Monday, 5 July 2010

The Failure of Western Capitalism

The above image shows the amount of national debt as a percentage of GDP and therefore gives an indication of a state's ability to pay if it's in debt. The data is sourced from the CIA's fact book website and was compiled for Wikipedia under the Creative Commons licence.

A cornerstone of liberal free markets is their ability to provide an efficient, reliable and stable financial system. They are clearly failing in this regard. Market failure has resulted in increased borrowing in order to stabilise the major economies of the world. Notice that this is only a feature of Western states and others with liberalised markets.

What feature of Western capitalism is to blame for this? The liberalised movement of finance (i.e. the removal of tarrifs and limits on flows of finance), deregulation of the financial sectors or something else?


Dan @ Eyes on Power said...

Interesting question. The national debt obviously expanded due to increased borrowing to pay for government expenditure during the recession. This helped stimulate the economy and avert economic collapse. Ironically, now that the debt is being tackled by the Coalition - and the stimulus is being withdrawn - I think it is highly likely we will see a return to recession. From a Keynesian point of view, an increased deficit was necessary to deal with the credit crunch and recession.

Pete @ Eyes on Power said...

Agreed. I forecast that after the cuts hit we will see a double dip meaning a second crisis. This will differ from the first by hitting retail due to their being less income more unemployment and higher VAT. I think this may start fully in in Q2. I don't think the banks bear will suffer as much this time as their limits on borrowing will keep them safer.

If all this comes true then I want Vince Cable's economy forecaster crown. I'll dig it out of the bin.

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