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The New Debate About Capitalism

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The current Republican nomination contest has revealed serious confusion over the nature of our economic system. Very conservative candidates are attacking Governor Romney because his experience at Bain Capital involved buying companies with borrowed money, firing their employees, then selling them for a profit. Many, though not all, of these companies then went bankrupt, and Mr. Romney and his partners made millions. Sounding very much like Democrats, Mr. Romney's opponents are highly critical of this kind of capitalism.

Traditional capitalism was based on the idea that business people would invest money, usually borrowed, to establish a business, hire people, and make and sell things. Risk was involved, but jobs were created and profits were made. Traditional Republicans, including those now attacking Mr. Romney, still believe, as do most Americans, that this is the way our economic system should work.

The confusion within the ranks of capitalism is stimulated by the shift in our economy from making and selling things to manipulation of money. The rise of the money culture began a couple of decades or more ago and involves mergers and acquisitions, venture capitalism, leveraged buyouts, workouts and turnarounds, currency speculation, and arbitrage. While the money culture was booming, traditional capitalism based on manufacturing was declining. The national government had to intervene to save what was left of the American auto industry.

The money culture led directly to the housing bubble and subsequent economic collapse in 2008, from which we are still struggling to emerge. Unlike traditional capitalism, it is oriented toward the short term, not the long term, and toward quick profit, not productivity. If tens of millions of dollars can be made in bundling high-risk mortgages and collateralized debt obligations in a few months, why go to the trouble of building a factory, hiring and training workers, and producing a product that is competitive in world markets with profits emerging sometime down the road?

The Tea Party blames our government for this situation, and Occupy Wall Street focuses on the money culture (Wall Street). The government did not create the money culture. And public deficits, so much the focus of the Tea Party, arise from insufficient revenues to pay for the programs, including Social Security and Medicare, that most Americans, including Tea Party members, want. The money manipulators, now the focus of Republican candidates, manage to find intriguing ways, including off-shore bank accounts, to avoid paying fair taxes.

All of this is pretty well-known. What is surprising is that it is now being discovered and strongly criticized by Republican leaders who, up to now, have been silent on this transformation of American capitalism. While struggling to convince the American public that Barack Obama is a socialist, it is very easy to overlook the drift of our market economy away from its traditional roots into something resembling a high-risk, high-rollers', fast-shuffle casino that produces nothing except massive incomes for one-percent insiders. Republican leaders are now welcome to the struggle to return our market economy to its true purpose and original intent.