Economics for the (un)common good!

There’s a general sense of disillusionment by the masses around economics and more specifically capitalism. The capitalist system has generally withstood shocks to it for as long as it’s been in existence, but something about this latest uprising feels different. Maybe that’s just my inner cognitive bias, something very human, that preludes every prior information that this time might be different. Maybe there’s nothing different about this time at all, maybe the greatest threat in the form of the Bolshevik revolution has preceded the system after all. But I wouldn’t be writing this post if I didn’t feel differently, so consider this my honorable attempt to explain why the greatest challenge to the capitalist system lies ahead of us.

But first let me take you back… all the way back to when Adam Smith first ignited the “animal spirits” when he wrote in the Wealth of Nations, “It is not form the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” It might seem quite obvious at first, but it came as a revelation to many in the 18th century, that the world didn’t revolve around them, that most economic activity occurred not because of the “big hand” of the government but rather the “invisible hand” of the market. The market for all its flaws, of which there are many, is capitalism’s greatest benefit to us. It’s something that every economist of every label will attest to. The power of markets is accepted so much so that it’s almost a universal fact. What’s not widely accepted is the degree to which markets should be allowed to reign free? It’s a debate that’s antithetical to capitalism itself, and something that might sink it with. There’s no doubt that capitalism has been a great boon to human prosperity in the last three centuries, but there’s also no doubt that it’s created a system of winners and losers. A system that contrary to popular belief ISN’T antithetical to capitalism, it’s just before capitalism that power rested in the hands of monarchs and aristocrats rather markets. Hence the disenfranchisement that many people feel today isn’t just a problem with capitalism but quite essential to the tribalism that we as humans engage in.

It’s quite well understood that ever since the great recession, the pitfalls surrounding globalization and capitalism have been steadily unravelling. Globalization has been on a net basis, a massive plus for society. It’s helped millions lift out of poverty and been the greatest peacetime engineering in modern history, resulting in almost eight decades of relative peace. The peace has coincided with capitalism and democracy emerging as the unrivalled global governing systems, and it’s this relative lack of competition that makes me wonder that this time might really be different. Unlike the early 20th century, capitalism doesn’t have another system to contend with, it’s quite clearly the most dominant system. What it’s failed to do though, pointedly towards the developed economies, is that due to a mixture of market participants and the government, it has failed to take care of those that have been displaced by the negative effects of globalization. There’s no doubt that capitalism is the perfect fit for a democratic society, and there’s plenty of evidence that in many instances’ capitalism has been the cause to a more democratic effect. The biggest strength of the market processes hence lies in the freedom it provides its participants, it’s that freedom that most of us take for granted today, something both Hayek and Friedman warned us against, that’s fueled the recent rise of populism across the globe. This recent shock to the system hence is quite simply different, because unlike previous ones, this one is a byproduct of capitalism itself. The surge in inequality and populism are to a great extent the small negative modality of a mostly modal positive system. It’s something that economists and public policy wonks need to put greater emphasis towards, cause it puts the entire system at risk.

(The modalities are something that I’ll go into greater detail in part two)

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