From Elliott Management’s Q3 letter, by Paul Singer
A Brief Note On Capitalism
From time to time we find ourselves compelled to write a few words in defense of capitalism. Capitalism is a system according to which capital is owned by private citizens, who in turn determine its price and flow by interacting with one another. Capitalism implies that private citizens get to keep most of the fruits of their labor or the profitability of their capital. Capitalism is neither a “state of nature” nor a primitive scrum. It can work (i.e., create value for owners and for society while being acceptable to the citizenry, including those without capital) only with appropriate rules of fairness and honesty, and workable standards of disclosure. To these factors must be added the ability for people, in a meritocratic way, to have a chance to participate in capitalism. The proper combination leads society to buy into the concept that the individual freedom to own property leads to the most efficient allocation of resources, which in turn results in the highest economic growth and prosperity. Capitalism is never perfect, but the closer society adheres to its general principles, the better it is for the population at large.
If you take away these elements and put the bulk of power in a society in the hands of a central authority, bureaucracy and/or central banker, then all of the natural imperfections of human decision-making – including the problem of unintended consequences, the inability of central planners ever to have enough information to make wise decisions about the allocation of resources across an entire society, corruption, arrogance, and the fallibility of human nature – are exacerbated and concentrated. It is no surprise that governments do almost everything worse than the private sector, and that private philanthropy has created so much more societal value per unit of human effort and wealth than governments have in terms of efficiently and creatively addressing problems.
When the governmental impulse is to make all major decisions for people and control almost every aspect of their lives, the “cost” is inefficiency, ineffectiveness, unfairness and tyranny (see the old Soviet Union for details). Having the government choose winners and losers does not lead to better or fairer results than allowing merit and private effort to dictate those outcomes. When it is time to take an action related to life, health, work and career, there is no reason to prefer a government decision over a private decision. The distortions imposed by governments’ exercising control over things that do not need to be controlled by governments are almost without end. Shortages and inflation are traditional consequences of controlling prices. Poor growth, emigration and job losses are the repercussions of making the economic environment unattractive for employers and employees by taxation, regulation, corruption, disdain for the rule of law, and rigid employment policies. It is no accident that the more government does, and the more control government has or is given over people’s lives, the greater the level of corruption and cronyism – even (or especially) in those countries that have populism as their (phony) rallying cry.
The question that governments should always be asking is: How can we make the economy work better, grow faster, provide the best full-time job opportunities, allocate capital more efficiently, help the largest number of people get rich or pursue their destinies, and provide the fairest and most open platform for people to live their lives without interference and to experience the worthiness of achievement or career or parenthood and family? Sadly, we cannot think of many leaders in the developed world who are pursuing policies with that combination of goals in mind.
via Zero Hedge http://ift.tt/1x4HTZL Tyler Durden