Nouriel Roubini asks: Is capitalism doomed?

Nouriel Roubini is a professor of economics at New York University’s Stern School of Business, and chair of Roubini Global Economics, a financial consulting firm.  He was nicknamed “Dr. Doom” for his predictions that the booming financial and real estate markets were going to crash.  But he proved to be right.  Now he is saying that the capitalist system itself is in crisis.  Here is what he wrote last week in his syndicated newspaper column.

Nouriel Roubini

Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proved wrong).  Firms are cutting jobs because there is not enough final demand.  But cutting jobs reduces labor income, increases inequality, and reduces final demand.

Recent popular demonstrations, from the Middle East to Israel to the United Kingdom, and rising popular anger in China—and soon enough in other advanced economies and emerging markets—are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness.  Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.

Unless governments act, he wrote, the world could be on the brink of another depression as bad as the Great Depression of the 1930s.

Over time, advanced economies will need to invest in human capital, skills, and social safety nets to increase productivity and enable workers to compete, be flexible, and thrive in a globalized economy.  The alternative is—like in the 1930s—unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

via Slate Magazine.

All this seems obvious to me.  Why is it not obvious to our political and business leaders?  It is partly because of the excessive power and influence of the wealthy elite, but I think it is also because of the excessive power and influence of financial institutions compared to goods-producing companies.

It is to the interest of banks that loans always be repaid, that investments retain their value and that currency never lose its value.  These are reasonable things to want, but sometimes it is necessary for the sake of economic growth to write off bad loans, to write down bad investments and to allow a currency to fall to its natural level (although, as Roubini pointed out in his article, currency depreciation does no good when all the major national economies are in trouble).

It is of course unfair to taxpayers to ask us to underwrite the value of “toxic” investments, but it also is bad for the larger economy to tie up capital in these investments.  Austerity creates hardship among middle-class and working-0class people, but it also means that there is no demand for the products of industry, except from the very rich.

Click on Is Capitalism Doomed? for Nouriel Roubini’s full article.

Click on After the Storm for a collection of Nouriel Rubini’s recent commentaries.

Click on Nouriel Roubini wiki for his Wikipedia biography.

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