lordraphael wrote:Dolan wrote:2008 was the official date of its demise. Just like 1989 for communism.
1929 was probably worse than 2008 yet Capitalism is still there
Yes, it's important you bring this point into this discussion. Because the US administration and the Fed didn't really manage to re-boot the economy after the Great Depression. Only war mobilisation managed to bring the US economy back into growth territory. All policies used by economists failed to actually bring the economy back to its usual cycle of growth. After the war, the whole Western economy witnessed a huge demographic boom, on the heels of a general sense of optimism -- the war was over, the world had been largely pacified (well at least in the West). This sense of optimism translated into more material consumption, construction, investment. There was a lot to reconstruct too, especially in Germany and a few other European countries defaced by the war.
Capitalism has always had these flaws. Before 1929 there have been 47 recessions and a number of depressions only in the USA: the panic of 1797, the depressions from 1807, 1815-1821, the panics of 1837, 1857, 1873, 1893, 1907, the post-WW1 depression of 1920-21 (highest levels of deflation ever, 18%, high unemployment), then came the Great Depression, the mid 70s oil crisis combined with stagflation and high unemployment, the early 80s recession which also registered high unemployment (remember the bleak Detroit techno music? it was the product of that atmosphere). So, as you can see there is a consistent pattern of turbulence in the way capitalism works. Cycles of low growth, high unemployment and asset deflation seem to come about very frequently from time to time. Doesn't that make you wonder if it's a systemic flaw or just a fluke?
Anyway, the point still remains that a public institution (US govt) used public money to save private institutions from collapse, simply because they took high-risk financial bets. So when they screw up with their investments, the state jumps in and saves them, when they win, they keep the profits. Does the state do that for you? How is that a free market system?
Shouldn't the losers of a financial bet simply pay for their bad investments and go bankrupt? That's what should happen in a free market. That's not what happened. They were saved with public money, because they were "too big too fail". It was in every one's interest that their bilion dollar businesses were saved, and that includes the big bonuses of the Wall Street moguls. They get to have their businesses saved with public money, other ordinary people go bankrupt on an individual basis and the state doesn't save them using public money.
Not to mention that these big financial institutions have been getting bilions of dollars in cheap credit from the Fed, but this didn't trickle down to job creation in the real economy. Why? Because they just used the money to invest in stocks, bonds, paper assets, and so increase their profits. The Fed has a dual mandate: price stability and employment rate. How did the Fed's policies of cheap credit fulfil their mandate? For whom did these policies actually work?
And what's going to happen now that the Fed will start raising its short-term interest rates in the next period? Where do you think growth will come from?
