The prevailing opinion on the streets is that capitalism has failed and the government is a necessary evil required to "fix it". This opinion is so well ingrained it's almost impossible to sway with logic and reasoning; indeed, people seem to be passionate in their hatred towards the "greedy banks" and support of "job creation". This all follows the media storm around the banks raising interest rates despite the RBA keeping rates on hold, with a follow-up RBA study indicating that, contrary to what the Commonwealth bank was claiming, funding costs have not increased.
The issue of the whole central banking system aside[1], why is everyone so worried about the banks charging an interest rate (which is the price of borrowing capital) higher than it costs them to acquire? That's like saying because it only costs a bookstore owner $5 to produce a book, they shouldn't be allowed to sell it for above $6, as that's a "fair price" and anything above that would be "exploitative" (as determined by some all-knowledgeable bureaucrat). Let's not lose sight of the fact that every exchange is voluntary and no one was or is coerced into borrowing money (government "incentives" to take on debt aside!). The real issue, of course, is the government intervention that prevents competitors from entering the banking business. As long as the government doesn't restrict competition, no one is able to either exploit labour or remain in a "monopolistic" or "cartel" position for long.
In other news, I also noticed that today's Financial Review (Australian Edition) contained an article showing that of the OECD nations, Australia has the most progressive tax system - we outstrip even the quasi-socialist European countries as far as wealth redistribution and welfare 'nanny' state goes[2].
Finally, I've updated the Recommended Reading section with some great books and essays which anyone is free to read or download. One in particular is "The Myth of the Failure of Capitalism" by Ludwig von Mises, a short essay addressing the fallacious views that the market and not the government is to blame for this crisis. Here's an excerpt:
The crisis under which the world is presently suffering is the crisis of interventionism and of state and municipal socialism, in short the crisis of anticapitalist policies. Capitalist society is guided by the play of the market mechanism. On that issue there is no difference of opinion. The market prices bring supply and demand into congruence and determine the direction and extent of production. It is from the market that the capitalist economy receives its sense. If the function of the market as regulator of production is always thwarted by economic policies in so far as the latter try to determine prices, wages, and interest rates instead of letting the market determine them, then a crisis will surely develop.
Click here if you would like to read the full essay.
[1] I personally think we need a return to sound money and free banking to avoid political manipulation of the money supply -- which, by the way, has been increasing by almost 20% YoY for the past decade. I'll provide a nice chart showing this growth within the next week.
[2] As with the above, I plan to write about this sometime in the next two weeks.
