I’m writing in to respond to Mark Walker’s column ‘Emergencies erode freedoms’ because he conveniently skips over the source of the solvency crisis facing not only Cyprus but most industrialized countries including the U.S.A.
Imagine a common pasture that’s owned collectively by the residents of Penticton. Each resident has the right to place cattle to graze on this pasture. The community as whole has no claim on the milk the cows produce, that belongs to the individual who owns any given cow. The pasture, just like the forest, oil fields, ocean and atmosphere, is a collective resource from which individuals are allowed to extract private profit, that’s what’s known as a commons. Now certain rules govern the use of the commons, like how much cattle each resident is allowed to place out to pasture.
Now let’s pretend there are no rules. Let’s deregulate. Let’s say that an individual buys additional cows but the pasture can only support so many cows before it suffers damage. It has a fixed carrying capacity, which means it can only support so many cows before it begins to degrade the common resource and lower its future carrying capacity. The individual with the additional cows receives all the benefit of the additional milk his new cows provide right away. The costs of this action, the damage, are shared collectively by the community. Under our economic system the individual with additional cows is pursuing their own economic interest in a rational manner. Seeing this, other individuals in the community have a choice. They can bear the costs of the degradation of the pasture and gain nothing in return or they can buy more cows of their own. In which case they also get more milk, but the pasture degrades even faster. Under our economic system, the latter choice is the correct one because each individual maximizes their own economic interest. The result is a pasture that instead of feeding a fixed number of cattle indefinitely has degraded and collapsed. The rational pursuit of individual economic advantage results in the impoverishment of everyone. It’s what’s known as a tragedy of an unmanaged commons. This is how our economic system works.
From 1933 to 1999 the U.S. banking system acted like a managed commons. But in 1999 the Glass-Steagall Act was repealed. This act was a piece of legislation that effectively separated consumer and investment banking. Financial institutions had to choose one or another. It was put in place because leading up to the great crash of 1929 the banking sector engaged in the same type of shady activities that led up to the great crash of 2008. By pursuing their own economic interest, a handful of banks, hedge funds, corporations and investors degraded the economic commons in 2008.
Just look at the numbers. Look at how many people lost their jobs, houses and life savings in 2008-2009 due to the recession compared to how many CEOs, hedge funds and corporations profited from the credit crisis. The rational pursuit of individual economic advantage results in the impoverishment of everyone. The repealing of the Glass-Steagall Act was a deregulation of the economic commons and was the source of the great recession of 2008.
The early 20th century totalitarian movements like fascism and communism were a direct result of economic conditions. Economic conditions that undermined the traditional forms of community and family that once served as social safety nets. When you rob people of their security they look for it elsewhere. Like the security found in being part of a mass movement. This is the reason why FDR created the welfare state: A social safety net to catch those people; to allow for a sense of security; to save capitalism from itself. That’s the paradox free-market Ayn Rand-acolytes like Mark Walker can’t fathom. That unfettered capitalism destroys the very structure of the societies it enriches and creates totalitarian movements. Capitalism and communism; hyper individualism and hyper collectivism; the ying and the yang.