Information Madness

Reforms are essential in these shock days that we are going through. There is a need to find practical solutions to take capitalism out of its crisis. There are seven challenges involved if there are going to be reforms.

1.    Managing the Macro Instability – It is to be recognized that crisis is inherent in free market capitalism. It is because participants act and think pro-cyclically. Regulators have to watch the build up of leverage. The levels of loss absorbing capital have to be adequate in financial institutions and among the ultimate borrowers.

2.    Fixing Finance – The financial system is built on a complex network of trust. The networks are prone to abuse and collapse. Finance is to be protected from the economy. It requires big shock absorbers. If this change is made, the normal disciplines of the market can operate. The most important shock absorber is the boost of capital. An additional requirement is a resolution that les the authorities act quickly once the institutions are on the brink of losing funding.

3.    Addressing Inequality and Jobs – High income countries have seen a large rise in inequality over the past three decades.  This is because of globalization and shifts in taxation. The answer is to redistribute from the winners to the losers and particularly to the children of the losers. There has to be direct provision of jobs.

4.    Changing Corporate Governance – The main institution of capitalism is the private limited company. It has inherent failings as the companies are not effectively owned. It makes them vulnerable to looting. There is no simple remedy to this. Yet, it can be insured that the pay packages are transparent and any incentives for destructive forms of remuneration are removed.

5.    Tinkering with Taxation – Taxes play a decisive role in determining how the market economy operates. They make a big difference to the outcome on inequality. The incentives for leverage that are embedded in personal and corporate taxation have to be removed.

6.    Curbs on Purchasing Politics – One of the biggest concerns are the relationship between democratic politics and wealth. The outcome is plutocracy in the absence of protection for politics. The use of money can be regulated in elections and by the supply of public resources to those engaged in elections.