Sunday, July 10, 2011

The evils of unregulated capitalism

Just a few years ago, a powerful ideology - the belief in free and unfettered markets - brought the world to the brink of ruin. Even in its hey-day, from the early 1980s until 2007, US-style deregulated capitalism brought greater material well-being only to the very richest in the richest country of the world.

Indeed, over the course of this ideology's 30-year ascendance, most Americans saw their incomes decline or stagnate year after year.

Moreover, output growth in the United States was not economically sustainable. With so much of US national income going to so few, growth could continue only through consumption financed by a mounting pile of debt.

I was among those who hoped that, somehow, the financial crisis would teach Americans (and others) a lesson about the need for greater equality, stronger regulation, and a better balance between the market and government.

Alas, that has not been the case.

On the contrary, a resurgence of right-wing economics, driven, as always, by ideology and special interests, once again threatens the global economy - or at least the economies of Europe and America, where these ideas continue to flourish.

In the US, this right-wing resurgence, whose adherents evidently seek to repeal the basic laws of mathematics and economics, is threatening to force a default on the national debt. If Congress mandates expenditures that exceed revenues, there will be a deficit, and that deficit has to be financed.

Rather than carefully balancing the benefits of each government expenditure program with the costs of raising taxes to finance those benefits, the right seeks to use a sledgehammer - not allowing the national debt to increase forces expenditures to be limited to taxes.

This leaves open the question of which expenditures get priority - and if expenditures to pay interest on the national debt do not, a default is inevitable. Moreover, to cut back expenditures now, in the midst of an ongoing crisis brought on by free-market ideology, would inevitably simply prolong the downturn.

A decade ago, in the midst of an economic boom, the US faced a surplus so large that it threatened to eliminate the national debt. (read more)