The Financial Times: Capitalism Has Failed

Yes, that is the underlying message delivered today by one of the world's leading financial publications. For many of us, this is no surprise: you had to be truly ignorant to pretend like the economic system was a success just based on the growing divide between rich and poor over the past decade, and the three-decade long decline in wages in the country. Still, to see the FT pronounce the obvious is refreshing.

The article in written by Martin Wolf, one of the FT's main economic gurus who I don't always agree with but who always writes something sophisticated. His piece kicks off a new FT series dubbed "The future of capitalism". His first paragraph:

Another ideological god has failed. The assumptions that ruled policy and politics over three decades suddenly look as outdated as revolutionary socialism.

And this is precisely what many people have argued for many years--many people who were laughed at, ignored by the media talking heads and policymakers, and scoffed at as just people who were not willing to get with the new, great global economy. There were some voices who pointed out, amid the noise of the nonsense of the "Dow 35,000" (can we hang those people?) and the stupid nonsense about the "free market" and "free trade, that something was gravely amiss...as in, the actual vast majority of people were not having such a great time.

Wolf continues:

How did the world arrive here? A big part of the answer is that the era of liberalisation contained seeds of its own downfall: this was also a period of massive growth in the scale and profitability of the financial sector, of frenetic financial innovation, of growing global macroeconomic imbalances, of huge household borrowing and of bubbles in asset prices.

And...

Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard argue that the era of liberalisation was also a time of exceptionally frequent financial crises, surpassed, since 1900, only by the 1930s. It was also an era of massive asset price bubbles.

Indeed, we saw these asset bubbles, under Democratic and Republican Administrations, but, no matter how many times they popped, no one really wanted to say, "stop, this isn't a way for our economy to run". Why? For a combination of reasons: some people got very rich, a lot of politicians continued to get paid off in campaign contributions by people who did not want to see fundamental change and, frankly, dumb, incompetent economic managers who were still, for some reason, given worldly seer status (Robert Rubin and Alan Greenspan come to mind).

How many times, in the past three decades, do you remember hearing about how wonderful our economy was? The noise obscured this fact:

This show what really was happening--people were working their asses off and not getting paid. Which forced people to rely on credit cards and home equity and...well, you know where that story ended up.

Wolf continues:

We are witnessing the deepest, broadest and most dangerous financial crisis since the 1930s. As Profs Reinhart and Rogoff argue in another paper, "banking crises are associated with profound declines in output and employment". This is partly because of overstretched balance sheets: in the US, overall debt reached an all-time peak of just under 350 per cent of GDP - 85 per cent of it private. This was up from just over 160 per cent in 1980.

And buttressing that today is the World Bank report forecasting the worst economy since World War II:

In one of the bleakest assessments yet, economists at the World Bank predicted on Sunday that the global economy and the volume of global trade would both shrink this year for the first time since World War II.

The World Bank said in a new report that the crisis that began with junk mortgages in the United States was causing havoc for poorer countries that had nothing to do with the original problem.

As a result, it said, nations in Latin America, Africa and East Asia have had not only their growth stifled but their access to credit as well.

As for the stock markets, The Wall Street Journal says today that it is possible that the Dow will go below 5,000 (where are those morons who predicted Dow 35,000?):

As earnings estimates are ratcheted down and hopes for a quick economic fix fade, the once-inconceivable notion of returning to Dow 5000 or S&P 500 at 500 looks a little less far-fetched.

A decline to 500 on the S&P is 183.38 points and 27% away. The index already has lost 881.77 points, or 56%, since its peak in October 2007. The index, which lost 7% last week, hasn't been below 500 since 1995, when the tech-stock bubble was just beginning. After dropping 6.2% last week, the Dow is 1626.94 points and 25% above 5000, a level it also hasn't seen since 1995...

...Some analysts who look at stock price trends see the indexes heading much lower.

"There's a good chance the market could keep going lower," says Bill Strazzullo, chief market strategist at Bell Curve Trading.

At the end of the article, Wolf reaches the following conclusion:

At the extreme, the integration of the global economy on which almost everybody now depends might be reversed. Globalisation is a choice. The integrated economy of the decades before the first world war collapsed. It could do so again.

On June 19 2007, I concluded an article on the "new capitalism" with the observation that it remained "untested". The test has come: it failed. The era of financial liberalisation has ended. Yet, unlike in the 1930s, no credible alternative to the market economy exists and the habits of international co-operation are deep.

"I've a feeling we're not in Kansas any more," said Dorothy after a tornado dropped her, her house and dog in the land of Oz. The world of the past three decades has gone. Where we end up, after this financial tornado, is for us to seek to determine.

I agree with him--but only to a point.

The WAY IN WHICH the integration of the global economy was undertaken may be reversed. Note my emphasis--the WAY IN WHICH. Most people I know who opposed the "new capitalism" did so because they saw the seeds of the collapse of the system because it was based on punishing workers and seeking out efficiencies based simply on finding the lowest wage possible.

We did not--and do not--oppose integration among countries. That was just a phony part of the debate--people have been integrating, in different ways, since the beginning of human history. What we opposed were the rules, or the lack of rules, that, in fact, built the very foundation of this perverted system that has now collapsed on itself (and, in a front-page article in the same FT, the paper reports that the Asian Development Bank will report today that "Falls in the value of financial assets worldwide have reached more than $50,000bn, equivalent to a year's economic output"...that's 50 Trillion, folks).

Now, as Wolf says, the world of the past is over.

And the optimistic part: we can now rebuild an economy that values broad prosperity over greed. Let's get to it.

Comments

[Lt]

capitalisim is a greed driven system, such an immoral system can not stand forever,


we now see the effects of this voodoo economic theory on the real population,


not the false population as measured by the daily DOW indices.

[jsarets]

My model for post-capitalist globalization is free trade of economic goods with steep tariffs or outright bans on the export or import of financial goods. As long as capital is relatively immobile across geopolitical borders, inputs and outputs can be freely exchanged without promoting the displacement of labor.

[RoloTomassi]

Thanks to Mr. Tasini for an excellent article and some very valid points at the end.

"God money" has danced on the "backs of the bruised" until the bruised have collapsed. Protectionism is making a big comeback all over the world, and our financial "Masters of the Universe" and their faithfully clueless sycophants can keep up the rhetoric until they turn blue in the face; the world is changing, and hopefully it will change in a manner that is very displeasing to their "cheap labor" on the "global free market" mindset.

But we can't afford to underestimate the fact that nothing is given; this is a profound opportunity for the working class through labor movements, but it must be pursued in a far more vigorous manner if it is to succeed. As broken as the US & world economies are right now, the slimy cretins on Wall St. will exert every bit of political clout they have in an attempt to return to the same model--and that really doesn't need to happen.

We need to rebuild a REAL economy, and push to marginalize Wall St. in every way possible; their importance to our well being is largely an illusion foisted upon us and the rest of the world by their delusions, their greed and their sense of SELF-IMPORTANCE above all else. The so-called "Liar's Loans" were just one of many means to get the masses to go along for the ride.

[Craig1982]

What I find disturbing is how nobody in our government is talking about how to truly fix the system. Right now all they are doing is just throwing money at everything and just trying to put off the inevitiable. Nobody is talking about overhauling the system or putting the necessary legislation in place to prevent things like this from ever happening again. Obviously we will never get it perfect but it's quite obvious that the system is broken and it does not seem that anybody has any real solutions. I think that we are headed for some serious trouble if they don't do something soon, and I'm not talking about these disastrous bailouts I'm talking about a real change in the way America does things. And from the looks of it Obama does not have that vision and certainly has not learned from the mistakes of the Bush administration. Folks we are in trouble.

[RoloTomassi]

All of the folks we are lloking to for answers--government officials, financial gurus, worldwide policymakers--are in a collective pressure cooker of their own making; they cannot refute the system, but they cannot embrace it either, as they now know it isn't sustainable. Financial analysts and economists in the US [those who are not strictly academic in function] are mostly sworn free market fundies, and they would be branded as traitors to Milton Friedman's holy way.

The pols are in much the same boat; damned if they do, damed worse if they don't. It cannot be underestimated just how deeply ingrained the acceptance of free market fundie dogma in our world has become; think about it--how many GOPers would dare to say that they support a move away from globalization and free markets? Also understand that free market fundie dogma has been on the same level as anti-communist rhetoric during the 1950s; to embrace even the more controlled variation of Keynesian capitalism will still get you labeled a socialist among Wall St. sycophants.

We need some serious change--but somewhere along the way we have to start facing reality, and that means some serious "re-programming" in regards to what is possible and acceptable in the realm of economics.

[Thordeer]

Why does every single article about the economy end in "But we are certain the economy will pull through"? We will not.

We are in the death throes of our way of life. We have chosen to fully integrate with the rest of the world, are competing with people at 1/4 our annual wages and willing to work much much harder than we are, and we have been surviving primarily on debt.

Our standard of living will be defined from now on by that of a hardworking Mexican or southeast Asian immigrant doing all our service work--building our houses and taking care of our elderly--and hardworking Chinese, Indonesians and Indians making everything that can be shipped--making toys, electronics, toys, furniture.

Our education system has failed, our family institutions have failed, our economy has no backbone--it was based mostly on high-paid service work led by Wall Street--and the world's work is now done at 1/4 of US wages. Malthus told us--in different words--200 years ago, that people would keep having kids, population growth would race with technological and organizational change and win, leaving us all at the subsistence level of living. We skirted that prediction for 250 years. No longer.