Richard Posner on the Failure of Capitalism

Richard Posner at the Atlantic has come out with his own blog in conjunction with the release of his new book, A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression.

The most interesting discussions so far have had less to do with the book itself (I have yet to read, but judging from his entries, mostly deals with regulating banking system and its relation with a stable capitalist system), but the explanation of semantics he is forced to go through in introducing his book:

There is a sense, in short (turning to the second concern that I flagged), that capitalism has failed us, and we need something different, and that the title of my book signals support for that view. But that is not my intention. “Capitalism” is not a synonym for free markets. Capitalism is a complex economic system with many moving parts, and buying and selling and investing and borrowing and other activities carried on in private markets are only some of those moving parts.

It’s an interesting discussion that is worth having — how do you define the current American economic system? Do you modify capitalism by defining it as ‘unfettered’ or ‘unregulated’ to explain manipulation by financial oligarchs?

The most important differentiation in this sense is to address rent-seeking in the American economy. Specifically, recounting a narrative that saw a distinct break in the American political economy after the end of the Bretton Woods system. Increasing financial deregulation meant that the majority of investment and profit-seeking in America shifted from production to speculation.

The question becomes less about how do you regulate the financial industry, and more about refocusing the aim of our economy. That is, how do you move investment from predatory practices to more productive sectors, like manufacturing or services? And how do you do so when so many of those financial elites are entrenched in our political and economic system?