May 31, 2013
Thomas Edsall devoted his blogpost yesterday to a paper by Daron Acemoglu claiming that the United States can’t follow a path like Sweden and have “cuddly capitalism.” By this Acemoglu is referring to a welfare state that protects most people from the risks in a market economy.
However what Edsall, following Acemoglu, overlooks in his discussion is that the United States already has cuddly capitalism. The difference between the United States and Sweden is who gets cuddled. While Sweden’s welfare state is designed to provide protections to ordinary people, in the United States it is those on the top who can count on the state’s help.
For example, if you are an incompetent bank executive at Goldman Sachs or Citigroup whose reckless lending threatens to sink your bank, you can count on the Treasury Department and the Federal Reserve Board to provide trillions of dollars in below market loans to support your bank through the rough times. If you are a drug or medical supply company you can count on the government to grant you patent monopolies so that no one can compete with you in the market for long periods of time. Highly paid professionals like doctors and lawyers can count on a trade policy that is designed to depress the wages of most people who provide you services, while protecting you from the effects of foreign competition.
There are a long list of ways in which the U.S. government gets very cuddly with those at the top as noted in my classic The End of Loser Liberalism: Making Markets Progressive. Of course those at the top would prefer that the only government interventions that are put up for debate are the ones that help more ordinary people, they would rather keep the interventions that benefit the wealthy out of the discussion. Unfortunately both Acemoglu and Edsall follow this path.
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