Monday, August 15, 2011

Does Karl Marx Get the Last Laugh?

Here is Nouriel Roubini, definitely not a communist or a socialist, asking the question "Is Capitalism Doomed?" in an article on Project Syndicate. Roubini is Chairman of Roubini Global Economics and Professor of Economics at the Stern School of Business, New York University. But he is truly worried that Lenin's dictum was right: "The capitalist will sell us the rope by which we will hang them.

Here is the key part of the Nouriel Roubini article:
So Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong). Firms are cutting jobs because there is not enough final demand. But cutting jobs reduces labor income, increases inequality and reduces final demand.

Recent popular demonstrations, from the Middle East to Israel to the UK, and rising popular anger in China – and soon enough in other advanced economies and emerging markets – are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness. Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.

To enable market-oriented economies to operate as they should and can, we need to return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of laissez-faire and voodoo economics and the continental European model of deficit-driven welfare states. Both are broken.

The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment. It also requires more progressive taxation; more short-term fiscal stimulus with medium- and long-term fiscal discipline; lender-of-last-resort support by monetary authorities to prevent ruinous runs on banks; reduction of the debt burden for insolvent households and other distressed economic agents; and stricter supervision and regulation of a financial system run amok; breaking up too-big-to-fail banks and oligopolistic trusts.

Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalized economy. The alternative is – like in the 1930s - unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.
I'm pretty well convinced anybody who becomes "top dog" is well on their way to being tossed out. I firmly believe in Lord Acton's maxim: all power tends to corrupts and absolute power corrupts absolutely. Those at the top get seduced by their success into thinking the lifted themselves by their own bootrstaps and truly deserve all the credit themselves. At least with an aristocracy, the aristocrats realize it wasn't their effort that put them on top but the ancient ancestors and therefore they have an obligation to "little people" to treat them with a noblesse oblige.

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