Whither Capitalism?

Karl MarxIn 1867 Karl Marx wrote his famous book Das Kapital in Germany.  Karl Marx was an economist — a very bright, though disagreeable — fellow with some interesting ideas.  The Russians, as we know, used Das Kapital as their inspiration and tried to build the economy of a nation out of it.  It didn’t work but a lot of the reasons are not related to Marx’s book at all — though in some quarters he is given the blame.  Incidentally, I once read that when Karl Marx wasn’t doing scholarly work, he was always complaining about his hemorrhoids.  Maybe that is why he was so disagreeable.

So, after all these years, is it possible that Karl Marx was right?  He wrote about globalization, redistribution of wealth (unheard of at the time), and a number of other economic issues that we still wrestle with today.  Firms are cutting jobs because there is not enough demand but cutting jobs assures that there won’t be enough demand.  The government needs to step in to provide employment so that there will be a demand.

Recent popular demonstrations from the Muslim World, Israel, Europe, The United Kingdom, China, the United States all seem to be driven by the same issues and tensions: growing inequality, poverty, unemployment, and over all hopelessness.  Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.  The top 1%? Why they are doing fine — thank you for asking.

Nouriel Roubini, a very accomplished economist and a professor at New York University wrote an interesting article in “Project Syndicate” a web magazine which tries to bring together some of the world’s best thinkers on a variety of issues.  I am summarizing his article as best I can but I really would recommend that you look at the magazine itself ( www.project-syndicate.org ).  One of Mr Roubini’s many claims to fame is his accurate prediction to the Bush administration of what was going to happen to the economy if Bush did not do something.  He didn’t, and the rest is history.  Bush now has a recession/depression named in his honor! (as well as a war, and the shattering of the wall between church and state, introducing torture as an official US policy, etc.).  He done his mama proud.

Roubini suggests that to enable market-oriented economics to operate as they should, we need to move away from both the Anglo-Saxon model of laissez-faire and the “voodoo economics” of the American Right Wing.  We also need to move away from the continental European model of the welfare state.  Both are broken according to Roubini.

He goes on: the right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment, and more progressive taxationthere MUST be some serious stimulus right now aimed at infrastructure investment and long term fiscal discipline.  There must be stricter supervision and regulation of our financial system.  We must break up “too-big-to-fail” banks and trusts.  If it is too big to fail — then cut it down to size.

The above paragraph, to me, seems to be common sense.  Why it is so difficult for so much of our population to understand — I will never know.

Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalized economy. The alternative is – like in the 1930s – unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

President Roosevelt handled the Great Depression of the 1930’s like this.  From 1932 to 1940 he did bring unemployment down from 25% to 12%.  The rearming for World War II brought us up to full employment.  Unemployment right now is 8.5%, so that it would appear that President Obama is making some headway in spite of a determined Republican opposition.


3 comments on “Whither Capitalism?

  1. A situation by any other name (i.e., capitalism, socialism, any other ism, etc) is still a situation. It is always amazing to see how some people always manage to double their money while others lose it all. Some people surrounded by opportunities become architects, doctors and engineers while others end up on the streets. May be it is all about individual decision making. The guy that parties his money away and they guy that saves his money to go to college will get different results. The decisions people make are important. The question now is does society owe anything to the guy that always blows it all way?

  2. “Unemployment right now is 8.5%, so that it would appear that President Obama is making some headway in spite of a determined Republican opposition.”

    Remember that the government reports the unemployment numbers in their own unique way; that is, in a way that doesn’t include those people who have run out of the 99 weeks of unemployment benefits and have given up even searching for a job. There are other factors they likewise don’t include, such as those who are underemployed, working more than one job to make ends meet or working below the poverty level at a wage of $10.50/hour.


    This is not a criticism or correction to your blog, It is a critique of the way the government reports the numbers.

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