistrust them (including top leadership) and the real objectives of their machinations. The fallacies of socialism: It relies on other people's money. The Robin Hood fantasy of taking form the rich to give to the poor. As you take from the rich in ever larger amounts they lose their incentive (greed) to work hard at creating the wealth that people depend on for their handout. It destroys the individual incentive to rise above one's station in life. When you see your neighbor getting paid to do less you start doing less yourself in the rightful expectation you will be compensated the same either way. This is a problem in civil service and some trade unions. The result is a downward spiral in individual productivity. Incentive is destroyed, followed by creativity. Life is inherently unfair. While it is nice to believe that all humans should be equal, the reality is that they are far from it. We all have different sets of abilities: intelligence, athleticism, AND personalities. Interests are translated into skill sets that capitalism rewards uniquely while socialism ignores it completely. Socialism believes all people shred of unfulfilled needs would be basically good. The problem is that people will possess differing degrees of badness no matter what. Central Banking and Socialism One hundred years ago, Thorstein Veblen saw inherent evil in what he termed "conspicuous consumption". He derided wasteful consumption for simple hedonistic pleasure. A problem we are beginning to see again in our own time. His solution was a utopia based on rule by engineers who sought to optimize resources and capital into their most efficient forms for the good of all. Two great experiments in government in the last century sought to achieve this utopia: Marxist Socialism and National Socialism. Marxist Socialism decayed in a morass of petty politics once the iron fist of Joe Stalin became history. Notwithstanding its eventual collapse from lack of incentive, its central planning brought it from feudalism to cutting edge technology in a few generations. The more successful National Socialism brought Germany out of bankruptcy (from a failed central bank) to just a few mistakes away from true world mastery. Hitler's version was thoroughly corrupted by his evil self and followers. While the pre-war years offered potential, Hitler's regime did not last long enough to offer much insight. If Saddam Hussein's version of national socialism can be an example we can see that socialism demands severe constraints on individual freedom and occasional severe punishments to keep in place and maintain incentive based on pure survival. Give me free market capitalism any day, just fix central banking to make it more open - perhaps one day in the not too distant future we can replace it with a decision system based on artificial intelligence.
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