No. This is "if we do nothing different". Reducing interest rates are a policy. But QE and lowering interest rates should have been predicted to have had this effect. Central bank interest rate reduction lowers the cost of debt for citizens who can afford low interest loans. that's mostly financial sector orgs and individuals, who are, for example, using debt-based instruments for leveraged investment. Even a mortgage is accessible mostly to people already on the upper half of the wealth scale - the poor in SF, for example, are not benefitting from interest rate reductions.
The effect of increasing the M(2+) money supply by encouraging increasing outstanding loans by making them cheaper ALSO has the effect of making the cost of living more expensive for the lowest part of society, and also forces the middle class to engage in speculative investment as a dominant part of their retirement strategy, which is a subsidy for big business. We should flippantly call this phenomenon "trickle up wealth redistribution".
If we increase interest rates, in the short term a lot of people in the lower half of the economy are going to get poorer. Many of them will declare bankruptcy (which is a good thing!), but in the long term it will break the cycle of indebtedness to the rich, if we take efforts to make sure debt risk is always assumed by the lender.
I can see how that works, but in practice, lenders always sell their debts. My mortgage via Citi is sold, even though my interest rate and my payment remain unchanged. Then comes the government which will always provide some bailout, so what does "assume risk" even mean when in the end risk is going to get swallowed by another lender anyway?
After 2008, this is not an assumption that can be made.
Stop the poor buying things so the rich will suffer. They won't. They'll just sack the poor.
Money needs to be cheap to make capital investment work. The problem is banks lending for purposes other than capital development of the real economy.
If you want to fix things making lending proscribed and loans outside the proscription list ultra vires. Then the loans of the rich get called in, not the poor.
> Money needs to be cheap to make capital investment work.
You are welcome to believe a theory that the only way to help the poor is by encouraging "capital investment" but that sounds suspiciously like a transfer of wealth to the wealthy in the name of helping the poor. Given that your rhetoric is exactly what neoliberal economics has prescribed (and has been followed, to a first order approximation) we should not be surprised that the rich have gotten richer despite social programs and progressive taxation.
> The problem is banks lending for purposes other than capital development of the real economy.
Who gets to decide what is 'the real economy' or not? Do I get to decide that Justin Bieber lascivious lifestyle and profligate spending are not 'the real economy' because I find his music insipid? What about video game testers? can I say they aren't 'really working' because I think zynga is a drain on society and 'productivity'?
I would suggest rather if banks are doing things that are not what you expected them to do as a result of the incentive structures your favored policies were intended to encourage, that you examine the premises of the incentive structures and look within for predictive failures and structural misdesign instead of blaming the symptom.
Let's take 2 different situations in the economy. Situation A, interest rates are going up (slowly). Situation B, they're going down (again, slowly).
What happens in this case ? Either you have debt, or you don't. If you have debt, your payments go up. Payments may go up more even when the principal of the debt goes down (quite common in mortgages). This means less money for everybody with a mortgage.
Let's say interest rates go down. Well, what happens now ? Payments go down regardless of principal being paid down going down or up (as long as the relative difference in the principal y/y is less than the interest rate differential, again with a mortgage this is not going to be hard).
So clearly, everybody with a mortgage will spend more
if interest rates are going down (regardless of what level they're at). Let's assume that these are responsible spenders/lenders.
Let's look at really irresponsible lenders. They will simply buy whatever their credit cards let them buy and then go bankrupt every few years. How much do they buy ? Well it's inversely related to the interest rate as well. It's the relative move of the interest rates.
Issue is, of course, panics. In order to get interest rates to go down, the government must make them lower than they are now. In the 80s, not a problem at all (started at double digits). 90s ? We're in the single digits now, but no biggie. 2000 ... whoops we need even more spending, let's lower them more quickly, and then in 2007 let's take them back up, because we can't leave them at zero can we ?
Now the issue is, spending goes up and down by the relative difference in the interest rates. When we're talking paying 10% vs 9.5% that's not so much and it can be tweaked. However, when we're changing them from 2% to 1.5% ... that makes a rather large difference. So when the FED took interest rates in 2007 from 1% to 5% ... that had a rather large effect, taking mortgage interest rates from, say, 4% to 9%, or a doubling (which would mean a 50% payment increase in the average half-paid-off mortgage). Then they took em effectively negative, and that's where they've been until the beginning of this year, with mortgages at 2-3%. They are still "sort-of" negative because the ECB and China's bank (and various smaller central banks) are still doing massive QE, and their banks are immediately turning around and lending that money out to Americans, depressing interest rates here as well. But they swear they're slowing down their lending (even if their balance sheets tell a different story ... so far). Interest rate normalization at this point would mean taking average mortgage rates from 2-3% to 8%, which would do more than increase an average payment by 50%. And mortgages have become ever larger ...
This is the effect of leverage, or debt. How much debt is there worldwide ? Well, every cent that exists anywhere has been lent out between 35 and 55 times (we don't have perfect stats). This means that there are between 30 and 50 owners for every dollar, or otherwise put, at least 97% of all money in circulation doesn't really exist, and is just a promise of someone to pay in the future. Given that there are many reasons (some good, some conspiracy theories) to assume the total amount of debt is underreported and very few reasons to assume it's overreported, this is likely to be a lower bound, with the real figure higher, maybe much higher.
What can go wrong is that the ability to pay back loans can become doubtful, and if that happens for ~3% of loans then the whole system goes boom. This is another way to look at what happened with Lehman in 2007.
But no worries ! Janet Yellen has said that there will be no more economic crises "in our lifetimes" . How exactly she comes to that conclusion, given what leverage has wrought immediately before she came on is beyond me.
This leveraged reasoning even applies to the government itself, which should be thought of as a really bad lender in the above example (like a person never paying off a credit card). The government absolutely needs to either print money or have a constantly lowering interest rate.
To me it seems that one way you could make this system a whole lot more stable with low interest rates is to change the FED to no longer change interest rates by basis points, but only relatively. That they stop raising or lowering by 0.25% basis points, but rather that they increase or decrease the existing rate by 10%% (so 0.25% would become 0.275%). Seems to me that would make it a lot easier for the economy to adapt to their actions in low interest rate scenarios.
It's easy enough to write down an equation, estimate some of its parameters, and tell a story about it. The hard part is making a convincing case that the model actually resembles reality: that link is the missing piece that rarely appears in modelling exercises like this one.
Until you can make a convincing connection between reality and your model, all you're doing is solving equations and telling stories.
Edit: also, TFA gives some good arguments for validity of the model.
So the question left is how do you communicate this to the public.
Why is paid busywork or a job guarantee more acceptable than basic income? Apparently the risk of basic income is that people end up only playing video games. But aren't video games the definition of busywork?
This is an interesting article but something in particular struck me. Why does almost every public mention of Capitalism in the USA accompanied by some paean to it?
It sounds like A veneration that follows any mention of Mohammad among devout Muslims.
Why does everyone feel they need to give their bona fides? I feel that there are several senses in which it is the official state religion.
I got the impression that the author was genuinely surprised to see that our economy is woefully bad at distributing wealth fairly. The fact that many academics still don't appreciate what a terrible social system capitalism is - even though academia is one of the only places where you can be supported as openly anti-capitalist - shows just how out of touch they are with the ills of the world around them.
Maybe you mean China. Which the US provided massive amounts of capital to in free exchange, which they used to lift hundreds of millions of people out of extreme poverty and jump start their collapsed hyper poor nation that had failed in nearly every possible way under Mao's Communism. The US also prevented the Soviets from murdering millions of Chinese through pre-emptive nuclear war, by telling the Soviets that the US would respond with a nuclear attack on the USSR if they went ahead.
You mean Vietnam? Which the US has had good trade relations with for decades and increasingly has good political relations with.
quote of the century - post-trump election in hillary clinton "democrat" voice: "i MAY not be DALE Earnhardt but I SMASHED into the FUCKING WALL because I couldn't turn LEFT"
Saying capitalism doesn't work is the economic equivalent of being a flat earther. So if you are saying something that sounds like "capitalism doesn't work", you'd better phrase it as "capitalism as practiced today works but is suboptimal" if you want to not be automatically dropped in the looney bin category.
I also find it interesting that nobody even mentioned capitalism "not working". The comment said that any mention of capitalism is often followed by generic praises. I guess another form of that is "capitalism brought us great things, and is better than the alternatives we had so far, but [criticism of some aspects or consquences of it]" -- which acknowledges that it "works", just like using coal to heat your home works, like many things undeniably work; yet even that would raise the above question, how come it's treated like a religion? If it's so great, why so defensive to the point of scoring own goals?
Capitalism in America, 1800-1900, brought along with it enormous, unprecedented, and historic improvements in longevity, height, and reductions in infant mortality.
The Enlightenment followed the rise of mercantilism, not the other way around.
Jack Ma, Pony Ma, Robin Li, Hui Ka Yan, Wang Jianlin etc., and all the technology and industry - all were impossible under their former Communist economic model (as conveniently demonstrated by every other Communist nation that has previously existed, including Mao's China).
Nearly every prosperous nation on the planet heavily utilizes the free market, including all of Scandinavia. The post WW2 benefits of the free market system globally have been truly extraordinary, resulting in the lowest rates of famine, war, violence and poverty in all of recorded history.
Clearly, the move of farmers to newly built cities was centrally planned by a huge central government. There's just no way all those privately owned businesses got together and said "let's build cities". It is a collective action problem. The same thing took much longer after the Great Depression, as John Steinbeck writes about in his novelsz
You can see similar advancements in all the new USSR Republics across the Soviet Union which came from pre industrial conditions to sky high literacy rates and electricity and manufacturing in a span of a few decades. I am talking about Muslim countries like Uzbekistan, Turkemenistan, etc. becoming much more prosperous, under Communist rule. So to claim that only Capitalism is capable of lifting masses out of poverty is certainly not true.
I am not saying Communist (or Islamist, or Nazi or Fascisy) ideology is good to have at the state level. I am saying NO IDEOLOGY IS GOOD at the state level. And in the USA, the worship of Capitalism is on the level of Islam in Saudi Arabia.
Capitalism has produced toms of negative externalities. The ecosystems of the world are all going to shit. We are living on resources borrowed from future generations, and it is unsustainable. Those rates of famine you are talking about have also been accompanied by the largest rise in desertification of farmland, deforestation, pollution of natural ecosystems and extinction of species around the world. And let's not forget the greenhouse gases. When will the bill come due? Will we be thanking those industrialists?
I don't disagree that capitalism optimizes for the wrong metrics. I simply don't have the knowledge one way or another to say it would or wouldn't be possible to have such progress without capitalism but I wonder if we haven't hit some kind of peak comfort in technology, and we should really start shifting focus to reaching a peak humanity instead. Everyone has a smartphone yet it hasn't made them happy for example.
I think we simply missed some refinements and balances on our march to success.
Wasn't there a comedy shtick about how incredible it is to fly at 30,000 feet in a padded seat sipping a drink crossing the country, and yet complain about the flight being 5 minutes late?
I wonder how you propose society should fix that.
I think we encourage people to chase a red herring, and to fail to catch it causes people huge distress, it's all they can focus on. But even if you are successful you can still come to realise it was all just part of the machine of commerce, and that's not really a very human or very compelling story.
What a problem to have!! You could instead be worried about plague, influenza, capricious wars, kidnapping, enslavement, childbirth, or the chirurgeon's leeches.
(Perhaps you don't know that death by sword was hardly quick. Death from sword injuries usually came hours or days later of agony. Star Wars has perpetrated a myth that hacking someone with a sword is somehow elegant and civilized.)
Please note that my preference is to rid the world of both.
For another example, consider cancers and other health problems brought on by unregulated pollution.
Poland under communism became the most polluted country on the planet. Capitalism provides the surplus necessary to deal with pollution.
You might want to read up on Lenin's New Economic Policy:
And yet, within a few short decades, without much economic help from the USA, the USSR not only rebounded but helped raise many Muslim republics like Uzbekistan, Turkmenistan, etc. from a pre-industrial age to sky high literacy rates, spread electricity, manufacturing etc. The average quality of life greatly improved under the USSR. Everyone started speaking Russian.
Empires tend to do this kind of thing in general, regardless of their economic system. When we say "Chinese invented paper 2000 years ago" or "Arabs invented algebra" what we are really talking about is empires which disseminated knowledge that was obtained in one part of it by some people.
What would you say these republics had before "Communism" came? Was it Capitalism? Because they were dirt-poor on average per capita and couldn't read.
Consider the difference in the economies of east and west Germany. Consider the wall the Soviets had to build to keep people from leaving to western europe. It wasn't just a fence - it was barbed wire, guard towers, minefields, machine guns, etc. I traveled through it in 1969 for a tour of East Berlin. It was no joke.
As for the Marshall Plan, most of it went to rebuild Britain and France.
West Germany turned to free market capitalism after WW2, and that's where the economic miracle happened, becoming the strongest economy in europe, despite having been quite thoroughly devastated and looted, and having lost a generation of men.
> The most distinctive and important feature of North America is the river network in the middle third of the continent...
> The network consists of six distinct river systems: the Missouri, Arkansas, Red, Ohio, Tennessee and, of course, the Mississippi. The unified nature of this system greatly enhances the region's usefulness and potential economic and political power. First, shipping goods via water is an order of magnitude cheaper than shipping them via land. The specific ratio varies greatly based on technological era and local topography, but in the petroleum age in the United States, the cost of transport via water is roughly 10 to 30 times cheaper than overland. This simple fact makes countries with robust maritime transport options extremely capital-rich when compared to countries limited to land-only options. This factor is the primary reason why the major economic powers of the past half-millennia have been Japan, Germany, France, the United Kingdom and the United States.
> Second, the watershed of the Greater Mississippi Basin largely overlays North America's arable lands. Normally, agricultural areas as large as the American Midwest are underutilized as the cost of shipping their output to more densely populated regions cuts deeply into the economics of agriculture. The Eurasian steppe is an excellent example. Even in modern times Russian and Kazakh crops occasionally rot before they can reach market. Massive artificial transport networks must be constructed and maintained in order for the land to reach its full potential. Not so in the case of the Greater Mississippi Basin. The vast bulk of the prime agricultural lands are within 200 kilometers of a stretch of navigable river. Road and rail are still used for collection, but nearly omnipresent river ports allow for the entirety of the basin's farmers to easily and cheaply ship their products to markets not just in North America but all over the world.
> Third, the river network's unity greatly eases the issue of political integration. All of the peoples of the basin are part of the same economic system, ensuring constant contact and common interests. Regional proclivities obviously still arise, but this is not Northern Europe, where a variety of separate river systems have given rise to multiple national identities.
> It is worth briefly explaining why Stratfor fixates on navigable rivers as opposed to coastlines. First, navigable rivers by definition service twice the land area of a coastline (rivers have two banks, coasts only one). Second, rivers are not subject to tidal forces, greatly easing the construction and maintenance of supporting infrastructure. Third, storm surges often accompany oceanic storms, which force the evacuation of oceanic ports. None of this eliminates the usefulness of coastal ports, but in terms of the capacity to generate capital, coastal regions are a poor second compared to lands with navigable rivers.
Rather than risk copy pasting the entire thing, I'd simply urge you to read it, it's highly interesting if you want to go beyond ideological thinking (free market vs. soviets).
Nor does it explain the collapse of Ukrainian agriculture under farm collectivization, the resurgence under the NEP, and the collapse again under collectivization.
Nor does it explain the repeated and uniform failure of collective agriculture to feed the population.
It does not explain the very different arcs of the free market northern and slave based southern economies from 1800 to 1865. See Cabot's "The Civil War" for a description.
Nor does it explain the general impoverishment of the South American economy.
The other part that I can never square up in my head, particularly as it relates to the Holodomor and gulags and whatnot, is that those things don't seem particularly related to communism itself -- the starvation of the Ukrainians is a travesty, but one that was enabled by an authoritarian government, not a communist one. Unimaginably terrible things happened in the USSR, but was that because of communism, or because of the communist rulers?
The Great Leap forward is probably the most intense example of this. The Five Year Plans of the USSR are another. The one child policy, prohibition, the war on drugs.
All of these policies go against human nature and while they are all at least somewhat effective at achieving their aims, they all have had massive terrible side effects. We are just not very good at predicting the outcomes when we try to engineer society and we should be very careful about its application, and probably we should attempt to not do it when possible. The natural state of man is capitalism, it predates recorded history.
Monogamy is not a natural state either by the way. Because after a war, there were far more women than men.
Technology has caused unprecedented peace among man. It is technology, far more than capitalism, that has enabled plenty and endef slavery and feudalism.
You think people couldn't own things before the 1800s? People owned tons of things. The ideology of free-market capitalism says that every era of human history that was miserable was that way because they didn't have free-market capitalism. But free-market capitalism as you conceive of it only became possible after a certain technological prosperity had been achieved. And it still doesn't exist today. The USA is more socialist than some other less prosperous countries.
Look for example at Africa. There were never any large empires there and as a result the tribes engaged in endless fighting against one another. As a result the technological (and military) capabilities of the peoples fell behind and they were easily conquered by Europeans later. This would have happened whether they had capitalism or socialism, the political units (of unified language or religion, no fighting between inside the polity etc.) were just too small for any meaningful growth to take place and knowledge to be disseminated.
If the natural state of man is capitalism and it predates recorded history, then it sure takes a long time to achieve anything. All the populaton explosion has happened in the last 200 years.
You might want to look at Robert Conquest's The Great Terror - "Exact numbers may never be known with complete certainty, but the total of deaths caused by the whole range of Soviet regime's terrors can hardly be lower than some fifteen million."
A utilitarian would say that is a equal outcome to everyone having equal measures of happiness.
lots of people (myself included) would strongly posit that utilitarianism is a thoroughly incomplete foundation for a moral framework.
to be clear, i think it's absurd and callous to treat those outcomes as equal for anything other than a back of the envelope calculation or a thought experiment.
if you're going to put forward a philosophy 101 idea, at least do the philosophy 101 level work of trying to defend a controversial point of view against charitable objections.
There is no easy metric for societal goodness, likely not even a complicated "objective" one. Capitalism is like a blind man demanding a painting make a sound for it to exist. Since it can only measure numbers, it doesn't even attempt to answer the question of societal goodness or any other interesting ones. That is beyond its scope, and that's that's why you shouldn't mix up things like "GDP" and "progress of society".
You might say capitalism is a combustion engine, without anything additional it just eats energy and spins. The idea was, or rather is now claimed to have been, that since consumers are informed and aren't going to buy things that harm them, we'll end up with progress. Instead too many too powerful corporations are playing their clients like a piano and subvert governments, often enough in concert, and produce plenty of harm (and, to be fair, also good) that doesn't even get to enter the equation, because it's not a number or a contract etc.
TFA falls in the first category as it makes an argument (which I believe btw) that interest rate policies in place result in net transfers of wealth from poor to rich since the 80's.
I could also believe arguments that free market capitalism is a form of local gradient ascent of the GDP landscape that does anticipate or react to global or systemic risks like global warming.
I could also believe an argument that our metrics of societal prosperity don't measure what we really want, which is a moral judgement about whether the society is better or not. E.g. if all the wealth gets concentrated in the 1% and the remaining 99% becomes figurative or even literal slaves, that's probably a worse outcome even if productivity increases. The problem is that while it is easy to cook up such what-if thought experiments, it is not easy to quantify the result into a mathematical model of moral social utility. Come up with such an objective, measurable metric and economists will start using it. Seriously try coming up with one and you will see why no one has. Moral philosophy is still a field of philosophic arguments, not solved problems.
> The problem is that while it is easy to cook up such what-if thought experiments, it is not easy to quantify the result into a mathematical model of moral social utility.
that said... you seem to be implying that we should do things only if we can make decisions using a well understood objective model with easily measurable inputs and outputs. but if that model leads us to a world that i'd characterize as a moral travesty ("all the wealth gets concentrated in the 1% and the remaining 99% becomes literal slaves"), i'll take my chances with the thing that's hard to quantify that might get us a better outcome. and maybe that'll lead to even worse suffering. but seems worth a shot.
EDIT: as a deeply logical person who greatly values the scientific method, i understand the desire to come up with a model of morality that has strong mathematical foundations, which can have its tenets checked against empirical evidence to provide us with something closer to a mechanically produced answer to a moral question. but i don't think we're there yet. and i think to some degree, it's fundamentally impossible, but i think we could get closer, and i think beyond some core moral tenets, it is best to optimize in a utilitarian way. but before we start the optimizing, i want to prevent things like slavery, or even de facto indentured servitude. i wish i could provide you with something like a mathematical proof of why indentured servitude is bad, but i'm going to keep operating on the premise that it's bad, despite the fact that i can't prove it in a mathematically rigorous way.
It goes by many names
Unconditional Basic Income
Negative Income Tax
Social safety nets
Single Payer systems
Or various Welfare schemes
It may not be obvious, but your post is not critiquing capitalism. Free-market capitalism is solution in the space of how we decide to allocate scarce resources. It stands mostly in contrast to various forms of collectivism and central decision making (socialism).
Take UBI/negative income tax since it is most relevant to the linked article. UBI is the equivalent of saying that rather than construct our incentive models in such a delicately balanced way as to target a specific value of τ, the wealth redistribution constant, let's just forceably redistribute wealth by that amount. It's only non-capitalist in the sense that any form of taxation and central governance structure is non-capitalist, but of possible welfare schemes it is probably the most capitalist -- it punts the issue of how those funds should be spent and lets their new owners decide.
If it makes you feel better I said "most non-sociopaths want A", which doesn't imply that you are one if you don't want A. Nor does it imply that you are not a sociopath if you want A. But seriously, if you are ok with the poor running out of resources and starving, or even want it, then you'd be considered a sociopath.
"Free-market capitalism is solution in the space of how we decide to allocate scarce resources."
Exactly, which is why "we" is the society, and "we" usually decide that every human being is entitled to have their minimum needs met. The one who disagrees is labeled a sociopath - that's just how it works. Some nihilists for example may have a completely logical theory as to why people, like companies, should be subjected to market forces. "If animals die from hunger why not humans? If you don't work, you don't eat." But we don't reason with them, we dismiss them because our basic values are different. Do you understand now that I chose my words carefully?
And what are those basic needs? Potable running water goes to your sink. That's not required for survival. Most societies carried water from the river. Romans had aqueducts but they didn't go to people's houses. Child mortality is down because of advancements in science and medicine.
Who do we pay for all these things? The scientists who contributed to the growing snowball of knowledge are long dead. We are lucky to have been born in the 20th and 21st centuries and benefit from the amazing wealth humanity has built up.
Capitalism deals with conferring PRIVATE PROPERTY rights to individuals and privately owned organizations of any size. PRIVATE PROPERTY IS A MONOPOLY RIGHT TO EXCLUDE OTHERS FROM THE USE OF A RESOURCE. Show me that this is always the best way to allocate the resources. Is selling a lake to a capitalist the best way to make sure the lake is not polluted? Is enforcing the monopoly right of an inventor to threaten others at the point of a gun (see what I did there) to extract rents from them for building on their idea the best way to promote scientific progress and software and drugs?
Only if by "we" you only include progressive liberals and ignore the other half of society that gives preference to individual responsibility over welfare.
You obviously put a lot of time into your reply and I'm sorry to not address anything else, but so long as the "debate" is taking controversial political positions as axiomatic, there isn't really any point to continuing this further. I bid you good day, sir.
I've had this happen a lot. When someone is ideological they think that only their position is axiomatically true and everyone else is making assumptions. I understand how you feel, but this exceptionalism is keeping you from engaging in good faith with other viewpoints. Anarcho capitalism is the best, our system is the best, etc. You never seriously challenge your assumptions and that's why you sincerely believe that "capitalism is as inevitable as gravity."
I gave you lots of good info above as a starting point but happy to discuss substance if you ever want to. Good day!
I'm curious about one assertion you made in particular:
>it is not easy to quantify the result into a mathematical model of moral social utility. Come up with such an objective, measurable metric and economists will start using it.
I agree that this is a hard problem, but I can't help thinking that we are already pretty close to at least being able to at least measure symptoms of an "immoral" economy -- like if we couldn't graph a function, but COULD graph its derivative.
I'm thinking of metrics we already have: overall distribution of wealth (and its change over time), inter-generational economic mobility, rates of poverty/hunger/homelessness, access to essential services, educational outcomes based on family income, you get the idea.
We know having money is a huge leg up, we know a child whose parents make $18,000 a year doesn't have the same chances (or even access to comparable education) as a child in an affluent family. I'm wandering off into other, more contentious debates, but my point is that there are plenty of metrics we already have that we can point to and say, "This is a bad sign. This is not a good number, and its badness is self-reinforcing and will only get worse." Just look at productivity: it's gone up consistently, year over year, for decades, and yet the real value of wages hasn't moved. SOMEONE is profiting off of that surplus value, but it certainly isn't the workers.
At that point, the arguments begin about how to fix those metrics, and we're back to square one, but I'd argue that there is plenty of evidence for people who want to make the case that the current incentives in American capitalism are unfair, if not unjust.
Yes it is. Economics is a social science, like psychology and archaeology. The empirical precision of physics and chemistry are not required for a discipline to be scientific; standards of rigor and reproducibility in methodology are. Moreover there is a significant amount of rigor in much of economics, despite widespread memes that the entire discipline is wanton fluff.
That aside, we encounter flaws and unresolved problems in many theories in every scientific field of study. A coherent argument can be posited that denying the supremacy of capitalism as a broad, categorical model is analogous to denying that the Earth is round. I don't necessarily endorse this view, but there is enough evidence to construct a sane backing for that position. It's not absurd, even if it's not absolutely correct. We need not understand everything about gravity or resolve all issues pertinent to its existence to more or less agree on the main points. Similarly, for specific definitions of social stability, productivity and happiness, capitalism is demonstably superlative given the implementation track record.
Efficacy is more the word I would have gone for, compared against other systems we have historical evidence for.
How about Science? How about Wikipedia? How about languages, is someone paying someone for using a word?
Because these systems have led to a lot more advancement, when people can collaborate and add to a growing snowball of work.
Wikipedia beat Britannica.
Linux + BSD beat Windows.
WebKit beat IE.
Apache and NGinX beat IIS.
Most languages are open source.
And so on. And yet in drugs we still have the patent system. And the superbugs are back because we run out of antibiotics. And the USA which has the most patents also pays the most per capita for the same drugs. Who wins from these monopolies?
And before you say that Intellectual Property shouldn't be considered property, throwing other anarcho-capitalists under the bus, consider this: if people shouldn't own ideas, should people be able to own large bodies of air, water, land, etc. that they personally will never use? Will that make them more or less likely to become polluted for example?"
The same John Locke who popularized the idea of homesteading or "mixing one's labor with the land" as anarcho-capitalists' favorite way to theoretically paper over acquision of natural resources in their theory also emphatically said that a man shouldn't own too much land.
Yet that's what Capitalism is. At its core it is about granting PROPERTY to private entities and enforcing it. PROPERTY IS A MONOPOLY RIGHT TO EXCLUDE OTHERS FROM THE USE OF A RESOURCE. And pure unfettered Capitalism recognizes no limits on who can own what, as long as the what isn't other people.
Look at what happened at Lake Baikal the largest freshwater lake in the world, and tell me how capitalism improved the use of that resource.
The commenter said that capitalism is unequivocally the best system, and to say otherwise is like denying that the earth is flat. Under what metrics is capitalism the best? Unless we can all agree on the exact same set of metrics with the exact same prioritization, then the question of whether or not capitalism is the best system is an inherently political question.
The commenter mentioned maximizing GDP (as would most economists). GDP is a heavily flawed metric that gets way more attention than it should. Apart from broken window fallacy and such, it says nothing about distribution of wealth, living conditions, happiness, effect on environment, non-monetary output (eg. open source software), technological advancement, social mobility, etc. It would be impossible to reduce any of these into a single meaningful metric.
The "rigor" you speak of in its models are comically oversimplified to the point where they're often completely divorced from reality and useless. One only needs to look at the atrocious track record of economists to see the uselessness of them. It's called the "dismal science" for a reason.
Your argument about the empirical validity of economic models would be more persuasive if you could cite some of those models that are in common use in the profession, and formulate an argument about how they oversimplify reality.
I think at this point the burden of proof is on economists to justify their profession. They completely failed to foresee the recent financial crisis, with the so-called "Great Moderation" and economists like Ben Bernanke saying the depression problem has been solved.
* Theory of competitive advantage is flawed and doesn't hold up to reality. Free trade is not unequivocally good. I wrote about it in this comment https://news.ycombinator.com/item?id=15159057 , but I'm basically parroting economist Ha Joon Chang who wrote multiple books about this
* The assumption of individuals being rational and utility-maximizing is false (eg. charity, stock market).
* Efficient market hypothesis. See any financial asset bubble.
* Austerity economics. The severity of the Great Depression was exacerbated by the government's austerity response. Yet here we are 80 years later demanding austerity from Greece and such.
* Money multiplier http://positivemoney.org/how-money-works/advanced/the-money-...
* Phillips Curve
Steve Keen wrote a book called "Debunking Economics" that explains theoretical flaws in the basic supply/demand curves that are the foundation of economics, though I'll admit I didn't read the book.
Ultimately though, neoclassical economics is just too damn oversimplified to result in many meaningful actionable policy takeaways. It's too constrained by its owned rigid model of how economies are supposed to work, and thus too free market dependent and status-quo preserving.
But almost every argument you bring up, was brought up a decade ago by economists, and is now considered party mainstream economics literature.
Unemployment rate - Every economists knows this, unemployment rate is not the only measure of employment they use. Another one is the "prime age employment population ratio" which doesn't suffer from these same problems.
GDP is again only one measure. Here is the OECD talking about how GDP is only one measure of life and well being. http://www.oecd.org/statistics/measuring-well-being-and-prog... So economics is well aware of this.
You say they failed to foresee the financial crisis, but western medicine fails to cure cancer. That doesn't mean Western Medicine is bunk, because it's still your best shot at not dying of disease. And it would have been far worse if we didn't know about fiscal or monetary policy.
It's true free trade is still thought of as unequivocally producing an increase in efficiency and GDP. But the negative effects are starting to be researched.
A minority of economists think individuals are rational and utility maximizing.
EMH is again something economists are split about, and most economists are have much more nuanced view of this that doesn't prevent asset bubbles.
And with the money multiplier, there is an argument about the mechanism. But that is different than saying that money isn't multiplier, or that reserve ratios don't have any influence on the monetary base.
Philips curve describes a correlation between inflation and employment, a relationship that holds 90% of the time.
It seems like your problem is with a straw man Chicago school hardliner(not for instance Paul Krugman), not with the majority of the field of economics which pretty much agrees with you on everything(besides free trade but this is changing). And maybe Ha Joon Chang is right, but there is also a lot of evidence on the other side that free trade is very beneficial to economies. It's not an open and shut case against free trade.
Remember economics is really hard. Especially macroeconomics(the portion you are critical of) which is probably the hardest science there is. There are no controlled trials. You have statistical experiments where n is maybe a 100, and all trials are hopelessly confounded.
> Saying capitalism doesn't work is the economic equivalent of being a flat earther.
This is such an incorrect framing of the problem. Saying capitalism doesn't work is like saying a hammer doesn't work. Over course it works according to it's nature - however in our situation we really need to unscrew a screw. Hammering on it is going to continuously get negative results.
An even more accurate analogy would be using a flathead when we need a philips...
It's a twisted joke that Reagan was just inducted into the Labor Department's Hall of Honor.