The Failure of Capitalism

Capitalism, the Greenspan ideology that free markets will regulate themselves to the greater good, is doomed to fail because it is based on a false assumption.
This ideology, and economics in general, is based on the assumption that people are rational, and that they will follow actions that increase the benefit to themselves. Since most things that benefit the wealthy (monetarily) also benefit others, ie: building a more efficient factory lowers costs so people buy more of the product so more workers are employed at the factory. Under this ideology “Greed, for lack of a better word…is Good.” as Gordon Gecko said in Wall Street”.
The problem with this idea is psychological experiments have shown that people aren’t rational in many circumstances. Here are some famous experiments that show how people stop behaving rationally and how this ugly side of human nature lead to the world’s financial meltdown.
“The Asch Conformity Experiment (1953)”
Subjects were asked to take part in a “Vision Test” and were shown a series of pictures with different length lines and asked to say which line was longest. The catch was that the subject was put in a room with people who were told to lie and name the shortest line as the longest. 32% of the subjects would go along with the group rather than trust their own eyes.
This shows that nearly a third of the population will go along with a group, against their own beliefs, even if that group is clearly retarded.
“Bystander Apathy Experiment (1968)”
The stakes were raised in this Experiment as people were put into booths and engaged in conversations, like the Conformity Experiment only one subject wasn’t in on the gag. One person would fake a seizure; the others who were in on it would ignore him. When four or more people ignored the person faking the seizure only 31% of the test subjects (that didn’t know it was faked) offered to help.
How this applies to the Financial Meltdown:
There were clearly investment schemes that had no sound basis, Sub-Prime Mortgage Derivatives, Default Credit Swaps, ect. That people went along with mostly because others were going along with it. Conversely, when business actions were causing people great harm, people would look the other way since everyone else was.

The Milgram Experiment (1961)
Subjects were brought in to run the machines to test people’s learning by giving a test subject an electric shock every time they got a wrong answer. Only the subject didn’t know the machines and the test subject’s response were fake.
The subject was told that whenever the other guy gave an incorrect answer, he was to press a button that would give him an electric shock. A guy in a lab coat (authority figure) stood over him to make sure he did his job.
The voltage started at 45 volts and slowly increase. The actor would yell louder for them to stop. If the subject questioned the experiment the guy in the lab coat would gently tell him everything’s fine and tell him to continue. This would go on until the voltage was turned up to 450 volts and the actor played dead.
66% of the people tested would increase the voltage to the lethal level as long as the authority figure said it was ok.
How this applies to the Financial Meltdown:
Even if a course of action is clearly wrong, two-thirds of people will go along with it as long as a higher up tells them it’s OK. That’s why no one reported blatantly wrong or even illegal actions, but instead just went along.

The Stanford Prison Experiment (1971)
In one of the cruelest Psychological experiments in American History, Psychologist Philip Zimbardo showed it is astonishingly easy to turn decent middle-class college students into sadistic torturers.
Zimbardo took male college students that were all physically and mentally healthy and divided them randomly into 12 guards and 12 prisoners. Then put them in a fake jail for a two-week study.
By the second day all hell broke loose, The prisoners held a riot and the guards sprayed them with fire extinguishers. Then things got bad, the guards psychologically and physically punished the prisoners, doing everything they could to break the prisoners sense of individuality.
Guards would force the prisoners to sleep naked on the concrete floors, deny them the “privilege” of going to the bathroom, and make them do humiliating tasks like clean toilets with their bare hands.
The guards would volunteer to put in unpaid overtime to “work” at the prison.
On the 6th day the experiment was shut down much to the guards disappointment.
This experiment shows that some people when given power over others will quickly abuse it. This experiment and others have also shown that when put in a position of strength, many people will start to hate those that are weaker then them.
How this applies to the Financial Meltdown:
There are bosses who will abuse their power, even at detriment to themselves and their companies. Everyone has worked for, or knows someone who has worked for a company with high turnover.
Turnover quickly cuts into profits with training costs, scheduling costs, and increased paperwork. Yet some companies are actually proud of how many people they fire. This makes the owners and managers feel powerful as they can abuse people that are weaker than themselves, even at the expense of profit. If you look closer at those companies, the management, or sometime just the “elite” management, does everything they can to sanction themselves off from the workers, and they begin to hate their own workers.
Taking this idea higher you get the psychology of the pyramid scheme, the people higher on the pyramid start hating the ones lower down. This feeling of hate rewards them enough that they will take the abuse from higher up. This goes on until you hit the top, where hating and wielding power over those under you becomes the sole reason to be in business.
When you take this in to account, and the experiments that show that it is quite easy to get good people to look the other way when they see something wrong happening it is obvious that no system can regulate itself.
In any social system, if it does not have outside regulation and checks and balances, the dark side of human organizational nature takes over and dooms the system. This is true for Communism, Fascism, and even Capitalism.
In order for any human social system to work their needs to be a strong force to protect individual rights and freedoms or else the ugly side of human nature will cause the system to make abuse and hatred become the sole focus of the system.

1 comment:

  1. Within minutes of reading your post I found a piece in the Idaho Observer, "Rise of the Double Standard," that references a passage from Ayn Rand's "Atlas Shrugged" (1957) and how Rand 'brilliantly foreshadowed exactly what is happening today,' i.e., the collapse of global economies. I felt chilled to the bone recognizing Cheney, Rumsfeld, Rove et al as "destroyers...among men." You can find this article at http://proliberty.com/observer/20081105.htm