The IUSB Vision Weblog

The way to crush the middle class is to grind them between the millstones of taxation and inflation. – Vladimir Lenin

Real Capitalism vs. Political Market Capitalism

Posted by iusbvision on March 25, 2009

Will Wilkinson has a great column on real capitalism vs. political market capitalism. This is a valuable lesson that universities should teach, but don’t. This is convenient for politicians because when they engage in political market capitalism, and it all goes to hell, they blame real capitalism for the problem and the solution is of course, more political market capitalism.

Wilkinson excerpt:

wilkinsonPolitical markets — less enabled by government than made by it — operate according to fundamentally different, and less trustworthy, principles. Propped-up by subsidy, structured by central diktat and created ex nihilo by edict, political markets may arise from noble aspirations but in the end are instruments always of the privileged and powerful.

Take contemporary financial markets. (Please!) These are not so much regulated by government oversight as they are constituted by the convoluted web of regulation that dictates who may sell what to whom and on what terms. The shape of our financial markets has emerged from the gradual accretion and rare subtraction of political intervention. But it is now brutally clear that financial markets are not stable simply because they are framed by law and watched by bureaucrats. It is not so hard to see why.

In political markets, the battle for competitive advantage is in part a battle over the rules of the game. That, in turn, is a battle for the hearts of minds of regulators, who generally know less, and are far less motivated, than the industry insiders they regulate. It is no surprise when regulators come to confuse the interests of the powerful (for whom they might someday wish to work, after all) with the interests of the public. As we have recently witnessed, the heavily regulated nature of our financial markets did not keep them from going haywire and taking the entire economy down with them.

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