For years, I have strongly believed that the classic Capitalist model is beautiful. In 2009, I dived deep into the works of the ‘legendary’ John Maynard Keynes and bragged about the importance of de-regulation. I studied Economics in Boston with the hopes of becoming an Economist and implementing the US-backed Keynesian models into other regions of the world.
Today, on April 10th 2020, it pains me to say that I am no longer a follower of Keynesian economics. Theoretically, the model relies on the idea of “laissez faire”, literally meaning, “let do”. Laissez faire is an economic system in which transactions happen without any government intervention thereby leading to ‘efficiency’ and primarily, uninterrupted ‘private competition’. The political system has convinced people that this model was in play for years and the growth of the post-Nixon US economy has been used as a “gold standard” for many countries to replicate. The undeniable reality is that the government has unilaterally steer-geared the economy while maintaining the image of “free markets” to the general public.
In a market where the government bails out all lossmaking institutions, the cost of credit does not reflect true economic conditions. You cannot run a so-called “laissez faire” economy if you do not take a more laissez faire approach towards defaults. Today’s corporations have become inter-connected via long credit chains. Today, the government acts as guarantor for the debt of smaller companies, and we have reached a point where letting a giant fail could trigger a cascade of bad loans, severely hurting the banking system.
The nature of today’s government bails-outs is a form of ownership through debt. The so-called “rescue packages” proposed by Jerome Powell and Laggard constitute an injection of debt capital for the “survival” of corporate entities deemed essential for the prevention of economic spill over risks. By accepting the debt rescue packages, these companies become indebted to the government, and by proxy, state-controlled. A total contradiction to the capitalist idea the politicians have led the public to believe.
By allowing wealth to accumulate amongst the upper 1% of the population, the government is indirectly mandating state ownership. Political systems that embrace capitalism as a basis for the healthy survival of their economies do little to prevent the failure of their corporations under the excuse of “laissez faire”. In times of economic downturns, many of the corporations become distressed due to limited access of the nation’s resources and wealth.
I do not vouch for a socialist system or even worse a Marxist agenda on communism. Rather, what I would call “faire plus”, meaning “do more”. Governments should do more to prevent state ownership by imposing a true version of capitalism-in-practice. It is the government’s responsibility to redistribute wealth and resources for the overall benefit of its nation. This does not constitute a nationalization of industries, but rather a system of mixed economies and higher taxes on the unjust ownership of wealth. This economic system builds a foundation for a resilient economy in times of distress.
It is time to accept the failure of laissez-faire and implement a system of faire plus.
