Returning Finance to the Service of Capitalism

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As we confront the systemic malfunctions that have led first to the Global Financial Crisis and now to the popular reaction of Occupy Wall Street (OWS), conservatives need to step away from our unqualified endorsement of markets and recognize that there are times where markets create perversity and contradiction that harm society. The answer is neither to consign capitalism to the waste basket nor leave the problem to correct itself, but to fix the chunk that is broken. Martin Wolf, the respected economist who serves as associate editor at the Financial Times (nobody’s idea of a lefty rag, pink paper notwithstanding) noted in an editorial from early 2009:

Among the possible outcomes of this shock are: massive and prolonged fiscal deficits in countries with large external deficits, as they try to sustain demand; a prolonged world recession; a brutal adjustment of the global balance of payments; a collapse of the dollar; soaring inflation; and a resort to protectionism. The transformation will surely go deepest in the financial sector itself. The proposition that sophisticated modern finance was able to transfer risk to those best able to manage it has failed. The paradigm is, instead, that risk has been transferred to those least able to understand it. As Mr Volcker remarked during a speech last April: “Simply stated, the bright new financial system – for all its talented participants, for all its rich rewards – has failed the test of the marketplace.”

The heart of the problem the economy faces is a financial system that, like a nuclear reaction freed from containment, has spun out of control. In this case, the proper reaction is to restore the core to a newer, better containment vessel, allowing it to give of heat but ensuring that it is never again allowed to spew damage and destruction across the face of the American and global system.

We do not like regulation very much: every conservative and most Americans nurture a tiny libertarian within. Our economy, however, was not meant to be the playground of Austrian-school theorists. The price of civilization is the judicious, careful surrender of a degree of liberty in return for the benefits of living in a society that allows us each the freedom to find our own level. The alternative is chaos that places liberty at risk.

The financial sector has been allowed its unshackled freedom, and in Paul Volcker‘s words, has failed the marketplace. The time has come to return the beast to the bridle, allowing it to resume its rightful role serving the nation and the aspirations of all, rather than serving itself and the desires of a handful of oligarchs.

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Author: David Wolf

An adviser to corporations and organizations on strategy, communications, and public affairs, David Wolf has been working and living in Beijing since 1995, and now divides his time between China and California. He also serves as a policy and industry analyst focused on innovative and creative industries, a futurist, and an amateur historian.

One thought on “Returning Finance to the Service of Capitalism”

  1. I think it is foolish to imagine that capitalism could somehow be eliminated, as some propose. But there never was such a thing as the “free market”, nor should there be. Judicious regulation is absolutely necessary. In my opinion, removal of the rules regulating the smooth flow of market workings over the past several decades has been the primary reason for the economic mess we’re in. Volcker wanted a four-page rule. It ended up much larger, and he says the oligarchs have no one to blame but themselves for that. There are also a bunch of novel Wall St. toys that need to be managed with new kinds of rules. In short, greed will win out if it is allowed to, and be paid for by the rest of us.

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