The collapse of U.S. markets proves the system works

At the time of this writing, the American Senate with the blessings of both Obama and McCain passed a bill allowing for more than US$700 billion in bailout money to stabilize the U.S. economy. As of last Friday the House of Representatives has succumbed to the pressure and voted again on the bill it already turned down, this time passing it. The $700 billion apparently needed to fix the economy, the war in Iraq and the massive federal deficit indicates to me that the United States needs a good smack to get back on track, and this economic collapse is exactly that smack.

Regardless of how well this money is managed by the less-than-thrifty spenders to the south, I’m pleased to announce that I finally think globalization works as advertised.

Basically, the current crisis stems from investors removing their money from financial institutions in the U.S. because those institutions made many bad financial decisions. If I was to put my money up to support an acquaintance of mine who claimed to be making sound investments, I’d be stupid not to take my money back from him when I found out later that a lot of the loans he was counting as earnings were never going to be paid back, that actually he lent too much of his money to people that would not be able to ever pay him back. If this acquaintance, I’ll call him “Frankie America,” made a lengthy series of these unsustainable investments, then he deserves to go belly up. Further, imagine what would happen if many institutions like Frankie’s friends and competitors were also making the same types of decisions. This, in a nutshell, is a simplistic way to understand what has occurred in the U.S. financial markets.

Think of how strange it would be if our government was to bail out Maple Leaf Foods because it screwed up badly with the recent listeriosis outbreak. Sure it was an accident, people may lose their jobs, and investors lost some money, but bailing them out, well that’s just not how the free market works. No one is going to back a company in the wake of a major error simply because they may cease to be profitable.

It’s not how globalization should work either. One of the few good qualities about globalization is that it makes commerce faster, forcing companies to compete in a Darwinist climate of survival of the fittest. If Frankie America can’t hack it anymore, the system is designed to destroy him in order to make room for companies and nations that are able to compete. Basically, this market crash, like similar ones that have hit South Asian and South American nations, is the market’s natural way of punishing those who don’t conduct themselves in a way the investors find profitable. Frankie America, for example, mismanages the money you gave him, so acting rationally you should take the rest of it away and give it to someone who you think will manage it better. It is this scenario that causes stocks, bonds and currencies to fall.

It is for this reason, and because of the fact that Americans applauded the free market for so many years, that I am against the bailout on principal. The South Asian and South American nations were not afforded the same bailed options when their economies collapsed. They were forced to reform in ways that were favourable to America. They would surely never be allowed to print more money to pay their way out, which is what the U.S. plan calls for. No, these poorer, weaker nations were told to suck it up and reform their markets or else the investments would not return. The IMF and The U.S. government manipulated these nation into adopting long-term free-market reforms which caused suffering to their people by making their governments adopt a system that makes it difficult to ever pay off their debts. The IMF and U.S. government told these nations that if they free up their markets allowing more foreign investments the markets would fix themselves once the investors are assured that their economies were strong and robust. America in the meantime stood as both the force that pushed globalization forward, and the leading example of globalization’s success. However, in a free market global system your company or country is not supposed to be protected; to compete fairly they’re supposed to dig themselves out the hard way, with hard work and major reforms. Basically, the system America pushed for pushed back and when this happened the U.S. government chose to temporarily disband their free market ideologies in favor of a quasi-socialist manoeuvre something no other nation would ever be afforded on America's watch.

Now I know that failing to bail out these major American institutions would have caused great hardship on both sides of the border, and would likely cause the U.S. recession to deepen. But the bailout is a short term band-aid that will spend a lot of money and make Americans appear like even bigger hypocrites than they already do. The bailout will not do what a major recession would — make Americans demand a stronger, less volatile economic system. Or in other words, the bailout will prevent a much-needed extreme makeover, globalization edition.

Like Michael Silicz pointed out last week, such a recession could cause America’s place on the world stage to be contested, however I personally do not believe that they are somehow the necessary de facto world government. I think that whichever country is the strongest should be on top, and if Frankie America and his chums can’t keep money coming without building straw castles, then perhaps it’s time for a little fluctuation. Change will be painful like puberty, but it's not always a bad thing. Often times, like puberty, it's necessary.

This crisis is serious (if you’re inclined to care about money), but the bailout will only help keep the same global system going, inhibiting any real reform. What occurred was not a glitch, but what the system was designed to do. Now that the U.S. is feeling the pain that many other nations have experienced, maybe it will be less inclined to promote this effective but unsympathetic economic system. The system was never about people, rather it was always just about profits. Because of the bailout, the system, in time, will return to business as usual; as opposed to allowing us to return to a system with more protections for the businesses and workers alike.

At best the current economic crisis is a long-awaited wakeup call that screams in bold red, white and blue letters that free market globalization is not a humane way to organize society. It builds great wealth, but that wealth can be taken away with the clicks of a million mice whose operators can bid away your place in the world in seconds. At least now we know the free market treat all bad economies with equal disdain. Just a final thought, how much money must a country print before it’s at par with monopoly money?

Corey King has no idea who he is, but he knows “Corey King” refers to him.