Monday, August 04, 2008

Difference Between Consumerism and Capitalism

One example, the subprime mortgage “crisis”, is the failure of Consumerism, not Capitalism. Producers misread the housing market (most likely because of government intervention) and built too many residences. Buyers assumed housing prices would always go up, and bought houses they couldn’t afford. Suddenly everyone realized their mistake and tried to cut their losses. The bubble popped.

Consumerism seeks to satisfy some innate need for fulfillment through material goods. Capitalism, on the other hand, is using the price system to allocate goods and services to their highest valued use. Capitalism is two sides of the same coin; consumption and investment. If we buy things, we can consume them now. If we save, be it with your local bank or in the stock market, that money is used to invest in future production, to allow for future consumption.

This plea to increase consumer confidence is a hollow plea. If people foresee a recession, and they restrict their spending accordingly, this is not a problem with consumer confidence; it is rational consumers planning for tough times. Instead maybe we should increase market confidence. Sending out tax rebates with no spending decreases, promising tax dollars to more and more government services, and restricting the free decisions of producers and consumers is not the way to carry out that goal. I condemn Consumerism and applaud Capitalism.

4 comments:

  1. Graydon10:24 PM

    As always, my friend, your blog is awesome. I have a question, not a confrontational question just a curiousity question. You mention that instead of increasing consumer confidence, that we need to increase market confidence. In what ways do you increase market confidence?

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  2. Great question Graydon and one I had to think about a while to get a good list together. Mostly the government should allow the markets to work. Here are some examples:

    1) Most importantly it's important for citizens to believe their property is safe. Like a mentioned a couple of posts ago, limiting eminent domain would be a good thing.
    2) Also, the government should be sure not to create moral hazard. That is, don't reward mi sakes or stupidity. This means no bail outs for failed home loaners or homeowners for example.
    3) A final example is stabilizing money. To quote Milton Friedman "inflation is always and everywhere a monetary phenomenon." The government causes inflation when it prints too much money. This is why I support creating some kind of money standard (probably not gold, but something that has a fixed known supply).

    There are surely more ways than the three I just mentioned.

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  3. A little more info:
    http://blog.acton.org/archives/2351-Is-emThisem-Capitalism.html

    ReplyDelete
  4. Wow that was bass akwards. So close yet so far. Capitalism,seeks to satisfy some innate need for fulfillment through material goods. Consumerism on the other hand, is using the price system to allocate goods and services to their highest valued use, and require unlimited resources & Growth.

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You are the reason why I do not write privately. I would love to hear your thoughts, whether you agree or not.