The Eclectic One

…Because labels are a poor substitute for thinking

New Capitalism: Is the free market dead?

Posted by Bill Nance on September 23, 2008

Irwin Stelzer has published an interesting article today over at the New Republic entitled: “Visible Hands, the surrender of free-market capitalism.”

I’m not sure quite what to make of the article. It’s complex and weighty -well worth the read. I’m not entirely sure whether Stelzer thinks “New Capitalism” is a good thing or not. To be honest I think he’s still undecided. On the one hand he seems to be defending old-style Reaganesque de-regulation, but on the other he sees the inherent problems in such a system. On one thing he is conclusive however: No matter what happens in the short term, we are going to see a lot more regulation of capital.

“For whatever reason–good or bad–we are about to see equity given greater weight relative to efficiency as New Capitalists recast the tax structure erected in the last days of the Old Capitalism. Old Capitalists worry that if the marginal tax rate on the highest earners is raised from 35 to 40 percent, the wealthy will be less inclined to invest and take risks. New Capitalists, who would distribute those funds to the middle class, think it is worth sacrificing a small bit of efficiency to gain a great deal of fairness. This is the one area in which the Old Capitalists have not capitulated, and are mounting a last-ditch effort to preserve the Bush tax cuts. They will lose, whether to a President Obama or to a Democratic Congress that will drive an only apparently reluctant President McCain back to the position that he took when first confronted with the Bush cuts: They just don’t seem fair.”

Economic policy has been damnably difficult to figure out since the days of GHW Bush if not before.

As Stelzer points out:

“More than one billion relatively low-paid workers have entered the international labor market in the past decade, in a process that has come to be called globalization. These workers, whose wages and living standards have only begun to inch up from subsistence levels, compete directly with low-skilled workers from the United States and other developed countries. This new competition depresses wages in advanced economies, and threatens the jobs of workers who have done nothing wrong except to be in the wrong line of work at the wrong moment in economic history.”

The current crisis, combined with the longer-term institutional problems are giant issues. I think, finally, we are about to see some serious re-evaluation of the almost religious attachment to free-trade and regulation-free markets. What emerges of course, could be much worse, or much better. As always, the Devil will be in the details.


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