The capitalist system can be improved, it includes unstable elements that we do have to live with, as crises cannot really be avoided. We should try to reduce the impact and enhance our defences, having tougher regulations and more effective supervision.
In his speech, Lorenzo Bini Smaghi made an important overview of the economic literature analysing the failure of capitalism.
He noted that Richard Posner’s book ‘A Failure of Capitalism’ – one of the leading ideologues and advocates of the free market – offers a critique of the capitalist system. In his view, the root of the crisis lies in the explosive mix of an expansive monetary policy and excessive deregulation – a mix that has caused financial operators to take risks of a magnitude greater than they could manage. But Posner goes one step further. He claims that those who made the misjudgements, in particular, financial operators, knew that what they were doing was very risky, and could even lead to a crisis, although they weren’t able to estimate its scope.
He concluded by saying that the current crisis has been characterised by many as a crisis of capitalism. He wonders whether it might also be a crisis of our democratic system, a challenge to its ability to manage complex and global financial markets. Indeed, many parts of society benefited from the loose approach to supervision and regulation of the financial activities which took place in the run-up to the turmoil. Market participants have been short sighted and so have our political authorities and institutions.
He also highlighted that “It would be better not to ‘waste’ another crisis to come to the same conclusion for financial stability.”
© ECB - European Central Bank
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article