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Historically, free-market economies have proven to be more viable than feudal or socialistic styles. Historically, free-market economies have proven to be more viable than feudal or socialistic styles. Market economies also go passably well with democracy in its many forms. However, free-market economies are also fragile and can be subject to abuse in the extreme.

Free-market economies recognize three legitimate forms of capital:

1) property, esthetic works of art, technology, commodities, and similar items of value,
2) human labor, physical and mental, and
3) a medium of exchange between these two, money, checks, and instruments of exchange.

Without proper controls, economic abuses too often arise from simple avarice and human frailties. Such cases usually give rise to economic feudalismwhere powerful companies squeeze out all rivals and form monopolies and cartels. De Beers (diamonds) and OPEC (oil) are well known examples from the 20th Century. Microsoft has now joined them with the blessing of the Bush Administration; it controls more of its market than does OPEC. Monopolies and cartels are universally bad for consumers regardless of how they redefine the language of business. All businesses are subject to the same laws of economics -- and of human frailty. Monopolies and cartels are bad also for democracy (and good for motivating terrorists) in that they enlarge the gap between the haves and have-nots almost without bound.

Market economies flourish because they recognize the legitimacy of private ownership and competition. Blend these features with basic freedom and you have a winner.

Economic opportunity along with personal and religious freedom are like magnets, as migrations to America can attest. Immigrants and their descendants in search of these simple features built most of what is great about America today. There may be better systems and methods, but they have yet to evolve.

Market economies are typically cyclical with expansions following recessions and vice versa. They can be inflationary or deflationary, where the value of money declines or increases respectively. Deflation was a serious problem in the 1930s; it followed the inflationary 1920s. From 1942 to the end of the century, inflation was the byword for most market economies the world over.

When market economies are governed wisely, the gaps between the haves and have-nots are controlled naturally for the good of all. Some of the wisdom is in the writing of antitrust laws that require competition. Only via true competition does the consumer, and the nation in the end, benefit optimally. That is not to say it always works that way. When a nation is headed by a person whose economic game plan favors the rich, laws may be reinterpreted in a sense counter to their writing and propagandized as the top guy sees fit. We see exactly that today in America.

The economy could tank further before the next election. It is in some danger of doing just that. Record low interest rates are barely stimulating. Japan has been in a deflationary cycle for a decade and shows only the beginning signs of being able to dig out.

Over-capacity and high debt-loads combine to squeeze producers of goods for much of the world. Capacity in excess of what is needed is just so much capital tied up, not working. Worse, when capacity has not been paid for, it becomes a double edged swordyour capital is not working and you must pay interest just to maintain that condition. There are always a few companies in this condition that go bankrupt every year. 2002 saw very high rates of bankruptcies and 2003 will be similar. An increased rate of bankruptcy was one of harbingers of the Japanese deflation now a decade long. There is evidence that the rest of the word has caught the same disease. Furthermore, much of the real costs from Iraq must be absorbed by other nations whose economies are frail.

The last four US economic expansions in the past century left household and corporate debt at all time highs. The 1990s compare with the 1960s as follows:

Economic Feature
1961 to 1970
1991 to 1999
Household debt/income %
Corporate debt / income %

These numbers are averages. For individuals and enterprises as well, disaster looms when cost of debt service exceeds gross income. Precisely that happened with Enron, Worldcom, and a host of and telecom companies. In every case, their share price exceeded the share valueusually by multiples before the critical point was reached. In retrospect, America was headed for a fall as the century closed. Yet corporate managers reward themselves via stock options and inflate share prices while creating no new capital. This behavior not only defies the very definition of value, it robs everyone else. Bankruptcies short change their lenders, their clients, employees, and America.

Late in 2000 that fall began when earnings could not keep pace and the bubble burst. A year or so later, the telecom bubble burst, adding to the economic devastation. Economic downturns seem necessary periodically to readjust, re calibrate, rejuvenate the economy, and find innovation.

With the war in Iraq, the situation must get worse before it can possibly get better. War chews up capital; it does not create it. Warriors pass their debts on to their children and the 401K crowd upon whose backs and from whose minds new capital springsunless they are overburdened.

There is an international consensus that Iraq "was" a possible danger long term, not immediately. Sixteen months after the statue fell, there still is no evidence that weapons of mass destruction even existed, much less as a threat. "Could," "maybe," and "probably" are all words of uncertainty. Yet when they come from the leader of the land again and again, the populace can hardly be excused for coming to believe a justification for war is a certainty when it is not.

Whatever the politics, Iraq is a huge waste of Western capital, Afghanistan was necessary, but is peanuts compared to Iraq. The money spent on unjustified war would have been much better spent laying the groundwork for reducing and eliminating the basic causes of terror--not to mention hunting down bin laden.

An old political adage has it right about the issues: "It's the economy stupid." Fuel to drive an economic recovery will be going instead to pay tax breaks for the rich and fund a war that is no more than a wasteful Band-Aid in an era of Extremism and Nuclear Terrorism. For more, see: Cost of War and Economic Extremism.

For more on the national economy see Pentagon Budget and Bush Tax for additional perspective.

There is plenty of room for dialogue here.


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