Aug

21

I read the latest article written by Roubini on Al Jazeera.

I was interested 3 years ago in his views about the economy, but I was not aware of his negativity about capitalism, the welfare model of our societies and globalization. I thought his being pessimistic about the economy was linked to the temporary situation of the economy and not to his distrust in capitalism and globalization. His solution to the current mess is a mix of public and private, social welfare, public safety nets, increased regulation and supervision of the economy and markets, fiscal stimulus and progressive taxation provided by inspred governments in order to…..,as he says, enable workers to compete, be flexible and thrive in a globalised economy. A pseudo-socialist view of society very similar to what is being done in France is basically the vision of the future in a globalised world according to Mr Roubini.

The view of self-destructing capitalism is so politically driven and has no firm ground. Rather, we should consider that after several decades without any serious competitors which could challenge the leadership of western countries, today India, China, Brazil and others are able to provide goods and services at lower prices than our countries. This is causing a structural imbalance and money is quickly flowing away from Europe and the US towards other places in the world. The fact is that we are being slow in adapting to the new environment. How to educate our labor force, to do what? What is a sustainable economic model in this environment? Can we still be manufacturers? Of what? What can we export to those countries? These are the kind of questions we should try to answer as we compete in a globalized market. The problem is that now we risk to be the losers in a capitalistic "system" that we have created. The problem is that we were used to be the winners. The bitter truth is that we are getting poorer, ever more indebted and we do not want to accept that we should decrease our expectations and the living standards that we have given for granted. On the other hand, we should let the market forces at work to generate new opportunities, innovation, investments, ideas. It may take a few years, but we may come back stronger and a new balance would be found. Government intervention would only require more time for our countries to adapt because of stimulus to the wrong sectors, protectionism, unionism, bailouts of non competitive corporates, waste of scarce resources and so forth. The view of an international system a la Roubini is old, it has already failed and cannot work. It would be a disaster.

Paolo

So Karl Marx, it seems, was partly right in arguing that globalisation, financial intermediation run amok, and redistribution of income and wealth from labour to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong).

Recent popular demonstrations, from the Middle East to Israel to the UK, and rising popular anger in China - and soon enough in other advanced economies and emerging markets - are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness. Even the world's middle classes are feeling the squeeze of falling incomes and opportunities.

To enable market-oriented economies to operate as they should and can, we need to return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of laissez-faire and voodoo economics and the continental European model of deficit-driven welfare states. Both are broken. The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment. It also requires more progressive taxation; more short-term fiscal stimulus with medium- and long-term fiscal discipline; lender-of-last-resort support by monetary authorities to prevent ruinous runs on banks; reduction of the debt burden for insolvent households and other distressed economic agents; and stricter supervision and regulation of a financial system run amok; breaking up too-big-to-fail banks and oligopolistic trusts. Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalised economy.


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4 Comments so far

  1. Chris J on August 21, 2011 8:39 pm

    If you want to really be surprised, read his book! None of his solutions are workable, unless you wanted live in a totalitarian state.

  2. Arthur on August 22, 2011 12:15 am

    thanks for this. Great article. If there was a better social mobility in US than in say corrupt to the bone Russia, I would say US has a chance, as it is, Roubini is right.
    http://www.ft.com/intl/cms/s/0/85983b7c-abf1-11e0-945a-00144feabdc0.html

  3. Alec Misra on August 22, 2011 3:08 am

    Roubini to the girl on the left: I predict you are going to crash tonight… Into my bed!

    Anyway, it cant be a bad lark dissing the free-market. But the Marxist analysis that the free-market contains the seeds of its own doom ignores the one strength that sets free-markets apart; their continuously self-adjusting character. The mixed economy always inteferes with this fundamental strength and was (along with poor regulatory oversight) the primary cause of the financial crisis he claims to have predicted. Notably there was the government inteference in the mortgage market of course which was hugely distorting.
    As for the decline in the comparative advantage of the West, this can likely only be solved, if allowed, by downward adjustments to wages, (in terms of PPP if not in absolute terms) and by the ongoing rolling back of the “mixed” (debt) economy. An additional driver of recovery, perhaps the key to it all, is a radical adjustment of the tax system. I have made a brief note on this at my blog if you have the time:
    http://sicsemperliberalis.wordpress.com/2011/08/15/everyone-should-pay-the-same-tax-rate/

  4. Sh'mu'el Cohen on August 27, 2011 1:29 pm

    Nouriel Roubini has plowed so many sexy (and not so sexy) young New York girls… The man seriously knows how to party!

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