Is the market economy to be blamed for the dim outlook
the use of the word capitalism points to the left. Karl Marx and
Friedrich Engels invented the term capitalist and used it frequently in
"Das Kapital." In most of the Western world the journalists favour
socialistic economic principles. It is not a coincidence that the major
media channels have emphasized on the founders of the World Economic
Forum statement that capitalism is out of whack and are welcoming ideas
of how to fix it.
During all times we have had and will have economic cycles. It is
inevitable that recessions occur in any economic system. The free
market economy is in-itself extremely self-healing, as fare as the
political class avoid to intervene. Politicians in Europe like in US
believe that they must intervene and fix things. The US government is
deploying staggering amounts of money that it is spending, in the
belief that it can avoid a repetition of the 1930s. But it was exactly
what the FDR governemt did and what caused the long and deep depression.
Now when the enormous budget deficits are piling up and is enlarged by
sharply declining federal-tax revenues the left is blaming the market
Market economy is the only system that has worked to improve the
standard of living for the vast majority of the global population.
Never has the humanity achieved such staggering amount of wealth as
today. Economic growth from 5000 B.C. up until 1500 was next to no
growth in output per worker for the average human. Even during the
1800s the average human had a material standard of living (and an
economic productivity level) at best twice that of the average human
alive in year 1. The problem was not that there was no technological
progress. But there was no fundamentally free market economy before the
19th century. From 1800 to 2000 the GDP per capita has grown from $250
to a staggering $8,175.
fact that England became the leading nation in the industrial
revolution in the 19th century was not depending on the steam engine
and other innovations. That England initiated the industrial revolution
depended solely on that the government was strong enough to protect
property rights and to avoid confiscating the wealth of its citizens.
Thanks largely to Adam Smith, the English economy was freed of massive
state control. England adopted free trade and a general policy of
benign neglect of the economy. This allowed the economy to blossom and
caused an incentive to innovate and to use new production methods. In
the then newly freed market, capital, labor, land, entrepreneurial
talent and so forth was seeking the highest returns possible from
employment at their highest valued uses.
There can be no doubt that economic freedom increases the rate of
economic growth in a nation and improves the distribution of market
income. All data points clearly to that nations with more egalitarian
distributions of market income have lower rates of economic growth. The
raise of the European welfare state and the American welfare state in
its making has caused a huge damage to the economic freedom and wealth
creation. Now the left is accusing that "capitalism" is in crisis and
has to reinvent itself.
The fact is that US government interventions, not laissez faire, caused
the housing bubble and the ensuing financial crisis. Another fact is
that the European economy is unable to perpetually prop up an over
extended banking system responsible for underwriting the unsustainable
expansion of the continent's sovereign governments is not an indictment
of the market economy ("capitalism"). Instead it is an indictment of
botched command economic planning and the unchecked expansion of the
welfare state, which are conspiring to undermine the free market and
its unparalleled ability to create wealth. It was not the Marxist economy
but free market reforms that took China out of poverty and made its
economy expand 16-fold over the last 30 years. In the last two decades
an estimated 440 million Chinese now are out of poverty.
Was the Swedish model successful?
Swedish model is often debated. Sweden has not yet declined like Greece
due to continuous reforms towards economic liberty within the scope of
welfare. But the golden age of Swedish entrepreneurship, where one
successful firm after another was founded and gained international
recognition, occurred during a time when taxes where modest and
government was limited. During the Olof Palme époque Sweden shifted to
a radicalized social welfare big government state in the 1970s, and the
1980s. How did that workout? Milton Friedman has noted that the
millions of Swedish descents living in US also have a low poverty rate,
like the Swedish citizens. The Swedish descents living standard exceed
over 50 percent to Swedes living in Sweden. This is an embarrassing
fact exposing that the socialized income model does not produce the
welfare expected but the left. Nowadays the growth of government has
come to a halt and even reversed in recent years. Gradually Sweden is
returning to the free market policies which served it so well in the
problem of the Western society is that unfortunately little of the
knowledge and understanding within the economic profession has reached
the average voter, leaving politicians free to suggest reforms that
would never be accepted if most people understood basic economics.
is no crisis for "Capitalism" (read the market economy). The crisis
belong to the left and its believe that the income can be socialized
and that big government is the solution to all problems. The reality is
that no government bureaucracy is capable of handling the myriad of
information in the market place in order to make the right decisions.
Only a free market with limited regulations can handle the information,
since each individual only need to be an expert in his own domain. And
there are millions of individuals out there having adequate knowledge
to perform smart transactions.
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