Where the free market fails

Democratic Underground nicely sums up where the "free market" approach works and doesn't work.  Here's where it works:

The Republican belief in privatization is based largely or totally on their faith in “free market” ideology. That ideology says that everything or almost everything works better, is more efficient, and is fairer when it is driven by a free market than when it is “dictated” by government. The rationale for this ideology is that in their quest for profits corporations are simultaneously motivated to produce quality products, and everyone benefits as a result. In other words, the corporate quest for profits happens to be a good thing for everyone.  Under some circumstances they are correct. For example, the entertainment industry is a good example of an activity where free market principles work well. The more entertaining the product produced by the industry, the more people will want to purchase it and the more money they will be willing to pay. The industry produces a quality product, they make a big profit, the people get what they pay for, and everyone is happy. Here's where it doesn't work:
  1. Activities that are an intrinsic function of government
  2. Activities where pertinent third parties are totally unrepresented in the transaction
  3. Monopolies
  4. Scarce resources which are essential to American citizens
  5. Situations where free market principles cannot operate because of lack of essential information
  6. Services which are required for the public’s welfare

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How to create money out of nothing

Dennis Kucinich explains how the Federal Reserve created 7.7 TRILLION out of nothing, allowing many big banks to profit while starving ordinary Americans of capital. This is a dramatic illustration of why there are Occupy protests. Kucinich is promoting the "Need Act "to reign in the Fed: "to restore the authority of Congress to create and regulate money, modernize and provide stability for the monetary system of the United States, retire public debt and reduce the cost of public investment, and for other public purposes." Here's a more detailed description of the proposed "Need Act." It attempts to accomplish the following: 􀂾 Puts the Federal Reserve (Fed) into the Department of Treasury (Treasury) to make our monetary policy truly accountable to Congress and the American people. 􀂾 Ends the banks’ special privilege by no longer allowing them to create our money supply when they make loans, through a simple and non-disruptive accounting change. 􀂾 Invests money to renew our crumbling infrastructure, making it fit for the 21st Century; creating real wealth and millions of good jobs at the same time.

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We are moving from the few and big to the small and many

At Orion Magazine, Bill McKibben has noted a trend in energy production, information, health care, banking and (believe it or not) farming:

[W]e’re moving, if we’re lucky, from the world of few and big to the world of small and many. We’ll either head there purposefully or we’ll be dragged kicking, but we’ve reached one of those moments when tides reverse.
This movement to the small and many is a democratic movement, and McKibben's comment about the "tides revering" refers to the fact that "small and many" will be resisted by those who can profit by confiscating and retaining large-scale control:
In our world, most of those people are not actually persons—we call them corporations. But their power over our democracy is very real, and on the farm and on the trading floor and in the hospital ward they’re doing their very best to block the transitions we need. Their money, earned under the old bigger-is-better paradigm, gives them great power to block change: just look at how skillfully the fossil fuel industry has used the Tea Party to stifle legislation that would speed the transition to renewable energy. Watch Big Ag write the next Farm Bill—it won’t be pretty.

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Visualizing money

In his bestseller, Innumeracy: Mathematical Illiteracy and Its Consequences (1988), John Paulos introduced the term “innumeracy” to refer to “an inability to deal comfortably with the fundamental notions of number and chance.” Paulos bemoaned that innumeracy “plagues far too many otherwise knowledgeable citizens.” Innumeracy causes many people to struggle with their own personal finances.   I've personally spoken to people who have taken out payday loans (about which I've written quite a bit), who cannot tell me what 10% of $100 is.   One problem, discussed extensively by Stanislas Dehaene (The Number Sense: How the Mind Creates Mathematics (revised ed. 2011)) is that human animals are naturally rigged to understand zero, one, two, three  and four but on our own we cannot precisely identify or work with greater numbers.  To do that, we need an incredible human invention, mathematics, which provides us with an intellectual scaffolding for comparing and manipulating larger numbers.   Without a solid grasp of mathematics, humans are left only with vague intuitions about the numerical meaning of the world around them. How can we help those who are mathematically impaired?  Money counselors have often recommend that people stop depending so much on credit cards and operate more on cash. This does two things. First, it keeps you from spending more than you have. Second, it allows you to visualize what you are spending. It causes more pain to hand someone several $20 bills than to swipe a credit card, because you are actually seeing significant amount of cabbage leave your wallet. I thought of this problem of innumeracy as I viewed an excellent new graphic produced by a website called xkcd.com. The concept is simple, but the execution was excellent and designed to illustrate various salient political issues.  The result is an highly detailed image that allows you to see the numbers that are affecting our government and our lives.  I invite you to take a few moments (or longer) to visualize thousands, millions and billions of dollars.

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Capitalism v Crony Capitalism

Occupy protesters have been mischaracterized by many people as being opposed to "capitalism." Based on my conversations and observations, I have not encountered protesters who oppose "capitalism." Rather, they oppose what has been described as "crony capitalism." Compare the  follow definitions, from Wikipedia:

Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category. There is general agreement that elements of capitalism include private ownership of the means of production, creation of goods or services for profit, competitive markets, and wage labor. The designation is applied to a variety of historical cases, varying in time, geography, politics and culture.

In the above definition, you won't see, as an element of capitalism, that players are allowed to rig the system.  Compare to Crony capitalism:

Crony capitalism is a term describing a capitalist economy in which success in business depends on close relationships between business people and government officials. It may be exhibited by favoritism in the distribution of legal permits, government grants, special tax breaks, and so forth. Crony capitalism is believed to arise when political cronyism spills over into the business world; self-serving friendships and family ties between businessmen and the government influence the economy and society to the extent that it corrupts public-serving economic and political ideals.

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