Despite the ubiquitous presence of reflective, hindsight-driven articles, editorials and essays on the “lessons learned” following the disastrous economic performance of most of the major economies since the summer of 2007, I must admit to not having been shaken much by their conclusions and various recipes. However, this last week has resulted in a turning point for me on this issue.
Reading up on JK Galbraith’s excellent “The Culture of Contentment” has served to soften the all-believing capitalist in me. Indeed, in the space of a few days or, to be more precise, just under 200 pages of reasoned arguments, I have come to embrace, if not whole-heartedly adhere to, the concept of capitalism as a less-than perfect model for societal progress. To borrow from a famous phrase delivered by Winston Churchill in reference to democracy, I‘d be inclined to say: “capitalism is the worst economic system except for all the others that have been tried”
Perhaps indirectly, (given the fact that none of the events of the on-going financial debacle could possibly be relayed in a book first published in 1992), there is little doubt that Professor Galbraith’s sharp observations have heightened my skepticism of the magic of the markets. With these reflections in mind I offer some thoughts.
What truly amazes me is the revelation about the extent of the “double-standards” used by those who, (at least in their rhetoric), defend the free-market in earnest and yet have no qualms betraying its basic principles. The bail-out of AIG and the remarkably ill-timed acquisition of Merrill Lynch by the (implicitly) government-backed Bank of America, are just two glaring instances of this hypocrisy in full swing.
Within the space of two short years we have been privy to the whims of a Mr. Henry Paulson, once the recipient of multi-million dollar bonuses resulting from the “extraordinary” performance of the firm (Goldman Sachs) he headed as recently as 2006. Fast-forward to 2008, and this same “visionary” is now safely entrenched as the US Treasury Secretary; green-lighting the bail-out of his former competitors and indeed his own former employer’s last-minute switch to commercial banking status in a covert effort to escape a potentially fatal liquidity crisis.
Surely this behaviour is but an aberration. Apparently not so. Day in, day out, evidence comes to the surface about the inconsistency of the so-called “laissez-faire” crowd. It seems obvious to me that an approach that can be manipulated as easily as the capitalist stance can, is not one of solid foundation and even less, of viable application.
Does this mean we should discard Adam Smith’s principles and seek a new dogma to guide us in our economic ways?. Not quite, but we must remain vigilant of the ample room available for manipulation at the hands of the powerful few. Moreover, if it were not for its imperfections, excesses and periodic boom-and-bust cycles, opportunities for value-seeking investors would be even more scarce than they are under normal circumstances.
Returning to where we started, one must not lose sight of Galbraith’s views. Although considered anachronistic during the pro-market, small-government and low-tax orthodoxies which came to prominence in the 1980s, they are now,and rightly so, at the forefront of public interest and are likely to remain that way for months and years to come.
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