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- Socialism has failed. Capitalism is bankrupt. What comes next? "Whatever ideological logo we choose for it, it will mean a major shift away from the free market and towards public action."
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This news story has 21 comments:
The solution is to correct the public's misunderstanding, much like the solution to the perceived banking problem is to correct investors' faulty valuation of legacy assets by facilitating market price discovery.
It's all explained very thoughtfully on the Kudlow Report, weekdays at 7pm on CNBC.
The transformation of "capitalism" (a label used to describe the economic systems that began to take form in much of the Western world between the 12th and 16th Centuries) into an ideological term is a disturbing development in my view. 12th Century Venetian capitalism has little in common with 16th Century English capitalism which has little in common with 19th Century German capitalism which has little in common with 21st Century American captalism.
Capitalism shouldn't be an ideology. It's a reality. It's a label we give to the economic system that has evolved over the past severeal centuries due to the major trends taking place in the world.
People should focus on making the system (1) more meritocratic, (2) with more equal opportunities, (3) while promoting greater efficiency, and (4) innovation. In essence, the goal is to increase the standard of living for the greatest number of people. Who cares what you call it. I think 98% of the people in the world basically desire the same things if they'd stop mindlessly bickering over labels. The discussion should be over how "X policy action" promotes "X goal" rather than how "X policy action" is truly the "most capitalist" or "most conservative" or "most liberal" or most [insert any other mindless label]" proposal.
Most of the problems we face today are how to manage tragedy-of-the-commons or bystander effects that result from capitalistic actions.
Examples: If the banks all failed, experience shows that a depression would ensue, harming everyone. If a firm creates pollution, it is usually the people who didn't profit from the firm who suffer (e.g. birth defects at Love Canal). Et cetera.
Yet, this is hardly bankruptcy. These same problems still remain in alternative systems such as communism, the Chinese model, and anarcy situations like Somalia. The difference is, there is no system to allow complaints or to remedy the situation when one person's profitable activity causes unfair losses for another. We're lucky to be in a position to worry about such things.
Public policy in developed nations rambles between strict control over business and a hands-off approach. There is a sweet spot between these extremes that maximizes growth while minimizing catastrophic risk. It is nonsense to suggest that these pendulum swings indicate bankruptcy (and how can an economic system or an economy itself be "bankrupt" anyway?).
Such a view doesn't sell papers, of course.
On Apr 10 12:08 PM Smegma wrote:
> Does no one watch CNBC? Capitalism is not bankrupt. It is simply
> perceived to be bankrupt, much like the banks' legacy loans are perceived
> to be worth less than par.
>
> The solution is to correct the public's misunderstanding, much like
> the solution to the perceived banking problem is to correct investors'
> faulty valuation of legacy assets by facilitating market price discovery.
>
>
> It's all explained very thoughtfully on the Kudlow Report, weekdays
> at 7pm on CNBC.
Given these differences, what would the common person freely choose? A way of organizing an economy and society based on the first set of attributes we loosely label Capitalism or the way based on the second set of attributes we label Socialism?
It seems to me that the common person, whether in America or China or India or Germany or Brazil or Nigeria , when given a free and fair choice, opts for the first set of attributes, without having the vaguest idea ( or caring)that fancy folk call it Capitalism.
When China started to organize around the first set of attributes it began to grow rapidly, while still calling itself communist. When India, later and more slowly, followed suit it too began to improve the lot of its people , all the while denying it was a capitalist society.
Can we, as an excercise, name a single nation that consistently and tangibly improved the lot of its citizens while decisively rejecting the first set of attributes as the basis of economic/social organization? can we name a single industry that emerged, grew rapidly, attained great size(creating many jobs, much income and vast wealth) that was not organized on the first set of attributes?
In contrast, we have the examples of pure socialism in North Korea and Cuba, which we can compare with the success of South Korea and Florida or Mexico versus Texas.
The reality is that for the common person anywhere and everywhere in the world: freedom, choice, sanctity of contracts , inalieanable property rights, ownership of productive assets and toiling for themselves are a desirable and highly practical way to provide for themselves, their families and their communities.
Fancy folks with money , power , comfort and security are fond of debating "isms". Ordinary people know what works.
Most sensible people should understand that economic systems need to find a balance between fairness and efficiency, that govt. spending should try to be restricted to the areas where the govt. will be more efficient than the private sector, and to restrict government regulation to areas that are either too dangerous to leave unregulated or where communities of self-interested actors are likely to damage the systemic good with their selfish actions - e.g. "Tragedy of the commons" applies to lots of things ranging from environmental pollution to financial fraud. Vigorous public debate should focus on delineating the boundaries of where govt. is needed, while avoiding semi-religious positions like "all socialism is bad" and "govt. spending is always less efficient".
On Apr 10 12:40 PM Fueled By Randomness wrote:
> As Vitaly Katsenelson said, "Communism failed for a reason: Government
> is a horrible capital allocator." When politicians make decisions
> on capital allocation, they will do so based on political reasons,
> not economic ones. This guarantees that capital will be allocated
> inefficiently. The more the political system is involved in the
> economy, the more inefficient it becomes. Whatever system Hobsbawm
> thinks will come next, you can pretty much predict how well it will
> work using this simple rule.
Or maybe we could try to copy the Saudi fiefdom?
Congo-style jungle law?
I'm gonna stick with a regulated democratic capitalism for the time being, thanks.
Socialism is a clear failure. Governments are just too damn inefficient at capital allocation. Has there ever been a state owned company that hasn't been a loser?
Capitalism on the other hand has been a lot better at growing economies. Yes it is a system with flaws. It is the worst system ever to have come into being, except for all the others.
The tricky part in all this is figuring out how to regulate - what compromises need to be made. Unfettered a company will act purely in its own self interest neglecting any external effects. Call it the tragedy of the commons, or external diseconomies, or whatever you want but there must be some constraints - simple zoning rules, chemical waste disposal requirements, financial disclosure and audit requirements are well known requirements.
There is no easy answer to this question. How much do you need to achieve public safety, and the financial transparency that are needed. It is really the failure here that has led to the current troubles. What we all too often find are too many regulations in the wrong places and not the right ones where they are actually needed.
Ultimately it is not capitalism that has failed us, but the government that has failed to keep it's eye on the ball and effectively implement the needed structures.
On Apr 10 12:15 PM H.J. Huneycutt wrote:
> "Socialism" and "capitalism" are both non-cognitive terms. They
> have no real meaning. If you ask 100 people what "socialism" is,
> you'll get radically different answers. Same thing with "capitalism."
Socialism and Capitalism are now like warring factions - and yet the general public (and even some of the "experts") cannot define what these actually mean. Just like "classical liberalism" defines a set of beliefs that would not fall under the modern definition of liberalism, so does "capitalism" no longer hold much weight in its current state as it hasn't been redefined.
Until we realize this, we'd be wise not to throw these terms around so flippantly.
and the same can be said for reality.
It doesn't matter which ism it was. The system was unregulated and spun out of control until it collapsed on itself.
Face facts: the fractional-reservists were given the right to counterfeit money in exchange for greater regulation by the government. The government failed to regulate them properly, and then compounded the error by keeping them in business at public expense. Both of those failures are government failures. The greedy bastards were just doing whatever they could get away with. If you really want to make sure they don't steal like this again, take away their fractional reserve. And in the meantime get the government out of the business of walking tightropes.
I responded to this. Capitalism (and implicit "free enterprise") has inherent tenents: eg fiat money, central-bank, etc, etc. Either accept it with its warts and shut up, or understand it as it really is and attempt to deal with it--reinforce what is liked or changed what is not liked within the framework--which is Fascism.