How Capitalism Was Destroyed From Within

At this point the world economy, and especially the US economy, only works as long as you keep it hooked up to a ventilator, and it works badly.

By Ian Welsh and cross-posted from his blog, Ianwelsh.net.

In 2007/8 financial crisis the Federal Reserve and other central banks printed trillions of dollars to support banks and big businesses. They prevented capitalism from working: while some firms that had nothing to do with the crisis should have been bailed out, those that caused the crisis by allocating money badly should have been allowed to go under.

This is because this is the virtue of capitalism: if people allocate resources (which we count with money) badly, they are supposed to lose the ability to allocate resources in the future. Those who allocate resources well are supposed to receive more resources. This has a lot of flaws (what makes money isn’t always what improves human welfare), but it’s at least a feedback loop.

It’s the GOOD thing about capitalism.

The Fed broke what was left of capitalism: there is very little that is good left when the allocation system doesn’t work even by the terms of capitalism.

It was clear that Central Banks had decided their primary purpose was to make sure that the rich stayed rich, no matter the cost to others. If they had let those firms go under, the economy would have fallen faster and recovered far better for over 90% of the population.

They patted themselves on the back for saving the world, and when Coronavirus hit they did the same thing.

At this point the world economy, and especially the US economy, only works as long as you keep it hooked up to a ventilator, and it works badly.

I had been curious to see how this played out. As I have said many times “there is a real economy.” There are people who make or grow things or provide actual necessary services (not your tax accountant, the people being labeled “essential workers” right now + farmers, factor workers, designers and so on.)

So, since the rich and powerful had decided that under no circumstances would they allow their class to lose money or power, no matter how badly they did their jobs, the question was “what are the effects of this?”

One of the effects is the complete bungling of Coronavirus in America and the UK, the heartlands of neoliberalism. Another effect is suggested by this:

More than 40% of the U.S.’s 30 million small businesses could close permanently in the next six months because of the pandemic: Chamber of Commerce survey.

The stock market is doing fine, because it was bailed out. Small businesses aren’t, because they weren’t.

Covid is no one’s fault, but how it is dealt with is a policy decision. That policy decision reveals that the folks who run our economy will take care of the parts of the economy they directly benefit from and won’t help other parts of the economy

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