A guide to capitalism over the years

Gretchen Morgenson


Kai Ryssdal: After Lehman Brothers went broke last September and the government took charge of a huge chunk of the U.S. economy, there were a lot of questions about whether our economic model, that is, capitalism, still worked. It did. And it still does. Just not in the same way it used to.

So New York Times columnist Gretchen Morgenson thought might be time for a little primer on capitalism. What it is and how it has changed. She's the editor of the new, "The Capitalist's Bible." Gretchen, welcome to the program.


Ryssdal: You have taken centuries of human economic interaction and boiled it down to 250, 300 pages but let me ask you to take it a step further. And give me the 30-second version of what the layman, the person who functions in a capitalist economy really needs to know about capitalism and how it works?

MORGENSON: Capitalism is a system that can benefit the greatest array of people, but it is a system that requires an ethical backdrop, a moral compass. And so I think what we're seeing now is that that ethical drive really took a backseat during the credit boom and the mortgage mania that we witnessed during the early part of the century. And so what people have to understand is why that happened. And also capitalism has these kinds of booms and bust cycles. And while this one was tremendously perilous, I do believe that if you look back in time you will see and conclude that capitalism can survive this if certain changes are made.

Ryssdal: Why do you think that happened, that ethics became so much of an issue?

MORGENSON: I think we had a two-pronged failure. First was the failure of people in positions of power to remember that they have a social contract. As you rise in an organization, you have a greater responsibility to do the right thing, to rein in practices, identify practices that are imperiling others. That almost got lost. But the other prong of this failure was the failure of the regulators. These entities, institutions from the highest level down to the very lowest really failed dismally at their jobs. And so you had a combination of failures here that really contributed to this disaster.

Ryssdal: How has capitalism changed though in the past 12 or 18 months? Granted we're talking about a system that's been around for a while, but it's been an extraordinary year-and-a-half.

MORGENSON: Well, I would describe it this way. Capitalism is supposed to be a system in which there is little government intervention. We are now in a type of system where the state, i.e., the United States of America, has investments in much of the automotive industry, has deployed taxpayer money to enormous financial institutions, a great array of them, so we have a, right now in a position where capitalism is not in its sort of true form operating at all. It's really more the government stepping in. And the unfortunate aspect of that is that what has happened is that the gains that were made by reckless lenders, and people who were not overseen by regulators very closely, those gains have now been turned to losses that the taxpayers have to cover. And that is just anathema to a capitalist.

Ryssdal: Gretchen Morgenson is a columnist for the New York Times. Her latest book about how this economy works and sometimes doesn't is called "The Capitalist's Bible." Gretchen, thanks a lot for your time.


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"It's really more the government stepping in. "

Gretchen, please look at your journalist ethics card and add in "But this is temporary."

#2: If these big institutions were broken down into smaller companies that cannot cause systemic risk, we wouldn't HAVE TO bail them out. Quickly flip to the "How To Prevent A Too Big To Fail Scenario" Chapter in your Capitalism-How-To book and you'll see these words:

Ban All Lobbyist.

"...responsibility to do the right thing..."
This is important, but the context is too limited; there is similar responsibility for those who WRITE the law. Congress must share significant blame for 40 years of deficit spending. Too much debt is the ultimate cause of our current problems, while the regulatory failures are merely the triggers that knocked down the house of cards.

I just finished listening to your piece with Gretchen Morgenson regarding another interpretation of “how did we get into this mess”. It was very touching and even hopeful, but I believe that Ms Morgenson lives beneath a tangerine sky. I have not yet read her book, but she asserts that persons in positions of power have lost their way ethically and have forgotten that they have a public trust to do right. I wonder how she came to this conclusion. They actually have a trust to maximize the market share and profitability of their companies.
I live on my salary as a public servant, so have little to invest. But what I have is entrusted to professionals. Through my retirement system, I currently buy into index funds and mutual funds on the assumption that their managers have expertise beyond mine and will maximize my investments. If the CEO of Widgets, Inc. stands up at a board meeting and announces that they are going to begin reporting the company’s deferred debt on their liabilities report or re-value their mortgage portfolio to zip in light of its probable imminent collapse because it is the right thing to do, his board of directors may applaud him, (assuming that they also live under a tangerine sky), but to what advantage? I want my mutual fund manager to get me the best return. This company’s numbers are going to drop to a more realistic level and my mutual fund manager is going to scrub it from his books in favor of some hot company that reports an uninterruptedly golden future. If he doesn’t, I’ll move my money and he hits the bricks. There is no index for ethics. There is an index for last quarter’s growth.
Companies can’t survive on the investments of individuals who, with due diligence, examine their long term ethical strategy along with their PE index. They survive on institutional monies. This situation scrubs all extraneous information out of the investment decision process. I look at my menu of choices and am presented with 7% return versus 8% return. I, like any rational person, choose the 8% and I don’t look for the man behind the curtain. To coin a phrase, ethics is its own reward. We’re all chanting “Show me the money”.
Ms Morgenson also states that public bailout of business failures is anathema to a capitalist. Perhaps this is so to an observer of capitalism. But once again, if that same CEO announces that he has been presented with a scheme in which the company’s profits will all be private, but the losses will be socialized and paid by the government, but that they mustn’t do it because it is another paving stone on the road to the eventual destruction of capitalism, he is lining up to be a martyr to capitalism. I’d like this guy. I’d want to buy a used car from him, maybe even go fishing with him. But I wouldn’t want my mutual fund manager anywhere near him.
In a world of institutional investing, there is a financial incentive to ignore ethics. Very few of us are investing for the fifty year return or have the opportunity to assess the character and ethics of the people at the helm. CEOs and boards of directors must respond to the market’s demand for immediate profits. That being the case, we must rely yet more on government regulators to protect our investments cagey deals and selective reporting. This is, of course, more government intervention in the marketplace, adding yet more paving stones to that unhappy road.
How did we get into this mess? Ms Morgenson, we have met the enemy and they is us.

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