Boom and bust capitalism won't be fixed (We've squandered the opportunity to make real changes)

The Telegraph ^ | 9/3/2009 | Edmund Conway

[SeekAndFind]

Finance ministers are now simply papering over cracks having squandered the opportunity to make real changes to the way the world economy works.

There is a hideous hissing noise escaping from the world economy, the piercing sound of deflating ambitions. Any hopes that, in this crisis, we would find an opportunity to redesign our system of capitalism and finance are all but forlorn. Any prospect that the leading nations would overhaul either the banking system or the wider framework that ties our economies together, and so prevent another crisis, has pretty much disappeared.

We know this because, this weekend, finance ministers from the G20 will meet in London (ahead of a heads-of-state summit in Pittsburgh), shake hands and breathe a collective sigh of relief that the worst of the crisis is over. The world has been informed that their main order of business will be to find some way of restraining bankers' pay – rather than concentrating on the infinitely more important question of how to ensure something this horrific never happens again.

Some time in the past 12 months, there was a brief window in which we really could have improved capitalism: made it less prone to boom and bust, ensured that levels of inequality would yawn no further apart. We missed it. No one is talking – as they were back in April, ahead of the last G20 meeting – about creating a "new Bretton Woods". The idea that we need a wholesale rethinking of how the world's economic parts fit together, as happened in the wake of the Second World War, has been put on the shelf.

This is a tragedy. The core problem over the past few decades was not bankers' greed or the complex financial instruments that enabled them to satisfy it.

[SeekAndFind]

The author asserts that the immense pyramids of debt built up by the Anglo-Saxon half of the world, and the equally massive mountains of savings created in the other was the CORE PROBLEM of the past 10 years.

Almost everything that occurred in the past couple of years was, directly or indirectly, a consequence of this.

No one should have let the USA or the UK run such large deficits, and the Chinese such vast surpluses, over such a long period. And yet both got away with it, in what must count as the most momentous economic policy failure in modern history.

Those imbalances created the mountain of money that fed the frenzy of mortgage lending and eventually caused a financial crisis.

[qwertypie]

Any person who believes that government can prevent the business cycle is inane. Usually it is the cause of exacerbation.

[RayChuang88]

We should right now look at eventually phasing out the whole idea of income taxation. Why? Because it stops the problem of liquid assets leaving the country for tax avoidance reasons. Economists estimate somewhere between US$14 and US$19 TRILLION in American-owned liquid assets are either participating in the underground economy or sitting in offshore financial centers (OFCs) located around the world, all in an effort to keep these assets out of the hands of the IRS. I can guess Europeans doing the same thing, probably around US$20 TRILLION in European-owned liquid assets sitting in smaller European countries with tax haven status or sitting in OFCs located outside Europe to keep these assets out of the reach of European income tax authorities.

This is economic stupidity, in my humble opinion. Why go to the effort to chase ofter the lowest tax bite when changing our taxation systems to encourage personal savings and capital investment not leaving the country makes far more economic sense?

[sickoflibs]

I will ping this one later. But my comment is that it will take more than conservatives (really republicans) and liberals (democrats) offer us, which is more tax cuts AND spending.

[slowhandluke]

inane & insane. The business cycles have been worse since the Fed was created in 1913.

[jonrick46]

The derivatives market amplifies the peak and valley phenomenon. Of course no one remembers the Bucket Shops of the early nineteenth century and the similarity they are to the derivatives market. Do we?

[sickoflibs]

The Peter Schiff/Redistribution Watch Ping. (Washington Bankrupting our Nation by Spending your past, present and future money!)

Boom-bust ping.

"In order for the world economy to recover, the big savers will have to start spending, just as governments and consumers in countries such as Britain will have to borrow less. It would be nice to assume that this will happen automatically. But given the disaster our misshapen international economic system has foisted on us, we can hardly rely on such an outcome. "

"Opportunities to overhaul national economic policies happen every 20 years or so. Opportunities to reshape the framework that binds nations – the rules that determine the flows of capital, the behaviour of exchange rates and monetary policy – happen even less frequently, usually after a war or a financial crisis. "

[camp_steveo]

The only real change would be to get the regulaters out of the hands of those that they are supposed to be regulating.

see ‘regulatory capture’

[Huck]

That fits with the generational theory. We’re basically learning some hard learned lessons-—again. Those that remember have mostly died off. Hell, most people who remember the Depression have died off. Sometimes people just have to see for themselves.

[MaggieCarta]

Somehow, I find it quite comforting that the opportunity to "improve capitalism" has been lost.

Thank you for the ping, sickoflibs.

[Wolfie]

Now, now...de-regulation is a GOOD thing. For a few, at least. It’s just that those few happen to be the ones in charge.

[BellStar]

The author does not know Americans very well!