Wall Street: How good of an approximation for market-based capitalism?

Four months ago I challenged the LinkedIn community with a topic titled "Survival of Capitalism." Last week, one of my LinkedIn connections asked the question "Is capitalism dead?"

Needless to say, within the time between these two almost identical questions, the answers have taken quite different paths. Here's what I've learned myself, or how I replied to the second question:
There is a useful distinction between capitalism and free markets as illustrated by Arrighi and others. According to Arrighi, the US form of capitalism entered its final stage in the 1970s. Moreover, capitalism does not die, it just goes to live in another country, with better/more accommodating systems.

At this point in time, increasingly, the answer to your question is in the hands of the US creditor(s). They'll have an increasing say in how the capitalism evolves from here on.

On the other hand, I raised a very similar question to yours, about 4 months ago. I was not aware at that time of the distinction between capitalism and free markets, yet I felt there was something rotten in capitalism. Worth reading are all the answers at that time--see also the implicit "socialist" cries from folks in very regulated industries....
As I've been writing about markets and their actors for some time, allow me to reference the following: Wall Street: How good of an approximation it makes? ... for market-based capitalism?

1 comment:

Anonymous said...

(This letter was sent to Congress on Wed Sept 24 2008 regarding the Treasury plan as outlined on that date. It does not reflect all signatories views on subesquent plans or modifications of the bill)

To the Speaker of the House of Representatives and the President pro tempore of the Senate:

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.


Signed (updated at 9/27/2008 6:00PM CT)

Acemoglu Daron (Massachussets Institute of Technology)
Ackerberg Daniel (UCLA)
Adler Michael (Columbia University)
Admati Anat R. (Stanford University)
Ales Laurence (Carnegie Mellon University)
Alexis Marcus (Northwestern University)
Alvarez Fernando (University of Chicago)
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Baliga Sandeep (Northwestern University)
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