Saving Capitalism—Part II

Popular Economics Weekly

Nobel laureate Joseph Stiglitz’s plea to save capitalism is important for a number of reasons; foremost is the survival of liberal democracy itself. Modern liberal democracies that we have known since WWII cannot survive if we cannot ‘fix’ modern capitalism to serve the majority rather than minority of its citizens.

“There are many reasons for our plight, including corporate power and greed centered on immediate profits and little regard for the impacts business decisions have on low-income Americans and the environment,” said Stiglitz. “Corporations have translated their economic power into political power, lobbying for policies that give them free rein to despoil the environment; and the swamp President Donald Trump promised to drain has been overflowing.”

It cannot survive without greater government programs to improve lives, and better control of financial markets, advantages that countries like China, the world’s second largest economy, have in competing in world markets for resources, and winning trade competitions.

One answer is what is called Modern Monetary Theory, or MMT, that both progressives and conservatives are talking about. It’s really a reincarnation of the New Deal that enabled America to pay for the Great Depression and WWII with a large amount of government debt, without raising taxes at the time that would have impeded economic growth.

Conservatives have railed against versions of MMT since Roosevelt and his Labor Secretary Francis Perkins created the New Deal—giving millions of jobs to jobless Americans, creating the social safety net and much of the early infrastructure (dams bridges, energy grids) that need updating today.

But it’s now become obvious from their 2017 tax cuts that Republicans love debt as much as anybody when it suits their purpose.


Conservative publication Barron’s Magazine portrays in this graph from 1985 to 2016 the actual U.S. net savings as a percentage of GDP. It highlights the wide fluctuations in the line graph—when there were 4 years of federal budget surpluses 1996-2000 (midgraph), to the low point in net savings during the Great Recession. Foreign net savings are in red, domestic household and business net saving in blue and gray.

MMT is being touted as a possible way to pay for AOC’s Green New Deal, universal health care and other Democratic initiatives that will create jobs for all.

But debt has to be paid back in one form or another. In post-WWII economies, 1) it does get paid back if used in advancing growth that increases revenues, and 2) debt is extremely cheap today with the world awash in excess savings that investors are begging to place where it will give a decent return. Financing U.S. budgets with ‘other people’s money’ is not so risky when there’s no safer place to put it than in U.S. dollar investments.

WWII’s 120 percent of GDP debt was paid down to less than 40 percent in the post-war years with massive growth and productivity-enhancing investments like public highways, the Internet, modern healthcare improvements and government basic research.

We are in a much better position today with a fully-employed economy. But it does subject investors to the vagaries and vacillations of the Treasury bond market, which is the safest haven for investors afraid of an economic downturn that could crater stock prices.

Democracies are also in danger with authoritarian governments springing up in Eastern Europe using Russia and China’s authoritarian examples that control the courts and public media to maintain their power.

However modern capitalism with its checks and balances has enabled the growth of prosperous middle classes at the heart of liberal democracies. No other economic system is able to produce the quantity of goods and services required for a healthy liberal democracy.

Radosław Sikorski, Polish Minister of Foreign Affairs, speaking of recent anti-democratic trends in Eastern Europe at the Wrocław Global Forum, an annual summit organized by the Atlantic Council, the city of Wrocław, Poland, and other partners, noted a startling fact–there is a common assumption that dictatorships may be better at some economic tasks because they do not have to pay attention to public opinion. Yet communist governments in Central and Eastern Europe failed to live up to that supposed economic advantage.

Sikorski explained, “My thesis is this: contrary to received wisdom, dictatorships also have public opinion and dictatorships are usually more cowardly than democrats. That is why fundamental economic reform under dictatorships – in Chile for example – is the exception, not the rule. It is usually the democrats who have to tidy up the mess, including economic mess, left by dictatorships.”

The club of rich democracies is not easy to join, per a recent piece in the Economist, but those who get in tend to stay there. Since the dawn of industrialisation, no advanced capitalist democracy has fallen out of the ranks of high-income countries or regressed permanently into authoritarianism.

This is not a coincidence, say Torben Iversen of Harvard University and David Soskice of the London School of Economics, in their recent book, “Democracy and Prosperity”. Rather, they write, in advanced economies democracy and capitalism tend to reinforce each other, as I’ve been saying. It is a reassuring message, but one that will face severe tests in years to come.

What are those tests? The largest may be how to grow an economy that benefits more of the middle and lower-income classes with greater government-funded programs, such as happened with the New Deal. That obviously hasn’t been the case since 2009 and the recovery from the Great Recession. It is already being tried successfully in many Northern European countries that reward its citizens with a larger social safety net, shorter working hours, and more leisure time.

Professor Stiglitz, Torben Iversen, David Soskice and a growing number of economists show just how liberal democracies have survived multiple wars and global recessions; by modernizing capitalism to fit modern needs. Perhaps “capitalism is the worst economic system, except for all the others,” to paraphrase Winston Churchill’s famous aphorism.

Harlan Green © 2019

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About populareconomicsblog

Harlan Green is editor/publisher of, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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