Capitalism is an irrational system


Economist Paul Krugman, in his new book - End the Depression Now! - and recent opinion columns in the New York Times, expresses exasperation with sections of the political and economic elite on both sides of the Atlantic over their stewardship of the economy.
Krugman says too many people at or near the levers of power are choosing austerity policies that could well send the world into a far deeper economic quagmire.

What drives him nearly crazy is that other choices exist and could easily be pursued if the will were there on the part of highly placed decision-makers. Such choices include accenting government spending, allowing for modest inflation, and economic growth. These would, says Krugman, lift the global economy out of the doldrums, including bringing the unemployment rate down from its current depression levels.

But to his consternation, the language and practice of austerity drowns out the voices of reason and economic revival both here and in Europe.

So the question is: What explains this seemingly irrational attachment to policies that leave the U.S. and Europe in stagnation and could well throw both (and the world for that matter) into a deep depression?

The answer has three parts, all interrelated.

First of all, proponents of austerity in high places ( the most zealous are on the political right - Merkel in Germany, Cameron in the UK, and the Republicans in the U.S. Congress) are tethered to an erroneous economic argument. That is, that belt-tightening is necessary for economic expansion because it boosts investor confidence, tamps down inflationary pressures, and prevents evil public capital from crowding out sacred private capital in the marketplace.

But this argument has been ably refuted on numerous occasions by Krugman and many others. And it has proved terribly wanting in countries where it has been the practice.

Second, behind every policymaker espousing austerity is not some defunct economist as John Maynard Keynes once suggested, but powerful corporate class interests, and especially finance capital.

For these interests, a protracted economic downturn, as we are now experiencing, is an opportunity as well as a crisis. On both sides of the Atlantic, it is a singular moment for big capital to radically rearrange to its advantage the economic and power relations that have been embedded in advanced capitalism for more than a half century.

We make a mistake if we think that the top tier of monopoly capital is committed to a robust recovery that would lift all boats, to the reproduction of capitalism on an expanded scale. That fiction is best left in introductory economic textbooks.

A capitalist economy oscillating around a low level of economic activity not only is capable of generating profits, but can also strengthen the bargaining hand of capital against labor and the popular movement. Indeed, a world economy characterized by overcapacity, stagnation, and intensified competition, provides optimal conditions for rolling back the political and collective bargaining rights and benefits won in an earlier period of capitalist development.

Finally, capitalism, we should not forget, is an irrational system. Its commitment to the structural logic of capital accumulation and profit maximization makes it so. This has always been the case, but it takes on even greater force in this era of structural crisis and environmental destruction on a global level. No matter where we turn, it seems like capitalism is aggressively pursuing polices that make no sense from the standpoint of humanity, economic sanity, and nature.

Capitalism needs to be replaced.

Photo: "Your greed = our crisis? No way!" Banner held by Croatian union members in a European trade union demonstration on the theme "No to austerity - For social Europe, for fair pay and for jobs," April 9, 2011, in Budapest. HatM CC 2.10

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  • Sam

    A good, concise (sometimes less is more) update on the irrationality of capitalism.

    But may I offer my thought that the headline misses the mark.

    Had it included a mention of Krugman's consternation/frustration with the choices the movers and shakers are making the headline would have had a stronger "grab" to it.

    And who knows, it might have even "grabbed" Krugman to respond. It is, after all, a "friendly" contribution. (I won't hold my breath though)

    We should always seek to invite dialogue from outside in these times; perhaps especially in these times.

    In comradely solidarity.

    Posted by Bill Appelhans, 07/11/2012 6:00pm (3 years ago)

  • Capitalism should be erased!

    Posted by Victoria Bouple, 07/08/2012 9:43am (3 years ago)

  • Simple. To the point. And true. Thanks Sam.

    Posted by José, 07/06/2012 10:42am (3 years ago)

  • We need a book explaining basics of capitalism and concomitant solution- socialism, written on a level suitable for teens to understand. I cannot find it anywhere. There could be a series of books: capitalism and the environment, capitalism and the economy, capitalism and racism, etc.

    Posted by Hugh Breyer, 07/06/2012 8:18am (3 years ago)

  • _ISM'S of the world are not evil . It is People who are evil. Tell me Communism under Pol Pot was not evil.
    Capitalist and their war machines in the U.S. can certainly be in the same class as a destructive force using the worker bees to reach their objective.
    So in the end when will the worker learn to protect him/her self against those who only use them for their own agrandisement.

    Posted by SwampFox, 07/05/2012 9:09pm (3 years ago)

  • I would like to change the closing statement to: "Capitalism MUST be replaced!"

    Posted by Mark Huckeby, 07/05/2012 6:46pm (3 years ago)

  • Mr. Webb is absolutely correct in his views of capitalism---a system where the needs of a few have importance than the needs of the many. Austerity for the many is hardly unless it is directed at capitalism and its policymakers. America needlessly spends billions for defense needs that don't exist, to fight wars we don't need, to fly missions against enemies that don't exist, with planes we either cannot afford manned by pilots who are afraid to fly them. Austerity for the Pentagon and it warlords will bring a new era of prosperity. We have it have had before, and we can have it again.

    At the end of the Cold War defense was slashed and the economy prospered like never before. The internet was born and anyone who wanted a job could have one. Alan Greenspan, Fed chairman at the time, told congress that in his 50 fifty years of service, he had seen nothing like the prosperity he was witnessing. We can have those times again if we have the will to do it. The future cannot wait.

    Posted by James Bailey, 07/05/2012 3:58pm (3 years ago)

  • Yes, capitalism in its present form needs to be replaced. When the greed for profits means that the people have to suffer, then capitalism has out lived its welcome.

    Replace it with a modified socialism which retains some of the free market qualities. Do away with the big banks and dismantle Wall Street. All Wall Street is is a monumnt to greed. There should be no such thing as public shares in a private company.

    Posted by Ronald Humphrey, 07/05/2012 3:40pm (3 years ago)

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