Allan H. Meltzer
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A review of the headlines of the past decade seems to show that disasters are often part of capitalist systems: the high-tech bubble, the Enron fraud, the Madoff Ponzi scheme, the great housing bubble, massive lay-offs, and a widening income gap. Disenchantment with the market economy has reached the point that many even question capitalism itself.
Allan H. Meltzer disagrees, passionately and persuasively. Drawing on deep expertise as a financial historian and authority on economic theory, he provides a resounding answer to the question, "why capitalism?" Only capitalism, he writes, maximizes both growth and individual freedom. Unlike socialism, capitalism is adaptive, not rigid--private ownership of the means of production flourishes wherever it takes root, regardless of culture. Laws intended to tamper with its fundamental dynamics, such as those that redistribute wealth, fail. European countries boasting extensive welfare programs have not surpassed the more market-oriented United States. Capitalism does require a strong legal framework, Meltzer writes, and it does not solve all problems efficiently. But he finds that its problems stem from universal human weaknesses--such as dishonesty, venality, and expediency--which are not specific to capitalism. Along the way, he systematically analyzes the role of government, positing that regulations are static, but markets are dynamic, usually seeking ways to skirt the rules. Regulation is socially useful if it brings private costs into line with social costs (for example, the cost of taxes to hire policemen compared to that of the impact of rampant crime); if it doesn't, regulation simply invites circumvention.
Vigorously argued, sweeping in scope, Why Capitalism? reminds us of the fundamental vitality of the one economic system that has survived every challenge, and risen to dominate the globe.
Chinese products. By following the exportled growth program pioneered by Japan, China released hundreds of millions from poverty. Millions of peasants left rural agriculture to work in the growing industrial sector, just as they had years earlier in Japan and Korea. Capitalism, though limited, achieved reductions in poverty that foreign aid, Communism, and centralized planning had failed to do. China’s experience wasn’t lost on its neighbor India. Years of applying the version of socialism
fiscal policy, budget deficits will continue until a crisis occurs. Much higher interest rates or a requirement that the United States sell debt denominated in foreign currency would indicate a crisis. Prudent policy would adjust the budget before a crisis. Prudent policy would start by adopting and following a budget rule that restored the old standard: a balanced budget or a surplus, except in wartime and deep recessions, and defining budget balance to account for the present value of future
who believed they wouldn’t need it demanded repeal. Within a year, Congress repealed the program. It never went into effect. The lesson I draw from that experience is that many more citizens desire better health care than are willing to pay for health care. A recent attempt to mandate comprehensive health care in California failed for this reason. The political process facilitates the belief that today’s consumers can get the benefits by shifting the cost elsewhere. “Elsewhere” turns out to be
Jamaica: US $2,850 to US $2,650, using 2006 prices. By 2009, Singapore citizens had eight times the income of Jamaicans: $37,220 to $4,590. Singapore grew six times faster than Jamaica over more than 40 years. Lerner explained the difference in growth rates as a result of better investment decisions, greater emphasis on education in Singapore, an absence of corruption, political stability in Singapore, and years of instability in Jamaica. He compared Singapore’s stable, growing, market economy
before the law forbade race discrimination. Most respondents took a mixed stand. The philosopher John Gray admitted that greed and envy were driving forces under capitalism but also produced growth and raised living standards, thus benefitting many. Greed also produces Enrons and WorldComs, but it is less a characteristic of a system than a vice of individuals, and it is at least as prevalent under socialism. Michael Walzer thought political activity also corrodes moral character but claimed