Why capitalism fails

[tk2kewl]

Why capitalism fails

The man who saw the meltdown coming had another troubling insight: it will happen again

http://www.boston.com/bostonglobe/ideas/articles/2009/09/13/why_capitalism_fails/?page=1

By Stephen Mihm
Boston Globe

Since the global financial system started unraveling in dramatic fashion two years ago, distinguished economists have suffered a crisis of their own. Ivy League professors who had trumpeted the dawn of a new era of stability have scrambled to explain how, exactly, the worst financial crisis since the Great Depression had ambushed their entire profession.

Amid the hand-wringing and the self-flagellation, a few more cerebral commentators started to speak about the arrival of a “Minsky moment,” and a growing number of insiders began to warn of a coming “Minsky meltdown.”

<snip>

To prevent the Minsky moment from becoming a national calamity, part of his solution (which was shared with other economists) was to have the Federal Reserve - what he liked to call the “Big Bank” - step into the breach and act as a lender of last resort to firms under siege.

<snip>

Minsky’s other solution, however, was considerably more radical and less palatable politically. The preferred mainstream tactic for pulling the economy out of a crisis was - and is - based on the Keynesian notion of “priming the pump” by sending money that will employ lots of high-skilled, unionized labor - by building a new high-speed train line, for example.

Minsky, however, argued for a “bubble-up” approach, sending money to the poor and unskilled first. The government - or what he liked to call “Big Government” - should become the “employer of last resort,” he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else’s wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

http://www.boston.com/bostonglobe/ideas/articles/2009/09/13/why_capitalism_fails/?page=1">more...

[safeinOhio]

1. A little salt can save the stew.

[tk2kewl]

2. kicking for “bubble-up”

rather than “trickle-down”

[Blue Meany]

3. Any kind of safety net is naturally going to lift workers salaries

by keeping some people out of the job market. I"ve always thought that anyone who is willing to live on welfare ought to get it, no quetions asked, simply because it serves the common good of those who work for a living. That, I'm sure, is why the GOP is so consistently against helping the poor.

[unblock]

4. bubble-up seems so much more obviously better than trickle-down for the economy

nevermind how it's obviously better for poor people.

rich people will ALWAYS be comfortable and will ALWAYS find a way to extract wealth from poorer people. so they'll be fine with bubble-up. the thing is, they'll have to WORK for it. but isn't that what an economy is supposed to do? make the people with assets put the assets to work, satisfying demand from the people?

poor people, on the other hand, are, for the most part, at the mercy of the economy to provide them with jobs needed to sustain them. bubble-up helps them directly, so even if the economy sucks, the poor are protected. whereas, if (hah! ... if!) trickle-down fails, the poor are screwed.

[tama]

5. Minsky trap

The trap of growth paradigm still prevails.

[paparush]

6. But, but, but..bubble up is S..L..O..W and the margins on Afghanistan Q3 are looking juicy.

[MemeSmith]

7. Why capitalism fails

It's not difficult if you consider all companies to be one large entity, a Capital Inc, so to speak.

This corporation employs a number of people who provide the goods and services that it sells. It gives those people some of the revenue.

Unfortunately, those people are also its consumers, so that in the next cycle of production, they only have some of the money needed to buy a full cycle's worth of goods and services.

That's why economic activity is controlled by the availability of lending. Without lending, the employees can't afford to sustain the corporation's revenues.

Get a ruler, draw a line through the dots. You end up in 2008 at the banking crash. Banks lend money to people who can't afford to pay it back, because they don't earn enough. The banks then collapse.

The banking crash of 2008 was predicted in the latter part of the 19th century, for exactly the reasons that I have described above...

by Karl Marx.

I don't have much time for him, generally, but I have to give him that one.

[Joe Chi Minh]

8. I should hope so. It was quite a major prediction one way and another.

More prescient, it would seem, than Milton Friedman's or anyone elses in the field of economics.

[ProudDad]

9. K&R - Best find of the day! (n/t)