Has Capitalism Run Out of Gas?
By Shlomo Maital
Capitalism – free market economics – has run out of gas. Here is why.
We continue to blame the ongoing financial crisis. But in the U.S. that ended a while ago, and American banks have cleaned up their balance sheets, and J.P. Morgan has even agreed to pay a $13 b. fine (a tiny indication of how much money they’re making anyway). But the ‘recovery’ is stalled, the government shutdown made it worse, and a nagging question arises: Has capitalism run out of gas?
As New York Times columnist Paul Krugman asks in his latest column, “what if the world we’ve been living in for the past five years [unemployment, stagnation, shrinking trade] is the new normal? What if depressionlike conditions are on track to persist…but decades?”
U.S. household debt is again at record levels and continues to rise, as Americans try to maintain living standards despite stagnant incomes, by borrowing – even though businesses are deleveraging (shedding debt). GDP growth is anemic.
Krugman cites economist Larry Summers, who told the IMF’s annual research conference that even WITH the housing bubble, U.S. economic growth was not that great –let alone without it.
What is going on?
I think the answer is clear. With nearly 75 per cent of GDP coming from personal consumption, America’s capitalist system needs people to keep on spending and spending, to buoy the economy. But we are beginning to wake up to a bitter fact – we work harder and harder, longer and longer, to earn more and more, to buy stuff that brings us no satisfaction or sustained wellbeing, and lose twice – we lose quality time with our families, and find the price we pay for the resulting income, the useless stuff we cram into our closets, brings no compensation. Two-time losers.
There is a solution. If we could replace some of the wasteful personal consumption with useful business investment, in infrastructure, schools, highways, fast trains, public transportation, universities, airports, fast broadband — all the stuff that could repair America’s obsolete infrastructure — the economy would indeed grow. But businesses are simply sitting on their cash, holding it mostly abroad, seeing no reason to invest if consumers are not spending much. It’s a doom loop closed circle. China resolved it by having the government undertake infrastructure investment. In America this is called ‘socialism’ and even Democrats dislike it. Too bad.
We need to rethink the whole capitalist system. When it runs out of steam, because people tire of buying the same old stuff and nothing really new comes along, we are all in trouble. Nothing any individual does can help much. We need to get together, rethink the system, and invent a new one that truly does focus on the wellbeing of individuals and families, on the question, what truly brings sustained happiness? Here is a clue – you can’t find it in a shopping center.