Capitalism Works

On Fox News Channel’s "Cashin’ In," I’m often criticized by my fellow panelist (and MASH alum) Wayne Rogers for focusing on “what’s moral” instead of “what’s practical” when it comes to the financial crisis.

Indeed, many Americans want to advocate for capitalism but wonder, given the scope of the economic downturn, if we must allow government to intervene and “do something.” Even former President Bush admitted in a January speech that he “chucked aside” his free market principles once he saw how bad the economic data had become.

Instead, we’ve pursued a “pragmatic” approach, banning short-selling one week, bailing out investment banks, doing anything that works in the moment. Some industries get help, others do not. No cohesive philosophy governs Washington’s response.

But in reality, there’s no difference between what is practical and what is moral. That’s especially true when it comes to economics as the government continues to play a bigger role in every element of finance. It’s no longer the free market but political bureaucrats that decide how assets are allocated, which companies get funding and how their businesses should be run.

That’s immoral -- it’s not the role of government to prop up failing businesses with taxpayer dollars. But it’s clearly impractical as well. All the bailout money in the world won’t keep General Motors (GM) from going bankrupt or deadbeat homeowners from defaulting on their loans. Scarce resources are being used for political purposes rather than economic ones. That isn’t good politics…or economics.

A moral society protects the right of every individual to pursue their own life, liberty and happiness. Yet the collectivism President Obama champions essentially treats productive individuals as a means to an end. The sacrifice he often speaks of suggests that your productive effort isn’t actually yours but property of the state to be directed toward struggling homeowners, solar energy, education -- wherever it can affect the most “public good.”

In capitalism, man is an end to himself not the means to the ends of a politician’s whim. To that end, what’s morally right is to protect individual property rights and let the free market work, which would practically be the quickest way to rebuild the economy. As we’ve been pointing out for almost a year now, the government’s attempts to stem the financial crisis have made it much worse.

Intervening in markets and redistributing tax dollars to either failed companies or downtrodden homeowners is immoral and exactly why it has never worked in history. It won’t work this time either.

The VIX ETNs we wrote about in January are off to a quick start with iPath S&P 500 VIX Short-Term Futures ETN (VXX) trading well over 100,000 shares a day. iPath S&P 500 VIX Mid-Term Futures ETN (VXZ), which tracks intermediate-term volatility, is less active but is seeing thousands of trades every day. Essentially, these instruments are designed to track investor fear as measured by the volatility of option prices.

iPath VIX Short-Term Futures ETN (VXX), iPath VIX Mid-Term Futures ETN (VXZ) – since inception

It’s no wonder investors are flocking to these products. With even Alan Greenspan suggesting the government should nationalize some banks, there’s plenty to be fearful about.

Despite all the gloomy news over housing, the fact is that not all real estate markets are crashing. The price of the president’s own South Side Chicago residence is currently estimated at $1,808,500 by Zillow.com, up slightly from the $1.65 million he paid back in June 2005.

Bird’s Eye View of Obama’s Chicago home, located at 5046 South Greenwood Avenue

Zillow.com Price Estimate for Obama Home over 10 years.