Market Overview

Was Marx Right? Roubini Says Yes

In a recent interview with wsj.com, economist Nouriel "Dr. Doom" Roubini stated that, "Karl Marx had it right. At some point capitalism can self-destroy itself. That's because you cannot keep on shifting income from labor to capital without not having an excess capacity and a lack of aggregate demand." Roubini continued, "We thought that markets work. They are not working. What's individually rational...is a self-destructive process."

In the interview, Roubini commented that we are not yet at the point where capitalism is self-destructing, but kicking the can down the road with debt is not the proper solution. Either we will grow ourselves out of the crisis, save ourselves out of the crisis, or we will inflate ourselves out of the crisis. Since we cannot grow, save, or inflate ourselves out of our excessive debt problems, Roubini suggests that we restructure and reduce our debt. According to Roubini, in light of not restructuring debt, our current global financial crisis is resulting in "zombie households, zombie banks, and zombie governments".

Roubini's comments come at a time of great political and economic uncertainty as households are struggling to cut costs and reduce spending. The recent US debt crisis is a testament to the growing divide in philosophical and economic opinions as to how to repair the global economy. The fractured rhetoric between liberal-progressives and conservatives in the US government demonstrates what occurs when there is a lack of first principles in economic discussions.

In the middle of a serious financial crisis, it can be easy to point fingers and tote ideologies. However, for an economist to voice support for the economic ideas of Karl Marx at this point in time is irresponsible and just plain dangerous. The communist ideology developed by Marx led to great suffering and millions of deaths around the world. Communist ideologies across the world formed the basis of some of the greatest national upheavals in history. There is a reason why Russia no longer has the hammer and sickle on its flag, and it's not because "Karl Marx had it right".

With the economic ideas of Marx, one has to take the good with the bad. You can't have the hammer without the sickle. In the end, was Marx right? Are you serious? Do you even have to ask? Have you ever actually read "the Communist Manifesto"? No, Marx was not right. The specter of communism did not light the entire world on fire, there was no worldwide communist revolution, there was no dictatorship of the proletariat, and communist revolutions did not lead to classless societies. On the contrary, Marxist communism resulted in the unjust confiscation of mass amounts of private property, moral depravity, the deaths of millions of innocent people, and the enslavement of entire populations.

Marxism does not work in practice. Centrally-planned economies do not function as well as free market economies because governments are not able to allocate resources as efficiently as the market. Because a free market knows how to coordinate buyers and sellers in accordance with free market values and accurate prices, any action by the government to set prices and control production is going to end up being a mess. If one looks at the history of Leninist Russia, one can see that Lenin attempted to put Marxist ideas into practice; the result was ugly and destructive.

As for the markets allegedly not working, a large part of the problem was owing to the dishonesty and greed of those with political and economic power. Not only did dishonesty play a big part in creating this current quagmire, but also government intervention that skewed the true value of desired things like houses and higher education to the point of creating financial bubbles capable of bringing the entire economy down. Markets are not working today not because of inherent flaws in the free market, but because of human intervention, government intervention, government entitlements, and deceptive manipulation in the marketplace.

As I have discussed previously, the goal of capitalism is more than simply being about the use and management of scarce resources in a free market. The end of capitalism is about survival, not just for a society but also for the individual. In this light, Roubini's comments suggest that human nature is essentially self-destructive, which does not appear to be the case. Were human nature essentially self-destructive, most likely none of us would be here. Capitalism is not inherently self-destructive because its goals are geared towards the survival of the species. Even if we institute a centrally-planned economy, the Realoekonomie of supply, demand, and market mechanics remains in place. With Marxist ideology and central planning in place, the marketplace is not destroyed; it simply moves downwards -- towards being an underground economy. Capitalism is not inherently self-destructive; on the contrary, the truth is that Marxism in practice is self-destructive.

We need to leave the philosophical and economic ideas of Karl Marx to the history books and not re-introduce them into the current economic debates. (It concerns me that economists like Nouriel Roubini are the ones educating future economists and framing the economic debate on the national stage in these terms.) For a prominent economist to do so is not only irresponsible and counter-productive, but it also amounts to comparing apples and oranges. Marx was writing for the time period in which he lived with factories and farms. A keen look at Marx's writings reveals that Marx's theories regarding capitalism and communism were particular to his time period. For example, far from working in factories or farms, many Americans are now working in the retail and service industries. Today the means and fruits of production are radically different from when Marx was writing.

One could argue that the USSR was not the form of communism that Marx was writing about or that Marxist ideas have yet to be put into practice, but at the end of the day, Lenin was working from Marx's "Communist Manifesto" and Marx's ideas were the principal inspiration for the creation of the Soviet Union and other oppressive communist regimes. Even if one looks upon some aspects of Marxism with admiration, the reality remains that Marxism is at its core an unfulfilled prophecy. Karl Marx was not right; rather, he was a false prophet.

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