Saturday, September 23, 2017

Is Capitalism Dying?

For your edification, I present a few remarks by famed economic historian Niall Ferguson. Interviewed for an audio documentary on the health of capitalism, Ferguson addressed a number of important issues in political economy. The link will take you to the video itself. For our purposes, I quote the transcript. I take full responsibility for the questions: they may be slightly different from the interviewer's, but they provide some narrative connective tissue.

Question 1: Was the Trump election a rejection of capitalism?


In recent elections we didn’t see a rejection of capitalism. The victory of Donald Trump, in particular, was the election of a capitalist to the highest office in US politics. Trump’s critique wasn’t of capitalism but of globalisation and its various manifestations – notably free trade as it has been constituted and immigration, and out-sourcing. The backlash we have seen from within certain advanced democracies has largely been against a globalisation that occurred too quickly, and without adequate checks and balances – rather than a reaction against the economic system that overcame socialism in the 1980s.

Capitalism is one thing. Free trade and globalization are others. It’s one thing to be against free trade and quite another to be against the way certain trade deals were negotiated.

Question 2: Why has unionization declined?

The decline of unionisation doesn’t explain falling wages at bottom end – it’s simply a reflection of declining demand for unskilled labour, especially in developed countries. Most deserving of blame are the education systems in developed countries – the US & UK in particular – where, despite more and more taxpayers’ money being spent, rates of literacy and numeracy are actually going backwards for large numbers of children. National governments are simply failing to prepare their citizens for the new economy and research by Raj Chetty, a colleague at Stanford, shows the significant contribution of bad schools and bad teachers to widening inequality in US.

Our educational systems have failed to produce workers who are capable of doing the more technical jobs that are now being offered. America has a bad schools and bad teacher problem. We are not, he suggests, going to fix it by increasing the power of unions. Certainly, not by empowering the teachers' unions.

Question 3: What’s wrong with western economies?


As I argued in The Great Degeneration, the current weakness of much of the western world isn’t rooted in capitalism but in fundamental weaknesses of the State – including its structural fiscal deficits, complex and burdensome regulation, and world-trailing public services, where even some gains in public health are being reversed. State failure is not capitalism’s fault – but the fault of inadequate politicians, ineffective public administrators and and public sector unions that are too powerful.

Then again, if you work for the government or if you believe that we need government to control greedy predatory capitalists you will never find fault with government. Ferguson retorts that the problem lies with the state and with the public sector unions that control the bureaucracy.

Question 4: What lessons did we learn from the market crash in 2008?


We’re learning precisely the wrong lessons from the crash by embracing the “silly” but easily understood argument that we need more regulation. The crash of ten years ago began in the part of the financial sector – the banks – where regulations existed “in profusion”. The crash didn’t come from the largely-unregulated hedge funs, who worried regulators before the events of 2007 and 2008. Because the regulations were so complex the banks gamed them. 

And also:

The real explanation for the crash lies in the cosy relationship with the State that the complex regulations brought about. Banks were able to behave as recklessly as they did because they calculated (correctly in all cases but Lehmans) that they were too big for the State to let them fail. Although friends of capitalism have this more accurate explanation for the crash – of excessive closeness between regulators, politicians and the banks on Wall Street and in the City of London, the “fairy story” put about by the likes of Paul Krugman, that it was all about deregulated markets has gained credibility because it’s simple. The result is, since the crash, we’ve learnt precisely the wrong lesson and enacted enormous amounts of extra regulation – which is, at best, “besides the point” and, at worst, damaging and encouraging of moral hazard.

We understand that politicians like Elizabeth Warren and Bernie Sanders are making a very good living by promoting more regulation of banks and markets. Ferguson makes the salient point, namely that the crash and great recession arose in the hyper-regulated banks, not in the far less regulated hedge fund industry. He adds that the multitude of regulations caused the banks to game the system. Twas always thus. As Confucius said, over-regulation dulls the moral sense.

Question 5: Is capitalism in crisis?


The big problem is not that capitalism is in crisis (because it’s not). The big problem is that socialism is making a comeback. Fed by the post-crash narrative, younger voters, who have no memory of the economic troubles of 1970s and the turnaround of the 1980s, are ready to embrace Jeremy Corbyn and his promises of jam tomorrow, jam the day after and regulations to stop anything and everything they don’t like. You only need to spend a day studying economic history, or the current economic breakdown in Venezuela to realise the danger he represents

One recalls the old song: When will they ever learn? When will Western progressives get over their love affair with socialism? Communism failed and failed miserably. Cuba has failed. Venezuela is in a death spiral. Yet, Jeremy Corbyn and Bernie Sanders want to give us more socialism.

They are addressing themselves to an economically illiterate millennial generation, a generation that knows nothing of history but that believes itself entitled to a living without working too much or too hard.

Good luck with that.


Sam L. said...

Paullie "The Beard" Krugman: Wrong when he's right, and right when he's wrong, because he writes contradictory stories out of phase.

Ignatius Acton Chesterton OCD said...

Free trade is a boon for multinational corporations looking for low-cost labor. The same thing is not good for working class people in developed countries. It's all about labor arbitrage. Follow the money... what the political class calls "free trade" is a scam.

Jack Fisher said...

Comrade Chesterton, do you really want to pay more rubles for your beet vodka? Suggest strongly you either get a job or let the market sort things out.

Anonymous said...

Mr. Fisher. Sarcasm is not reasoned argumentation. If you wish to promote your point of view, state it clearly.

Ferguson is correct. Read John Grey's "False Dawn". -- Rich Lara

HMS Defiant said...

WRT item 2, More and more money and it still seems to work fine in grades K-8, after that either the decline is due to demographics or the parents decide to take their bright high achieving 9-12 graders and send them to the very fine local private high schools. 6 years ago the local high school was an 8 on the system used by zillo. It's now down to a six and falling.

Ignatius Acton Chesterton OCD said...

I'm hardly a communist, Mr. Fisher. Ask anyone here.

I just have a sense that an American citizen should have opportunity, and be justly compensated for their imaginination/ingenuity and, just as importantly, their labor.

Our elites have abandoned that idea for a money-changing economy over the last 40 years (largely favored by GOPe), and the results have been disastrous. Meanwhile, the vast expansion of the administrative state has enabled elites (largely Democrats) to feel good about how they're protecting "the little guy." Hardly. Both forces have conspired to make things much worse for economic opportunity in America. The Demoblican and Republicrat Uniparty is destroying American economic opportunity, all driven by a centralized control from (and for the benefit of) the District of Columbia.

Simplistic? Perhaps. But this is a comment on a blog, and I am enjoying my Sunday off from the outstanding job that I do, in fact, have.

I hope we can agree that coordinated political meddling can distort a market and create massive inefficiencies. A phony macroeconomic command-and-control economy operated for the the benefit of Washington, D.C. is the sort of market distortion I speak of. And it would seem that our political class is sorting things out to their own distinct advantage. I do not approve of this.

If you'd like to go down the road toward the laissez-faire theoretical universe, have at it. The "market" is an ass. We are the market, and we as citizens can choose how we want the market rules to benefit our fellow citizens. What Republicans and Democrats today call a "free market" is distorted by (a) a grotesque, labyrinthine regulatory and tax system that benefits (b) insider professional groups, bureaucrats and the political class, while simultaneously pushing (c) a trade regime with carve-outs and set-asides paid for with campaign and lobbying dollars, through transactions processed by (d) corporatist politico-macroeconomic banking interests. How else do our legislators become millionaires in short order? This is no free market... it is a circular economy benefiting white collar sycophants.

A multinational corporation like Ford Motor Company building a plant a few miles into Mexico is not "free trade." It's graft legitimized by horrible free trade agreements. Shipping manufacturing capacity over to China solely for cheap labor is not "free trade." It's labor arbitrage. Moving a plant to Thailand to avoid environmental regulations is not "free trade." It is moral subterfuge. All these mechanisms impact American citizens in middle class jobs, and close opportunities to enter the labor economy for those seeking/holding lower class jobs.

One might retort that they should work harder and/or get an education. You can't just work harder against Indonesian labor rates. And you can't get a good education in middle class or lower class areas because oururban and rural public schools are a disaster. And then, to add insult to injury, you have the laissez-fairies at the Wall Street Journal, U.S. Chamber of Commerce and Democrat Party plugging for open borders, even while our government entitlement benefits are tied to the nation-state, (under-)funded by our representatives through deficit spending now totaling $20T.

I invite you to at least consider what the corruption of your precious "market" is doing to other people's jobs, and how that impacts people who have been abandoned by our corporatist political system, accelerated under that great man of the people -- President Obama.

Sam L. said...

Is capitalism dying? Wellllll, not yet, but there are a lot of Brutuses out there with the intent to kill Julius Capitalus.