The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

Economics 101: The Kondratiev Wave and the Value of Loss in Capitalism

Posted by iusbvision on March 5, 2010

Capitalism is a profit and loss system. Profit rewards good ideas, good management, satisfied customers, and reasonable risk. Loss punishes those who take foolish risks, manage badly, abuse customers, etc.

Loss often saves companies and jobs. When the government bailed out the airlines decades ago, they still went bankrupt did they? But after they did the airlines reorganized and did better. Some airlines went under and they were bought up by the good ones so parts of those companies were preserved. When Studebaker went under the good parts of it were bought up. If GM had been allowed to reorganize under bankruptcy or if the good parts of GM would have been bought up the company would have relaunched itself likely better than the position it is in today.

On the long-term macro-economic scale, the government, keynesian theory, and socialist/progressives try to stop that wave or its impact; doing so is often foolish and damaging to an economy in the long-term.

Government tries to prop up the economy in the down cycle or during recessions by spending and rewarding loss with bailouts so that the utility effect of loss isn’t allowed to progress as it should. The ill-conceived stimulus package is an example, while a small percentage of it was helpful, most of it was good money after bad.

Glenn also talks about how capital and investments go where they are treated well. China has lower corporate taxes and capital gains taxes than the United States. China also does not have a problem with political ideologues bent on punishing wealth.

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