How Capitalism Went Off the Rails

How Capitalism Went Off the Rails

In Bret Stephens' thought-provoking article “How Capitalism Went Off the Rails,” you are invited to explore the intricate layers of modern capitalism and the systemic issues that have led to widespread dissatisfaction. By focusing on the impact of ‘easy money' policies, Stephens articulates how ultra-low interest rates have warped financial markets and asset values, shifting prosperity away from the middle class and into the hands of a select few. As these policies produced astonishing inflation in both real and financial assets, the resultant economic imbalance has stoked a growing sense of inequity and unfairness. Through detailed analysis and keen insights, Stephens provides a compelling narrative on why capitalism, once an engine of broad prosperity, seems to be derailing in the modern age. Have you ever wondered why there's a growing dissatisfaction with capitalism, a system once hailed as the harbinger of unmatched prosperity? If you're feeling that there's something fundamentally off with the way things are run economically, you're not alone. Bret Stephens delves deep into this issue in his revealing article, “How Capitalism Went Off the Rails.”

How Capitalism Went Off The Rails

Introduction

The Group of 7 (G7) countries recently held a meeting in Italy that might have set a record for unpopularity. Leaders like Giorgia Meloni of Italy and Emmanuel Macron of France showed approval ratings ranging from around 40 percent to a dismal 13 percent for Japan's Fumio Kishida. This widespread lack of trust is not an anomaly; it's the status quo. Surveys and studies have repeatedly shown that a significant majority of people distrust capitalism and worry that they and their families will not be better off in the coming years.

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The Crux of the Issue: Easy Money

Ruchir Sharma, chairman of Rockefeller International and a Financial Times columnist, nails down the problem of capitalism in two words: “easy money.” Sharma's new book, “What Went Wrong With Capitalism,” offers a detailed argument on how low and even negative interest rates have distorted the fundamental dynamics of our economies. When borrowing costs nothing, the prices of everything else go crazy.

Real Estate: A Case in Point

Consider the housing market. In 2010, the median sale price for a house in the was around $220,000. Fast forward to the start of this year, and it's over $420,000. This spike isn't just a number; it's a sign of a deep-rooted issue. When money is cheap to borrow, people and institutions borrow more, driving up prices and creating bubbles that are unsustainable.

The Inflation Conundrum

The most striking evidence of this issue is visible in global financial markets. In 1980, the total worth of these markets was $12 trillion, equivalent to the size of the global economy at the time. Post-pandemic, these markets were valued at a staggering $390 trillion, approximately four times the world's total GDP. On the surface, this should benefit regular folks through their 401(k)s and cheap mortgages. But in practice, this has tilted the balance heavily in favor of the very rich.

The Downside of Easy Money

Let's dig deeper into the downside of easy money and how it has altered the essence of capitalism?

Inflation Across the Board

Initially, easy money inflated the prices of real and financial assets. This was followed by consumer price inflation. The final act in this tragic play was the rise in financing costs as interest rates started climbing to counteract this inflation. This leads to political pressure to revert to easy-money policies, creating a vicious cycle.

Who Really Benefits?

While easy money theoretically should benefit everyone, real-life evidence shows it primarily serves the old and the wealthy. This shift has compromised the fundamental promise of capitalism—to be an engine of middle-class prosperity.

A Historical Perspective

To understand the present, it's essential to look back at how capitalism evolved and where it took a wrong turn.

Post-World War II Boom

In the aftermath of World War II, capitalist economies flourished. The Marshall Plan helped rebuild Europe, and there was a general sense of optimism. American manufacturing was at an all-time high, and the middle class was expanding. It was an era where the promise of capitalism seemed all but assured.

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The 1970s Stagflation

The 1970s brought a stark contrast to this period of prosperity. Stagflation—a combination of stagnation and inflation—intruded into the economic landscape, causing widespread confusion and discontent. Policies tried to combat this but often fell short, leading to a reevaluation of economic principles.

The Reagan-Thatcher Era

The 1980s, led by figures like Ronald Reagan and Margaret Thatcher, saw a strong pivot toward deregulation, tax cuts, and policies favoring the wealthy. While these changes did spur economic growth, they also planted the seeds for the current discontent. The rich got richer, and the poor and middle-class struggled to keep up.

How Capitalism Went Off The Rails

Capitalism in the 21st Century

We've now entered the 21st century with more advanced technology and a more interconnected world. However, the fundamental flaws within capitalism have become more pronounced.

The Role of Technology

Technology, while a great equalizer in theory, has also become a tool for the concentration of wealth. Tech giants like Amazon, Google, and Facebook are worth trillions and operate almost without check. Their dominance leads to fewer opportunities for smaller players and increases economic disparity.

Globalization and Offshoring

Globalization brought numerous benefits, but it also led to job losses in developed countries. Manufacturing jobs were offshored to cheaper labor markets, leading to unemployment and economic discontent in traditional strongholds like the American Midwest.

Current Economic Policies and Their Discontents

Given this complex background, the current economic policies aimed at addressing these issues often act as Band-Aids rather than solutions.

Stimulus Packages

Governments worldwide have relied heavily on stimulus packages to keep their economies afloat, especially during crises like the COVID-19 pandemic. While these measures do provide short-term relief, they often exacerbate long-term problems, including inflation and increased national debt.

Rising National Debt

National debt levels are at an all-time high, leading to concerns about fiscal sustainability. High debt levels could restrain future economic growth and impose heavy burdens on the younger generation.

How Capitalism Went Off The Rails

Personal Debt: A Growing Crisis

While national debt is a big concern, personal debt levels have also skyrocketed, affecting day-to-day lives for .

Student Loans

In the , student loan debt has reached alarming levels. Many graduates struggle with repayments for decades, reducing their ability to invest in homes, start families, or save for the future.

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Credit Card Debt

Credit card debt is another concern, as people rely more on credit to manage their day-to-day expenses. This creates a cycle of debt that's challenging to break, especially with rising interest rates.

Income Inequality: A Dark Underbelly

One of the most pressing issues in modern capitalism is the ever-growing gap between the rich and the poor.

Wealth Concentration

The wealth of the world's richest individuals continues to grow at an alarming rate. According to the latest statistics, the top 1% holds more wealth than the rest of the world combined.

Impact on Social Mobility

This concentration of wealth severely hampers social mobility. The chances of moving from one economic class to another are dwindling, creating a rigid societal structure where the rich stay rich and the poor struggle even harder to climb the economic ladder.

How Capitalism Went Off The Rails

Possible Solutions and Future Prospects

The situation might look dire, but there are potential ways to course-correct capitalism and make it more equitable.

Progressive Taxation

One of the most frequently suggested solutions is a progressive tax system where the wealthy pay a higher tax rate. This additional revenue can be invested in social programs that benefit the middle and lower classes, potentially leveling the playing field.

Universal Basic Income (UBI)

Universal Basic Income is another revolutionary idea gaining traction. The concept is simple: provide everyone with a basic income to cover essential needs. This could reduce poverty, improve general well-being, and stimulate economic activity.

Reinventing Corporate Governance

Many argue for improved corporate governance standards, including stakeholder capitalism, where companies are responsible to not just their shareholders but also their workers, customers, and the broader society.

Education and Skill Development

Investing in education and skill development can also address some of the economic disparities. As the job market evolves with technology, providing workers with the skills they need to compete is crucial for economic mobility.

Political Will and Public Opinion

Policy changes are only possible if there is substantial political will and public support.

Role of the

Governments need to play a proactive role in implementing policies that address economic disparity. This requires a shift from short-term political wins to long-term strategies aimed at societal well-being.

Citizens’ Role

As a citizen, your voice matters. Voting for representatives who prioritize economic reforms and holding them accountable is essential. Public opinion, when united, can drive significant change.

How Capitalism Went Off The Rails

Conclusion

The dissatisfaction with modern capitalism stems from deep-rooted issues that have developed over decades. From easy money policies to a concentration of wealth, from technological dominance to rising personal and national debt—all these factors contribute to a system that no longer serves the majority.

However, it's important to remember that changes are possible. Through progressive policies, active political participation, and a collective will to address these issues, we can steer capitalism back on track. While the journey may be challenging, the promise of achieving a fairer and more prosperous society makes it worth the effort.

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