Economic Affairs
Economic Systems Archive
AA09306
Mihm, Stephen WHY CAPITALISM FAILS (Boston Globe, September 13, 2009)
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The author, professor of history at the University of Georgia, notes that a hitherto obscure economist named Hyman Minsky, who died over a decade ago, has become recognized as the most prescient thinker about the current financial crisis. Minsky, who spent the latter part of his career in isolation and was little-known at the time of his death, argued that modern finance is inherently unstable, creating the conditions for its own downfall. Mihm notes that Minsky believed that the work of renowned economist John Maynard Keynes amounted to an admission that capitalism, far from tending toward equilibrium, was prone to collapse. Minsky was not a fatalist, though -– he believed that it was possible to craft solutions that would ameliorate the worst effects of an economic crisis. He advocated for a “bubble-up” approach, in which money would be given to the poor and unskilled, and government would provide minimum-wage guarantees, an approach that Mihm concedes would not be very palatable today.
AA09291
Schweickart, David A NEW CAPITALISM – OR A NEW WORLD? (World Watch, vol. 22, no. 5, September-October 2009, pp. 12-19)
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Schweickart, philosophy professor at Loyola University Chicago, argues that “we must move beyond capitalism if humanity is to flourish” – capitalism, as currently practiced, depends on nonstop growth to remain healthy, and discounts the natural resources and ecological systems that it exploits. Schweickart proposes a system of democratized labor, in which businesses are communities, not legal entities that can be bought and sold, and democratized capital, in which financing is arranged through government taxation or public banks. He points to the Mondragon Corporacion Cooperativa in the Basque region of Spain, an enterprise already half a century old, as evidence that such an economy would be viable.
AA08344
Galbraith, James K. HOW TO SAVE CAPITALISM? PLAN (Harper’s, November 2008)
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Galbraith writes that the challenge is not to save capitalism, but but “how to save the unique and successful mixed economy built in the United States over the eighty-five years since the New Deal.” The U.S. economic system has a large public sector, which has traditionally been concerned with a range of projects for the common good. However, Galbraith argues that these functions are in peril, after thirty years of attack by “predators posing as conservatives and mouthing the rhetoric of ‘free markets’ ... their goal is to use the government to build monopolies, to control resources, to block regulation, to crush unions, to divert as much as possible from taxpayers into private pockets.” He notes that government planning has been a “dirty word” in the U.S. for decades, the hard-line right believing that it “destroyed freedom.” Galbraith counters that, if there is no planning, the only people in charge are lobbyists for the corporate world. He believes that the U.S. government needs a capacity to think and plan that is independent of Congress or the lobbying process, that will convey a sense of national purpose, and at present, such a plan needs to center around energy and climate change. This article is part of a series in the November issue of Harper’s, HOW TO SAVE CAPITALISM: FUNDAMENTAL FIXES FOR A COLLAPSING SYSTEM.
AA08331
Rickards, James A MOUNTAIN, OVERLOOKED (Washington Post, October 2, 2008, p. A23)
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The author, former general counsel for the hedge fund Long-Term Capital Management (LTCM), which collapsed in 1999, writes that the complex mathematical models that Wall Street firms used to calculate risk contained a “colossal conceptual error” –- the assumption that risk is randomly distributed, and that an individual default event has no bearing on any other event. He notes that LTCM did not realize this a decade ago, and Wall Street does not appear to comprehend it today. Rickards argues that what was never considered was the overall stability of the system, which may appear random and chaotic, but “beyond chaos lies complexity that truly is unpredictable and cannot be modeled with even the most powerful computers.” Systems such as financial markets have complex interlocking relationships, not unlike a mountain covered with snow, in which one snowflake may not set off an avalanche by itself, but with the next one, and the next, it could. He notes that extreme events, such as are occurring now in the global financial markets, occur more often than most models predict, and because “we have scaled the system to unprecedented size, we can expect catastrophes of unprecedented size as well.”
CAN RAUL CASTRO REVIVE CUBA'S PRIVATE SECTOR?
Brookings Institution. Raj Desai. March 10, 2008.
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With Raúl Castro's selection as president of Cuba, the post-Fidel era has begun. Raúl has affirmed that the country will remain on the Socialist path. But during his tenure he is likely to face growing pressures to reform to the Cuban economy.
[Note: Contains copyrighted material.]
ATTITUDES TO EQUALITY: THE “SOCIALIST LEGACY” REVISITED.
World Bank, Policy Research Working Paper #4529. Mamta Murthi, et. al. Web posted February 27, 2008.
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It generally has been believed that owing to the legacy of the past there is a strong preference for income equality and redistributive state spending in post-socialist countries. Yet, in the decade and a half since the end of the Soviet Union income inequality has increased everywhere but has risen far more in some countries than in others. If there is a strong preference for more equal outcomes owing to a ‘socialist legacy,’ why do we observe highly unequal outcomes?
[Note: Contains copyrighted material.]