Is this the end of American capitalism? As financial panic spread across the globe and governments scrambled to contain the damage, reality seemed to announce the doom of U.S.-style free markets and President Bush's ideology. But this is wrong in two ways (...the bold is mine...). The deregulation of U.S. financial markets did not reflect only the narrow ideology of a particular party or administration. And the problem with the U.S. economy, more than lack of regulation, has been government's failure to control systemic risks that government itself helped to create. We are not witnessing a crisis of the free market but a crisis of distorted markets.Also, it would be interesting to see what's gonna happen to Hugo Chavez's oil-financed socialism as the world (ironically, capitalistic) economic growth decreases and brings the country's oil demand and price down.
Thursday, October 23, 2008
Capitalism is Dead. Not.
For those who wished that capitalism would die due to the current US financial crisis --and socialism to arise--, this editorial from the usually liberal (in US politics term, that is, a left-leaning) Washington Post, may come as a bugbear. The first paragraph reads:
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Rizal, do you think that Indonesian economic system (I would prefer call it "Ketoprakism") has anything to do with capitalism?
ReplyDeleteI think the system has a very close relationship with Timbul, Tarzan, Tessy and other great people belong to Ketoprak Humor.
I have this simple question: "Are Indonesian fuel prices really have anything to do with market-mechanism?". Do you think that you will have better answer than (Mr.President) Tarzan's? :)
Beki, if you still have too many BUMNs, fuel (mis)subsidy, and unnecessary tariff and trade barriers --in other words various state interventions--, you tell me then :-)
ReplyDeleteWorse still, some of us love to entertain our state of denial (or, perhaps, delusion) by saying that our economic system is neither capitalism nor socialism, and coined a strange idea called....well, never mind. :-))
What's the real ketoprak, anyway?
I think one of the important characteristics of Ketoprak is "loose interpretation" of the stories they're playing.
ReplyDeleteKetoprak Humor can play any kind of story, based on their intrepretation. Vice President Timbul surely can explain why Tessy has always important rule as assistant of princess.
Jusuf Kalla can also tell you why Aburizal Bakrie is so important. You don't have to take their explanations seriously. All we need to do is laughing and laughing until the story is ended. Similarity, isn't it? :)
Rizal, I go along with that word “…we are not witnessing a crisis of the free market but a crisis of distorted markets…” Yes, your word about too much government intervention in economic by expressing “…to many BUMN’s, fuel (mis) subsidy…” perhaps presenting what so called “socialism”…I see economic crises like a “disease” for human. It is normal, a natural thing. Nobody who never gets ill along in his/her life, right? Regardless the system (whatever you name it: capitalism or socialism), economic crises is an “adjustment factor” which tends to make any system better off. However it is severely processed that sometime made us lose our patience. But to whom we could complain or blame to? For me free market is a final answer. We, humans, need a freedom of expression including a freedom in daily economic activities. But before the human by its natural characters starting to be transformed from an individual’s greedy to commune’s greedy (as what Rizal’s wrote as “systemic risk”) then regulator has to create a precaution and prudential regulation. Then the next question is how to regulate “financial market”? It is much bigger in size compare to that in real sector. Money demand from transaction motive is much less than that in speculation motive. History of money market management proved that since the collapsed of the ‘Bretton Woods’ agreement, government in all around the world lost its control on money market. It was impossible to diminish speculative motive since then. “There is no turning point”. Government even with its regulatory power is no power to control the financial market. I agree with the idea of “coordinated capitalism” but in fact, the idea of establishing of what so called the “World Financial Authority” is just a dream. Financial crisis in free market mechanism is a disease which is normal to occur but the medicine is not easy to find out. We just defer the death’s time, in the long run “we are all dead”.
ReplyDeleteKiver, I like the phrase coined by Luigi Zingales of Chicago: save capitalism from the capitalists. In fact, if you come to think about it, even Keynes worked to save capitalism (from otherwise socialism)
ReplyDeleteThat brings to Beki's lament: when JK gets along too well with AB, that's not the capitalism as it is understood, but unholy alliance between capitalists and the state misusing the market or capitalism.
That brings to next question: when the (distorted) market fails --like we see now--, what do we do?
One might want to bring the state in --the bailouts,rescue plan, whatever -- because of the problem of asymmetric information, and perhaps externalities.
But some other would prefer to further remove the distortion. They say: OK, (existing) market fails, use more (undistorted) market.
In this line, any attempt to regulate or control the world financial market is bound to failure, because regulator never has sufficient relevant information to support its action, the way (undistorted) market and price mechanism do. (Remember Hayek?)
And in an asymmetric information situation, one can not just assume the state as the always-better-informed party.
Financial regulation and oversight is tricky. In times of economic booms, we forget it. Risks become under-assessed and inadequately priced. In times of hardships, the "R" word lurks again. It's like the pink elephant..
ReplyDeleteRizal: when JK gets along too well with AB, that's not the capitalism as it is understood, but unholy alliance between capitalists and the state misusing the market or capitalism
ReplyDeleteBeki: Do you think JK and AB are capitalists? :)
The Washington Post is not leaning liberal, The New York Times is..
ReplyDeleteBtw, I agree that JK and AB are not real capitalist, free market. They are cronyism, using public office for their furthering their business.