Will modern capitalism survive this financial crisis? The Occupy protesters camped out around the country may hope that it won’t, at least not in its current form. Economist Kenneth Rogoff sees few alternatives, but plenty of challenges to the system in a new essay for Project Syndicate:
I am often asked if the recent global financial crisis marks the beginning of the end of modern capitalism. It is a curious question, because it seems to presume that there is a viable replacement waiting in the wings. The truth of the matter is that, for now at least, the only serious alternatives to today’s dominant Anglo-American paradigm are other forms of capitalism.
Rogoff points to five serious challenges currently facing modern capitalism: a failure to price public goods (clean air, water, etc.) effectively, high levels of inequality, “the provision and distribution of medical care,” the undervaluing of “the welfare of unborn generations” and, finally, financial crises. Rogoff points out that economics has solutions for many of these problems, if politicians dare to implement them:
In principle, none of capitalism’s problems is insurmountable, and economists have offered a variety of market-based solutions. A high global price for carbon would induce firms and individuals to internalize the cost of their polluting activities. Tax systems can be designed to provide a greater measure of redistribution of income without necessarily involving crippling distortions, by minimizing non-transparent tax expenditures and keeping marginal rates low. Effective pricing of health care, including the pricing of waiting times, could encourage a better balance between equality and efficiency. Financial systems could be better regulated, with stricter attention to excessive accumulations of debt.
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“a failure to price public goods (clean air, water, etc.) effectively”
At existing levels, are public goods priced too high or too low? There’s no question we pollute the environment, but we derive enormous benefit from doing so. Which would inflict more pain on humanity: the disappearance of the environmental movement, or the disappearance of the oil industry?
“high levels of inequality”
What, exactly, is wrong with inequality? If you’re upset someone else has more than you, that’s fine. But let’s be honest and call that what it is – greed and envy.
“the provision and distribution of medical care”
Medical care is a luxury good that requires considerable economic activity to provide. Capitalism (defined as a free market economic system) is the best way to provide it. Of course, there will still be the inequality business.
“the undervaluing of “the welfare of unborn generations”
Actually, the welfare of unborn generations is wildly overvalued, generally as an excuse to impose economic or environmental controls of some sort, regardless of the damage they do to people who are actually alive and hope to continue to enjoy that status. Personally, I’m not willing to kill people now to benefit people who aren’t born yet.
“financial crises”
Seriously, financial crises are limited to capitalist economies?
Hot debate. What do you think?
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@J1 – Medical care is a luxury good? Not according to the UN Universal Declaration on Human Rights, signed on to by the U.S. over 60 years ago: it is a basic human right. As (almost) everyone knows, America is the only first world country currently not providing universal healthcare to its citizens, which is an abrogation of a treaty entered into as mentioned above. What else would you consider a luxury good? Education, housing, food in ones belly? All covered by the Universal Declaration. As to your acceptance of inequality, this just makes you sound like an asshole.
Well-loved. Like or Dislike:
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Bu$y, do you really have a problem with inequality? I’d ask you to look at your actions, not your words. Every person I’ve ever come across, at least at the upper middle class or lower economic level, who made noise about the issue did so on the assumption that 1) their standard of living would be the average, no matter how preposterous that belief was and 2) the average would be attained by confiscating the wealth and earnings of people who had more. You probably own the computer you use to access this site, and may even do so from a home with multiple bedrooms and bathrooms. Would you give that up to acheive equality?
The fact that the UN Universal Declaration on Human Rights says something is a basic right has nothing to do with whether it’s a luxury good or not.
And if the UN declares diamond studded tap dancing shoes to be a basic human right, that would mean nothing too.
“What, exactly, is wrong with inequality? If you’re upset someone else has more than you, that’s fine. But let’s be honest and call that what it is – greed and envy.”
It is not nearly so simple. Consider a widget manufacturing company. New technology is developed to make widgets more efficiently. The benefit will be divided in some way between customers, workers, managers and shareholders. How this division is made is ultimately a political issue, and it is legitimate to debate it in a political forum.
If the benefits of the good times are divided 20% customers, 0% workers, 40% managers, 40% shareholders and the pain of bad times is divided 40% customers, 60% workers, 0% managers, 0% shareholders, then objecting to this is not ‘greed and envy’.
Those numbers are made up for illustrative purposes. Some opponents of the current system probably believe them to be about right. If so, “prove it” is a legitimate response, but “you’re just being greedy” is not.
“Will Capitalism Survive ?” Today, it’s already a kleptocrat tool.
The fine art of Capitolism is usually not for the faint of heart, on the other hand those who concider them self in the know often find them self at a lose. The liberal thinks that the differences between rich and poor are the undoing of the country, the Capitolist thinks that this is what makes the world go round. In reality it always has in a form or another. Capitolist will never die, most economies need the separation. They just don’t know it until its to late.
Just musing….but wouldn’t it be interesting if there were two economic structures, and you could decide which to sign up for, as one does in registering with a political party or a health care plan. You can choose to benefit from the entitlements and programs and safety nets of big government, and be taxed accordingly, or opt out to a more classic model of capitalism with minimal government services and lower taxation.
Impossible, but cool to contemplate. I suppose all the rich would just do an Atlas Shrugged and bail.
Two leading bankers made these pronouncements on TV :
1) Google, Facebook and other companies are world leaders, making good profits and hence US is doing well. However they are not significant in creating employment opportunities.
2) There will be no recovery in US till the Housing numbers improve.
The first leads us to the conclusion that companies like Google are do not figure significantly in economic calculations of a nation. The so called services lead economies is not a valid premise.
I am reminded of a story where two alcoholics try to sell a barrel of booze in a local fair. While wheeling the booze, the first drunk gives a coin to the second and has a drink. Second then pays the first and has a drink. Repetition of the process empties the barrel.
Wallmart pays employees who spend on Wallmart goods.
US retail, telecom, entertainment industries can not figure in the real economy. it is a parallel universe.
Second observation about housing means that only physical creation of goods lead to real economic growth. Since there is no other significant brick and mortar industry left in US, housing is the only hope.
Unless US fires up the steel furnaces, starts building gunships and brings back cotton mills and garment sweat shops, figuratively, long term decline can not be arrested.
Japan has not given up its industries and hence Buffet’s bullishness on Japan is understandable. That is why China is looking unbeatable.
Why capitalism is in trouble?
Over complicated Tax structure.
Isaac Asimov
1920 – 1992
A Quote by Isaac Asimov
Taxation loses effectiveness at both extremes. Overcomplicate it and people cannot understand it and pay for an overgrown and expensive tax organization. Oversimplify it and people consider it unfair and grow bitterly resentful. The simplest is a poll tax, in which every individual pays the same amount, but the unfairness of treating rich and poor alike in this way is too evident to overlook.
Is that high inequality inevitable? Looking at the Heritage Foundation’s top ten countries for economic freedom, we see relatively unequal countries like the United States, Hong Kong, and Singapore. But we also see much more equal countries like Switzerland, Denmark, Canada, Ireland, and Australia.
http://www.heritage.org/index/topten
https://www.cia.gov/library/publications/the-world-factbook/fields/2172.html
So it seems one can have fairly free markets AND relatively low inequality.
Capitalism will survive, because enough people realize that the hardworking, the ambitious, and the skilled, deserve to keep the fruits of their labor, and should not be forced to give it to the lazy, the unambitious, and the unskilled.
Captitalism works best with fewer attempts by, well meaning but misguided individuals trying to fix it. Unfortunately, those misguided individuals let their politics decide that their mistakes didn’t cause the disasters that they need to do more mistakes to prevent more disasters, which just causes more problems.