Erroneous economics by Deosaran

THE EDITOR: The column in the Sunday Newsday of February 3 by Ramesh Deosaran, headlined “Socialism? No señores!” reveals a serious misunderstanding of economics.

Prof Deosaran asserts that “Capitalism opens doors to competitive prosperity but depends largely on financial speculation, greed, artificial shortages and profiteering.”

In fact, capitalism creates prosperity by allowing individuals to exchange goods freely and through the protection of property rights as the foundation of such mutually beneficial exchanges.

The elements listed by Deosaran are usually the consequence of state (political) interference in the market which creates “crony capitalism” – a creature closer to the socialism which Deosaran considers superior to capitalism.

Among his other erroneous statements were that, “Notwithstanding the greed-driven, reckless collapse of the international financial system in 2008, capitalism recovered to fight another day.”

Again, Deosaran confuses crony capitalism with market capitalism, since the 2008 collapse happened because of government guarantees (to Fannie Mae and Freddie Mac in particular) which incentivised reckless loans.

He also writes that “The use of profited capital for trickle-down investment for poverty alleviation has not been as expected; rather, as the mega-analysis of French economist Thomas Piketty shows, resulting in widened rich-poor gaps.”

But not only have the poor become better off under the last half-century of capitalism, but the global wealth gap has narrowed most due to more countries (particularly India and China) pursuing capitalist policies. Also, economists have since taken a close look at Piketty’s data and found gaps and leaps which undermine his entire thesis.

Finally, Deosaran errs even within his own professional discipline, connecting capitalism to “Political ideologies which connect conflict zones to transnational crimes have become an important part of modern criminology.” Yet the countries most involved in such crimes are precisely those where capitalism (ie the free market and secure property rights) are weakest.

ELTON SINGH, Couva