How much capitalism is optimal for economic growth and stability? Or, equivalently, the question is how much socialism or government? Until now, no one appears to have posed this question, as most people tend to favour more and more of one or the other, in a political rather than scientific judgement. This post provides some tentative answers based on empirical evidence.
Under our definition, no economy is purely capitalist, because there is always a government which expropriates private property through taxes for government purposes; hence there are only degrees of capitalism. The degree of capitalism and the size of government are two sides of the same coin, as more capitalism means less government and vice versa.
Most people understand and assume that government income redistribution, where higher incomes are taxed and transferred to those with lower incomes, is a way of achieving greater income equality. But few people are aware of the extent of corporate socialism which is defined here as the transfer of capital, by government to corporations.
In the heat of the GFC, corporate socialism was blatant as there was no need to hide the fact that financial corporations needed to be saved by the government’s injecting trillions of dollars into them to maintain liquidity and solvency of the financial system. The income inequality created by corporate socialism was equally blatant, making billionaires of executives such as Lloyd Blankfein (in July 2015), CEO of Goldman Sachs, a bank which was central to the fraudulent dealings of subprime mortgage derivatives triggering the GFC.
The previous post discussed the influence of pluralism in economic policy. As an historical summary of the cognitive dissonance, it suffices to observe the policy circus: the free-market capitalism in the early twentieth century was blamed for the Great Depression; it gave way to Keynesian socialism after the Second World War (WW2) then back to deregulated market capitalism and monetarism since the stagflation of 1970s; and more recently back to renewed Keynesian government intervention since the global financial crisis (GFC) which started in 2008. With each circuit of theoretical favoritism, the structure of the US economy evolved with mutating blends of policy pluralism, but generally with increasing socialism.