US Capitalism Has Been Shattered

US Capitalism Has Been Shattered, by Henry Kaufman. This is important not so much because of what is said — after all, anybody can opine thus — but because of who said it.

Robert Wenzel, on Kaufman:

Henry Kaufman was a former senior partner of Salomon Brothers and, during the early part of the 1980s, the bond market reacted to every word he said.

He was such an influential Wall Street analyst that when David Stockman was head of the Office of Management during the early part of the Reagan administration, he visited Kaufman in New York City to try and convince him there was a Reagan plan to bring the U.S. budget under control.

Kaufman didn’t buy it. …

Kaufman’s considered opinion today:

American capitalism is rapidly disappearing. Its demise has been under way for some time and the economic devastation wrought by the Covid-19 pandemic is the latest blow to our political economy.

[C]apitalism is being rapidly replaced by statism — a form of political economy in which the state exercises substantial centralised control over social and economic affairs. …

Historically, the Fed has been viewed as somewhat independent from immediate political interests. But the central bank’s response to the onset of the pandemic-related recession shows that its quasi-independence is quickly evaporating, contributing to the emerging statism….

It is buying not only government bonds but also corporate bonds — including low-quality issues, mortgage obligations, municipal bonds and exchange traded funds. …

With the federal government and the Fed firmly joined at the hip, the transformation of capitalism into statism is gaining momentum, perhaps irreversibly. This is a great departure not only from the vision of the US founders but also, I suspect, it is not the kind of economic system most Americans living today want to leave for future generations.

Modern monetary theory is displacing capitalism. Government spending is on steroids, employed to fix every political woe, and government “debts” are never going to be repaid.

By the way, MMT isn’t modern, and is so simplistic it barely rates as a theory.

MMT is a threadbare excuse for theft from the private sector by government. If a government prints more dollars, existing dollars become correspondingly devalued. The sum of all dollars tends to have about the same value from one year to the next, because the amount of goods and services for sale doesn’t change quickly. So when the government prints new dollars, they are stealing purchasing power from the holders of existing dollars. People in the private sector have to work for their dollars, so the government is really stealing your productive power — MMT is a hidden tax.

Even less visible to the casual gaze, the worst effect of MMT is the mal-investment it engenders. By corrupting the information inherent in interest rates and prices, and making money too cheap, MMT causes relatively more investment to be lavished on things that require more capital (money). Thus, MMT causes society to waste its money instead of spending it optimally.