As we head into the weekend that traditionally inaugurates our year-end orgy of consumption, our thoughts inevitably turn to the nature of capitalism. I woke up this morning with the following three thoughts in my head (like most before-breakfast thoughts, these are hardly novel, but nevertheless I am taking this occasion to contemplate them):
- As far as I can tell, from reading newspapers and economists' blogs, the current world economy is supported by Americans' buying the world's goods on credit, and thereby accumulating unsustainable amounts of debt. Yet if Americans were to stop buying goods on credit, and start paying down this unsustainable debt instead, the resulting hit to the Asian export economies would drag the whole world economy into depression. Conversely, if Americans don't pay down their debt, then eventually either Asian banks will stop extending their credit lines, or America will default on its debt, either of which will also be a disaster. I'm not an economist, but something's wrong with this setup.
- The theory of free markets is a beautiful collection of mathematical constructions, but the conditions under which markets are maximally efficient --- e.g., high symmetry of information, low transaction costs, low barrier to market entry, low network effects --- have, in practice, only been achieved under highly artificial (highly regulated) conditions.
- Central economic planning is nearly-universally acknowledged to be a disaster. However, as far as I can tell, a nontrivial fraction of the American economy is centrally planned by Wal-Mart, and Wal-Mart is a spectacular success by all the usual capitalist measures.
I think what I'm suggesting by the sum of these thoughts is that there's something rotten in the state of markets. The industrial Communist nations fell, so everyone assumes that Capitalism proved its merit and won. It seems more accurate to say: Communism fell, and Capitalism is still awaiting judgment.