Tuesday, February 1, 2011
Global Capitalism Doesn’t Believe in Capitalism
at 11:00 AM
Sure, people today believe in pursuing their own best interests—but they are unwilling to allow capitalism’s creative destruction to run its course.
Case in point: Iceland.
During the Global Financial Crisis, the Icelanders allowed their banking system to fail. Shareholders were wiped out, creditors took a beating—and blamed the Icelandic government. The international financial sector punished Iceland severely—reasonable commentators said Iceland would go back to the stone-age, in terms of its economy and financial credibility.
But now, two years after the crisis, Iceland is doing just fine: It took the short-term hit—a 7% drop in GDP, a 58% devaluation in the krona, lots of nasty words from the banksters who got hit—but now, Iceland is back on track: 2011 GDP growth is expected to be 3%, and the country has not needed any bailout. Its excessive—nay, ridiculous—banking sector is gone the way of the dodo, replaced by a more sensible financial sector for the country that Iceland actually is.
Now look at Ireland.
During the height of the Global Financial Crisis, the Irish government guaranteed the Irish banks—and the Irish people have never recovered. The Irish state has consistently run monstrous budget deficits, to the point where they finally had to essentially surrender their sovereignty in order to receive an IMF/ECB/UK bailout. Worst of all, Ireland still has the teetering zombie banks, which share their balance sheets with the Irish government, and ultimately the Irish people.
At the time of the crisis, Prime Minister Brian Cowen’s boneheaded move to back the Irish financial sector was spoken of in the financial press in glowing terms: “Restoring stability to the markets”, and all that bullshit.
But now—finally!—two years after the Global Financial Crisis, Bloomberg is out with a piece: “Iceland Proves Ireland Did ‘Wrong Things’ Sacrificing Taxpayers”. They get the title from Joseph Stiglitz, who is quoted as saying, “Iceland did the right thing by making sure its payment systems continued to function while creditors, not the taxpayers, shouldered the losses of banks.”
It’s odd that Stiglitz—a renown Neo-Keynesian—should be cheerleading Iceland; but that’s for another day.
Capitalism depends on creative destruction. There is no business so essential that it cannot be allowed to fail.
How different would the U.S. economy be, if the so-called “Too Big To Fail” banks had actually be allowed to fail?
The fact that all sides in the political and financial leadership did not allow them to fail shows that that leadership does not believe in capitalism—it believes in cronyism