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Edmund Phelps on Capitalism

Here’s a wonderful essay from a year ago by 2006 Nobel Laureate economist Edmund Phelps.  (HT Michael Strong)  A sampling:

The other difficulty with that fashionable hypothesis [that market-generated economic growth is overrated] is that most of the alleged costs are illusory or trumped up. The idea that a well-functioning capitalism makes for a weak job market, leading to higher unemployment and lower participation in the labor force, cannot be substantiated. On the contrary, the innovations stimulated and facilitated by capitalism create jobs – in new companies started to develop new ideas, in marketing, and in managements that must keep abreast of new organizations and tools.

The idea that ordinary people are anguished by the thought that other people have extraordinary wealth is also cultivated in fashionable circles without the presentation of any evidence. Most people are practical enough to see that when, say, they have to go to the hospital for tests, what matters is whether the right kind of diagnostic machine is there for them, not whether there is a better machine for others somewhere else.

True, capitalism creates disruption and uncertainty. But we should not lose sight of the other side of that coin. Capitalism is unique in stimulating entrepreneurs to dream up new commercial ideas and develop them for the market, and generating excitement for consumers in discovering the new.