Please rate - Analysis of an issue

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Please rate - Analysis of an issue

by zank » Thu Oct 20, 2011 12:33 pm
Same as argument essay I posted. runs a bit lengthy, not followed any templates, and have not edited it past the 30 minute mark as i wanted it to be as realistic as possible.

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"Individuals living in capitalist economies suffer a higher degree of personal risk than in other types of economies. Creating regulations that protect a society can't help but interfere with free market forces, a basic tenet of capitalism."

From your perspective, how accurate is the above statement? Support your position with reasons and/or examples from your own experience, observations, or reading.

Over time, economists have studied many economic systems, and have tried to quantify what makes one system better than the others. The two that get the most attention are capitalism and communism, and over time there seems to have been a consensus developed that capitalism is the better system as it results in the most benefit to society. Economists of course don't study individuals, but rather whole economies and societies. If something is not quantifiable, then there is no space for it in an economic equation. The statement suggests that due to the higher degree of personal risk in capitalism, that risk must also be rewarded. Regulation interferers with the machinery of capitalism, unduly skewing the risk reward ration, and thus has no place in a capitalist system.

In trying to decide on the accuracy of the statement, one must first establish if the individual is irrelevant in the study of economic systems. I believe beyond anything else, the individual should be the central focus of any study on economies. It is the individual that takes the risk, the individual that gets rewarded, the individual that must bear the burden of failure. In saying that, we must then compare progress of economy as a whole, and of the individuals living in that society. While the US has seen one of the highest GDP's over the past century, and the GDP still seems to be increasing, it has also seen a very small portion of its society see the gains from that increase in GDP.

By all accounts, the rich seem to be getting richer and the poor, poorer. Acording to a recent study, 1 in 5 people in the US now lives below the poverty line, a staggering statistic for a first world country. I believe a reason for this is that in the unfettered and unrestrained promotion of the system of capitalism, has seen regulation declining tremendously in order to let the machinery of capitalism operate smoothly. Yes, this seems to accord a certain probability of a poor person becoming rich one day, but it does not ensure that the opportunities are available to all.

Without regulation, those with readily available means to capital will indeed be able to invest in all manner of business and be able to take many more risks, but for those that do not have ready access to capital, who are living pay cheque to pay cheque and have a family of young kids that barely have their needs met in that amount of money, taking that risk may be an impossibility. One might suggest access to loans. But again, trying to gain a loan without an already established asset base is close to impossible, outside of a few government schemes that may exist to promote small business development.

Thus while we might say that the already wealthy are taking risks and thus deserve to be rewarded, we must consider, is it a greater risk to lose 1 million dollars out of an asset base of 10 million, or a greater risk to lose all of a persons 100,000 dollar life savings and the house they have. I would say looking atthat equation, a person without that significant asset base is not accorded the opportunity to take the same kind of risks as the individual with an alreadye stablished asset base.

As an example, the recent economic slowdown and its causes are apparent to everyone by now. Wealthy bankers and high payed executives devised many schemes, such as mortgage backed securities, which earned them significant commissions and bonuses. These securities wile purchased by institutions, were also sold to individuals for their retirement accounts. In an unfettered capitalist system without regulation, who is to protect these individuals from the imbalance of knowledge that exists, where the same people they trust to manage their retirement portfolios have a conflict and their companies are earning tremendous amounts of money selling the same toxic assets to them, packaged as AAA rated securities.

I believe certain regulation must exist, and indeed a balance does exist where regulation does not stifle the economy, but also protects people from fraud and conflicts of interest.

We must also look at regulation apart from financial regulation, to include regulation for environmental protection. Many a capitalist will argue that such regulation stifles growth of industry, and thus inhibits economic growth and employment opportunities. What we must consider is that the individuals at the top of the chain, that own the means of production are certainly making the most amount of money from the industry. ANd yes, many jobs are created by homegrown industry, and some pollution is a part of industrial development. But what about people unrelated to that industry. Yes they may benefit from the products produced. But that would be a very short term outlook. We must also consider regulation to protect the future of where we live and our future generations. After we have consumer everything, and earned our pay cheques, and lived lives of contentment, do our children not deserve better. Certainly a government must protect its future citizens, and an economic system must be viable not just for now, but for future generations as well.

Another example of risk and reward we might want to consider is the recent bailouts of large entities that took significant risks, and cheap loans available. The government loans are meant to promote lending, but they are structured in such a way that in case of default, the government, and thus its tax payers, are the first ones to be burdened, rather than the corporations own assets. This creates a significant benefit for corporatiosn taking risk. But is this truly risk of its own capital? i belive it is not, and it is a risk that the taxpayer is bearing, without seeing anywhere close to as much benefit as the executives see if the gamble were to pay off.

For these reasons, I believe that while risk should in fact have its rewards, regulation must exist to ensure that the risk is being taken by the individual who is being rewarded. One must also ensure regulation exists so the capitalist is sustainable in the long term, not just in the short term. Lastly, regulation must exist to ensure that harm does not come to those who do not benefit from the risk being taken.

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by throughmba » Thu Oct 20, 2011 9:33 pm
results in the most benefit to society
Weird to read.
the rich seem to be getting richer and the poor
are getting richer
Without regulation, those with readily available means to capital will indeed be able to invest in all manner of business and be able to take many more risks, but for those that do not have ready access to capital, who are living pay cheque to pay cheque and have a family of young kids that barely have their needs met in that amount of money, taking that risk may be an impossibility.
chop it in smaller parts

overall its a perfect 6 for me

keep posting
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