The problem with markets
Posted on July 13, 2010 in Governance Policy Context
Source: Globe & Mail — Authors: Andrew Biro, Jay Hamilton, Shirley Tillotson
TheGlobeandMail.com – Opinions/Letters
July 13, 2010.
In response to Neil Reynolds’ “told-you-so” column (The Disintegration Of The European Welfare State – July 12), I offer a historical correction.
The “culture” that set the limits on public borrowing in the 1920s and that let those limits go in the 1970s was the culture of financial markets, not the vaporous will of the untrustworthy voting public. In the ’20s, the ’70s and today, people vote for governments that promise a better world and a fairer distribution of the tax burden. Then as now, governments taxed reluctantly and borrowed as much as the market would allow. In the 1970s, the market allowed too much.
In the 1920s and 1930s, politicians and the public lived in fear of compromising the national credit. It’s been a long time since anyone has been afraid of the public bond raters. Did Keynesian social democrats get us into this fix? Or was it the anti-statist, small government, Chicago School and its “investment community” friends who sold the idea of tax cuts in the 1970s?
Perhaps each gets some of the blame. So, too, do the folks who make a living from managing money. We’d be better off now if “the markets” had imposed a bit more discipline in naming the necessary tax levels back then.
Shirley Tillotson, history department, Dalhousie University, Halifax
………
Neil Reynolds notes that the problem with “democracy” (by which he means welfare-state capitalism) is its tendency “to centralize political and economic power in the same hands.” A further problem is that virtually all other political systems that we know of suffer from the same defect, including more liberal or free-market varieties of democratic capitalism. With the memory of police in Toronto undertaking mass arrests in response to property damage still fresh, I was surprised that Mr. Reynolds didn’t think to point out in this context that there is one strand of political philosophy that has most consistently sought to undo the concentration of political and economic power: anarchism.
Andrew Biro, political science department, Acadia University, Wolfville, N.S.
………
Neil Reynolds has it wrong. Capitalism, not democracy, is the problem. As history has shown again and again, capitalism can generate economic growth. But it can also create persistent problems of inequality, poverty and economic injustice, which in turn cause apathy, discontent and ultimately instability, all of which undermine profits and ultimately the very growth that capitalism is supposed to generate.
Both democracy and the welfare state may ultimately be thought of as responses to these problems. In the words of American economist John R. Commons, writing before Milton Friedman appeared on the scene, they function “to save capitalism in spite of itself.” Over the short term, Commons was right. Yet as the experience of the past 40 years, and especially the past three years, has shown, they may be incompatible over the longer term – not with each other, but with capitalism as we know it.
It is time to seek a new form of economic – as well as political and social – organization, one that is more conducive to both democracy and equality (not to mention the environment) and ultimately to social progress. This could be a new form of capitalism or it could be something else. But the current economic model seems, increasingly, to be long past its “best before” date.
Jay Hamilton, Winnipeg
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