Economics

No, market capitalism is not dead

Is it my curse in life to forever have to defend America’s late 20th century rejection of statism and stagnation and re-embrace of market capitalism/economic freedom/innovation?

Well, somebody has to do it, I guess. The great truths must be repeated again and again and again lest they be forgotten. Such is life.

Just today, we have the following:

Jeffrey Sachs in the FT:

The Republicans live in a world in which the rich are the only worthies in the society (the “job creators”), the unemployed and poor should fend for themselves, and public goods do not exist. And they do so despite thirty years of failed trickle-down policies that have created unprecedented inequality, deepening poverty, and no solutions to the loss of jobs.

Paul Krugman in the NYT:

The point, then, is that we’d be in much better shape if we were following Reagan-style Keynesianism. Reagan may have preached small government, but in practice he presided over a lot of spending growth — and right now that’s exactly what America needs.

Howard Gold of MarketWatch: (just the headline on this one): “It’s time to bury supply-side economics.”

A brief history of the past 40 years. After the early 1970s, growth in advanced economies slowed. Perhaps we became mired in an innovative lull as Tyler Cowen has suggested. Or perhaps it’s just that Europe was done playing catch-up after WWII, and America’s unique and unsustainable position of post-war dominance was over.

But some nations slowed more than others. Those that embraced market capitalism/economic freedom/innovation—less government intervention, lower marginal tax rates—outperformed those that didn’t. (And poor measurement of inflation likely causes America’s performance to be understated.)

There’s no reason that formula isn’t as valid in 2012 as it was in the 1980s or 1990s. The U.S. should be looking to create a pro-investment tax code, eliminate anti-growth regulation, and rearrange federal spending to promote innovation and a financially sustainable safety net. To the extent we need to counter deleveraging and deflation in the economy, that would be better done by the Fed than via more fiscal stimulus—creating a permanently higher level of spending—based on dodgy multipliers.

Free enterprise can still deliver the goods if we let it.

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