Capitalism’s fault lines
Financial crisis reveals fundamental structural imbalances, visiting economist Joel Magnuson argues
To economist Joel Magnuson, the current crisis on Wall Street is a lot like what happened in Holland in the early 1600s, at the dawn of capitalism, when a speculative mania gripped the tulip-importing industry, and a single bulb could cost as much as an Amsterdam house.
Tulips from Turkey became collector’s items, and as their values rose, speculators entered the market, driving up the prices even higher. Ordinary people began mortgaging their homes and land and selling their livestock to buy tulips in the expectation of making vast profits. When the bubble burst and prices dropped, they lost everything.
Magnuson, the author of a new book called Mindful Economics, is an economics professor in Portland, Ore. As luck would have it, he was in Chico on a book tour just as the nation’s financial leaders were scurrying to come up with a plan to save international capitalism from total collapse as a result of the bursting of the credit bubble.
On Saturday (Sept. 20), he gave a talk at Lyon Books and Learning Center in downtown Chico that went a long way toward putting the crisis in perspective and offering an alternative to capitalism that over time could lead to stability, financial equality and global sustainability.
“This is a historically momentous time,” he said, referring to the first decade of the 21st century. Since the dot-com bust of 2000-02—a bursting bubble that wiped out $7 trillion in wealth—capitalism has lurched from crisis to crisis. Eight of the 10 largest bankruptcies in history have occurred in the past eight years.
It’s a mistake to think that these are unrelated incidents, Magnuson cautioned, or that anybody in particular is to blame. There are no bad guys, as such—"no heart to stick the knife into. … There are systemic and institutional themes to these problems,” because capitalism is a vast, interconnected system in which all elements affect and are affected by all others.
The credit bubble developed because investors, lenders and mortgage buyers thought—contrary to historical evidence beginning with the tulip mania—that housing prices would go up forever. Everybody wanted a piece of the action, speculation was rampant, nobody was minding the store, and the whole thing crashed.
Wall Street, Magnuson said, has been functioning as a “gambling casino” in which the investor class buys, sells and trades stocks in a way that has nothing to do with actual work or production, only speculation.
“When I see CNN say the government is going to fix this with a $700 billion bailout, it makes me cringe,” Magnuson said. One way or another, through higher taxes or rising prices, the public is going to foot the bill.
The fact that the government has had to step in is further proof that the “free market” is a myth, Magnuson said. Even the big corporations don’t want a completely free market. They prefer and need what he called a “controlled market,” one that doesn’t allow the excesses of unfettered capitalism to lead to its own destruction.
But even a controlled market cannot alleviate the problems of capitalism, he continued. Not only is the system given to boom-and-bust cycles and thus fundamentally unstable, as we’ve witnessed lately, it’s also unequal and unsustainable.
Contrary to the myth that the U.S. is the “land of opportunity,” in fact it is more class-divided than every industrialized nation except Russia and Mexico, Magnuson argues in his book. Among the members of the Organization for Economic Cooperation and Development, a group of 30 industrialized democracies, America has among the largest percentage of poor families, the smallest percentage of middle-income families and the highest percentage of the wealthy.
Nor can international capitalism ever become sustainable and effectively respond to such matters as resource depletion, population displacement and global warming. Its very structure, designed to enable transnational corporations to maximize profits for shareholders, precludes that. Because corporations, even so-called “green” businesses, must grow or else die, they inevitably will seek new consumers, cheaper labor markets and new sources of raw materials—at the expense of the environment and local communities.
If the crises on Wall Street help us wake up to the fundamental and systemic shortcomings of capitalism, Magnuson said, they will have served a purpose.
He envisions an evolutionary movement toward sustainable economics, in the form of local, nonprofit systems—community-based financial and food cooperatives, for example. Most of all, though, he is hopeful that everyday citizens—mindful of the unsustainability of consumerist, capitalist society—will voluntarily opt for simpler lifestyles and alternative, steady-state institutions.
Concluding his talk, he read a quotation from the writer Daniel Quinn:
“If there are still people here in 200 years, they won’t be living the way we do. I can make that prediction with confidence, because if people go on living the way we do, there won’t be any people here in 200 years.”