Ray Dalio on what is to be done

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Why and How Capitalism Needs to Be Reformed (Part 1)

Ray Dalio

See also by Ray Dalio

Productivity and Structural Reform-Why Countries Succeed & Fail, and What Should Be Done So Failing Countries Succeed

Zac Tate — Capitalism is losing support. It is time for a new deal.

The financial crisis has led many to question the legitimacy of capitalism. The verdict, 10 years on, has not been favourable. In an opinion poll by YouGov, three-quarters of German adults, two-thirds of Britons and over half of Americans believe that, “the poor get poorer and the rich get richer in capitalist economies”.

Their sense of injustice is not only a reaction to bank bailouts, years of austerity and corporate scandals. The challenge is fundamental. There is a growing awareness in the rich world that most of the benefits of technology and globalization flow to people who own investible capital and to the well-educated, while the costs are borne by unskilled workers, local producers and people who have little property and savings.

The problem, however, is not capitalism itself. Instead, the issue lies with policies that extended the role of the free market beyond sensible limits. These have undermined the essential bargain between labour and capital, and pushed those with few assets into precarious working lives.

Rawer forms of capitalism are unsustainable if too many people do not have capital. Restoring faith in the system requires making amends, and rethinking how capitalism creates and distributes value....

Here we go again. These are the issue that Keynes faced at the time of the Great Depression. He came forward to save capitalism from socialism by moderating it.

This article is a useful backgrounder.

In this situation, demands for fairness have centered around two ideas. Either there must be a significant redistribution of wealth so that everyone has a fair stake in the economy. Or policymakers must reintroduce protections against market forces for those without the insurance of investible capital. Thomas Piketty, in his bestselling book Capital, advances the first solution; Dani Rodrik, in Straight Talk on Trade, promotes the second.

Each of these should be considered as parts of a new deal on capitalism. But there is also a third strand that looks to the future and responds to the thirst for something new. It says that capitalism itself must be redesigned. Private enterprise and public policy need to be realigned to the creation of public value and this requires changing how we think about economics....

In 2016, Mazzucato published Rethinking Capitalism, a collection of articles from distinguished thinkers who challenge the conventional wisdom on a range of topics from fiscal policy to inequality. It concludes that many of our economic theories are not only inadequate but lead to poor policies that often have harmful impacts.

Mazzucato argues that to nurture public value, the state has a key role to play. The state uniquely has the time-horizon and the financial and organizational capacity to create and shape new markets. Embedded in the innovation process with firms and research institutes, it can also influence both the rate and direction of technological development.…

Unfortunately, no mention of MMT and the fiscal space its understanding opens up to use.

World Economic Form
Capitalism is losing support. It is time for a new deal.
Zac Tate | Economic strategist, Hottinger Group

See also

A Goldman Sachs banker [Bobby Vedra] has likened the UK under Jeremy Corbyn to “Cuba without the sunshine” in a nervy attack on the Labour leader at the Super Investor private-equity conference in Amsterdam.

The London Economic
UK would be like “Cuba without the sunshine” under Corbyn – says fat cat banker

Jack Peat

Pam and Russ Martens — Three Critical Steps to Making America Great Again Are Not on Trump’s Agenda

1. M&A rather than IPOs, stock buybacks. Primary investment is lagging. The environment for investment must be addressed.
2. Deregulation for its own sake. Removing bank regulation was a factor in the financial crisis. Regulation needs to be revisited from the perspective of lessons learned.
3. Control fraud and criminogenic environment were promoted by hands-off policy in regulation and oversight. Well-Functioning markets require appropriate regulation and supervision.

Wall Street On Parade
Three Critical Steps to Making America Great Again Are Not on Trump’s Agenda
Pam Martens and Russ Martens

Jayati Ghosh — After neoliberalism, what next?

There are economically-viable, socially-desirable alternatives to the failed neoliberal economic model, writes Jayati Ghosh.

Jayati Ghosh is always worth reading.

Red Pepper
After neoliberalism, what next?

Jayati Ghosh | Professor of Economics at the Centre for Economic Studies and Planning, School of Social Sciences, at the Jawaharlal Nehru University, in New Delhi

ht Ramanan at The Case for Concerted Action

Rajesh Makwana — From Basic Income to Social Dividends

It’s time to broaden the debate on how to fund a universal basic income by including options for sharing resource rents, which is a model that can be applied internationally to reform unjust economic systems, reduce extreme poverty and protect the global commons.

Some interesting points but bogs down over affordability. Doesn't get that the issue is distribution of real resources and that affordability is not the issue.

Counterpunch
From Basic Income to Social Dividends
Rajesh Makwana

James Carden — The National Interest

What is the theory behind these “reforms?” I put the question to University of Missouri at Kansas City economist Michael Hudson who responded that: 

The “new economic thinking” of neoliberalism holds that privatization of public infrastructure can make investors rich. Creditors will lend and get secure collateral, and equity investors will become rent extractors limited only by their inability to dismantle government regulations against windfall gains, a rent-tax, “unexplained earnings” taxes and other rentier income. 

When rent extraction impoverishes the economy, the financial solution is for the IMF or other intergovernmental organization to lend governments enough foreign exchange to pay their foreign creditors—and make taxpayers pay the cost of the tax shift off finance and real estate and monopoly onto labor. The result is economic shrinkage. 

And sometimes, the result is catastrophe, as with what occurred in Russia in the mid-1990s or massive political instability, as with what happened in Argentina between 1998-2002. 

Hudson also notes that Mr. Soros has a rather long anduninspiring track record in Eastern Europe…

Michael Hudson
The National Interest

James Carden

The Economist — A Prominent Financial Columnist Is Calling For Radical Reforms To The Global Economy

Review of "The Shifts and the Shocks: What We've Learned--and Have Still to Learn--from the Financial Crisis" By Martin Wolf. Penguin Press; 466 pages. Allen Lane.

To make finance safer, Mr Wolf suggests replacing a fractional reserve banking system, which takes in deposits and lends most of them out in longer-term loans, with a system of "narrow banking", where deposits must be backed by government bonds. To sustain demand without relying on dangerous asset bubbles, he proposes permanent "helicopter money", where governments run deficits that are financed by the central bank. For a man of the mainstream, this is brave stuff.…

Pushing his analysis to its logical conclusion, he argues that the only way to deal with today's underlying problems--a fragile financial system and a secular weakness in demand--may be to move away from bank-based credit altogether and rely on permanent budget deficits financed by central banks. 

Forcing banks to match their deposits with safe government bonds would reduce the risks of bank crashes and encourage a healthier reliance on equity finance. Permanent money-financed deficits would, in turn, provide a safer way to sustain spending than private-asset booms and busts. If done responsibly, they need not cause inflation.

Business Insider
A Prominent Financial Columnist Is Calling For Radical Reforms To The Global EconomyThe Economist