The end of capitalism

It is reasonable to question the economic system that brought about the fiasco of the last few years, and many op-ed pages and activist movements have been obliging us. Still, there are two important aspects of this that tend to get overlooked and as a result end up distorting the picture.

First, debates about taxation and regulation are not debates about capitalism. Sometimes people point to the Western European nations as being socialist states, but that's ridiculous. Their economic systems are pretty much the same as ours; the differences are incremental levels of taxes and resulting government services. Similarly, the effort to reform financial services regulation is more accurately described as being about about two things: replacing the regulation Clinton and Bush dismantled and modernizing the oversight framework.

Second, I haven't seen much serious discussion about alternatives (and for good reason, as we'll get to in a second). There's plenty of media questioning capitalism, but they tend to have a common thread of getting small when it comes to solutions. A lot of people are raising questions and are challenging the assumptions underpinning our society - as well they should be, always - but in general I'm hearing a lot more questions than answers. Maybe I'm just missing out - let me know if you are seeing different.

To be sure, these debates are a healthy reaction to what could be fairly described as a massive systemic failure, but the proposed solutions tend to be more about tweaking the current system to address its now obvious shortcomings than about actually changing the nature of how resources are owned and allocated in our society. Both the reformers and their opponents would be well-served to keep this in mind as we move forward. Indeed, the absence of credible alternatives strengthens the premise. I think this quote from Economist editor Matthew Bishop (from this recommended set of interviews by David Brancaccio) sums things up nicely:

"I think the worst thing we could do would be to actually throw out capitalism and I think the second worst thing we could do would be to actually fail to reform it."