If we begin with the proposition that anything authentic is
by definition useful and/or productive, we accept all genuine ideas as having
merit when used in the context for which they were developed. This includes the
economic systems that were formulated and put to use since the start of human
interactions. Accepting that proposition has the effect of freeing us from
having to discuss one system by comparing it with another. For example, we can
look at capitalism purely on its merit without having to compare it to say, a
centrally planned system or something else.
Let us now look at the system that is currently in use in
the United States of America. We assume that the system was at some point in
its history operating according to the golden principles of authentic
capitalism. And for the purpose of this discussion, let us say that the golden
period was the Nineteenth Century; the one described by Alexis de Tocqueville
in his 1833 book “Democracy in America.” This is discussed by Niall Ferguson in
his Wall Street Journal article: “The Regulated States of America” published on
June 19, 2013. The article also came under the subtitle: “Toqueville saw a
nation of individuals who were defiant of authority. Today? Welcome to Planet
Government.”
To see if that system has changed – if yes, changed to what
– we look at Romain Hatchuel's article: “Central Banks and the Borrowing
Addiction” published in the Wall Street Journal on June 21, 2013. The article
also came under the subtitle: “From 1980 to 2010, overall U.S. debt grew as
fast as GDP. From 1950 to 1980, it was a small fraction of Growth.” Hatchuel,
who is a managing partner in an asset management firm, was motivated to write
the article because: “Mr. Bernanke's [Chair of US Central Bank] latest
comments, signaling a tapering off of monetary easing, triggered a sharp global
sell-off in practically every asset class.”
What Hatchuel is saying basically is that the world is
suffering from an ailment that has been in the making for three decades. He
uses the metaphor of drug addiction to blame the accumulation of debt (caused
by low interest rates) as the main cause of the ailment. He says the habit has
allowed the most developed nations to artificially stimulate their economies
and get addicted to the process. He gives statistical examples to make his
points then cautions that: “Although one needs to be careful when drawing
conclusions from such data, it is obvious that surging debt contributed
massively to the economic expansion.”
He goes on to say that the result was the 2008 near meltdown
of the world economies, a happening that prompted the central banks of the
major ones to engage in monetary easing which, in turn, postponed the need to
stabilize the aggregate levels of debt. To achieve this, the “Fed and its
counterparts from England, the euro zone, Switzerland, Japan and China printed
$10 trillion, thus tripling the size of their balance sheets.” This money
served to inflate the value of assets to the point that “few serious money
managers now see compelling investment opportunities out there.”
So then, what's the solution? Well, Hatchuel reports that
some people say the party must go on, which means that the central banks should
continue to print money and keep flooding the markets. In contrast, other
people say that only a program of austerity can cure the ailment in that it
will drain the excess liquidity thus bring matters back to their normal state.
As to his personal views, Romain Hatchuel says that austerity is a
life-or-death obligation. He wants it.
You know something, my friend? I think that Hatchuel sold a
good chunk of his firm's holdings the day before the markets came down, and he
is now swimming in a vast ocean of money. If austerity is implemented, it will
bring the price of all assets to rock bottom levels. And this will be the time
for him and for all those who have cash, to buy the assets at giveaway,
fire-sale prices. So you ask: Is this capitalism? And you answer: No way can
you call this capitalism. In fact, this is not the America that Tocqueville
described in his book – even though in my view, Tocqueville was not talking
economics.
We now look at the Niall Ferguson article. He begins by
saying that “Tocqueville marveled at the way Americans preferred voluntary
associations to government regulation.” He goes on to say: “What amazed
Tocqueville was the range of NGOs that Americans use to give fetes, to found
seminaries, to build inns, to raise churches, to distribute books, to send
missionaries to regions; in this manner they created hospitals, prisons,
schools.” Alas, Ferguson laments, Tocqueville would not recognize America today
because “so completely has associational life collapsed, and so enormously has
the state grown.”
Well, that's what Ferguson says, but you wonder if
Tocqueville said something to link economics with the choice that people make
when it comes to relying on the government or nongovernmental organizations to
get things done. In fact, that was a time when Europe, including France and
Britain were by far wealthier than America. And if Tocqueville marveled at a
few things in America, he saw much that was undesirable there too. And when it
comes to marveling at the “New World,” the French found much more to marvel
about in Canada than in America. Tocqueville was not unique in that sense.
Still, desperate to use him as a wall against which to lien
and build a case for his economics point of view, Ferguson, takes a detour,
relying instead on the work of two other people. First, there is Robert Puttnam
who wrote “Bowling Alone” in which he hinted at the linkage that Ferguson is
looking for by referring to the associations as “social capital.” Second, there
is Clyde Crews of the Competitive Enterprise Institute whose work shows that an
increase in regulations forces people to rely more on the government than the
associations and each other. And this, in turn, reduces American
competitiveness thus lowers the standard of living. Add to this the cost which
businesses must incur to cope with the regulations, and you see how high the
price has gone.
And then, to make it sound that Tocqueville was clairvoyant
enough or genius enough to have predicted all this, Ferguson writes the
following: “Genius as he was, Tocqueville saw this transformation of America
coming.” And he ends the article like this: “Tocqueville also foresaw how the
regulatory state would suffocate the spirit of free enterprise ... 'it rarely
forces one to act, but opposes itself to one's acting … and finally reduces
[the] nation to being a herd of industrious animals of which the government is
the shepherd.'”
You see here the word “industrious” which is the clue that
explains Tocqueville's state of mind at the time he authored that work. His
time was the worst moment during the Industrial Revolution when people were
treated worse than animals, when they choked on polluted air and were poisoned
by polluted water. It was also the time when Romanticism was raging in the arts
and the literature. It was a time when people dreamed of going away to the New
World or to the vast expanses of North Africa and the Middle East where the air
and the water were fresh, and the people felt as free as the birds.
Alexis de Tocqueville was no exception. And what he saw in
America had nothing to do with economic theories anymore than the work of
Charles Darwin had something to do with economic theories. But people like
Niall Ferguson always try to make that false linkage. They create the noise
that makes it hard to argue for the return of authentic capitalism. And this is
why people like Romain Hatchuel manage to make oodles of money at the expense
of everyone else without coming anywhere near being the capitalists that
propelled America into the industrial age.
This is what we should all be lamenting about.